Organizing the modern firm through outsourcing and offshoring

Outsourcing and offshoring are changing the nature of the firm, and producing unprecedented international relocation of economic activity. We engage with Williamson’s (1996) challenge to organizational scholars to address ‘which transactions go where and why?’ to explain the outsourcing/offshoring phenomenon. We present a novel modelling approach to represent a firm of any scale and scope in the market, and we introduce the worldwide market for market transactions. We relate outsourcing and offshoring to the organization of the firm, and offer propositions that frame our economic modelling approach. We conclude that foreign involvement alongside investment shapes the scale and scope of the firm as the internationalization of productive capabilities (Jacobides and Hitt, 2005) coordinated through the worldwide market for market transactions redefines the modern world economy.