The first scenario ( **Arrow 1** ) describes a firm’s decision to outsource services locally. **Arrow 2** shows the firm’s decision to outsource a service to a foreign provider instead of a domestic supplier (as in Arrow 1). **Arrow 3** shows the trajectory for firms that make the decision to outsource services to a foreign supplier. **Arrow 4** describes the firm’s decision to move its service provision to a foreign affiliate or subsidiary. The final scenario, mapped by **Arrow 5,** shows the shift from service transactions with a foreign affiliate to provision by a foreign supplier. Generally, this occurs with transactions between foreign affiliates and third-party providers. The most beneficial spillovers for host economies in terms of technology and higher skilled jobs tend to occur in the process of changing from c _aptive offshoring_ (upper right quadrant of Figure 1) to _third-party offshoring_ or offshore outsourcing (lower right quadrant), as depicted by Arrow 5 (Sako, 2005).

The process of choosing an appropriate business model, that is, determining a firm’s geographic location and level of control, is not a simple decision and depends on several factors, including the nature of the service, size of investment required, entrepreneurship, local knowledge of the firm, and internal experience (The Boston Consulting Group, 2007). Governance patterns within this value chain are beginning to emerge based on business models and supplier selection, and future research in this area will likely provide insight into the growing power of multinational offshore providers from developing countries, such as India.

# **B. Classification of the Offshore Services Value Chain**

The industry has evolved continuously since its inception, making efforts at categorization challenging. Despite these complexities, a fairly comprehensive, yet flexible, classification of the industry has emerged employing the global value chain (GVC) framework (Gereffi & Fernandez-Stark, 2010). The GVC framework uses firm-level analysis to determine the different stages of production of a good or service and the value of each component (Gereffi et al., 2001). For manufacturing and extractive industries based on goods, value added is determined by the difference between the cost of the inputs and outputs at each stage of the chain. In the case of the offshore services industry, measuring value is complicated by the lack of reliable companylevel data and trade statistics for services (Sturgeon & Gereffi, 2009). To partially address this problem, the value of different services can be related to employee education level and work experience (Gereffi & Fernandez-Stark, 2010). By indicating the human capital required at different levels of the offshore services value chain, this classification provides decision makers in developing countries with an instrument to determine where they may be best suited to enter the value chain in order to achieve their desired outcomes.

Figure 2 below illustrates the global value chain for the offshore services industry (Gereffi & Fernandez-Stark, 2010). Using this classification scheme, it is possible to identify the varied types of offshore service activities, to show which firms participate in which segments of the industry, and in turn, to locate the most important regions of the world in the industry’s development.

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