Offshore Outsourcing from Japan: The Strategies of Chinese Software Firms

Abstract

The software offshore outsourcings to China are very popular among Japanese firms. Chinese software firms are confronted with many risks including RMB appreciation risk, wage upward risk, technical risk, etc. The research question is, “What is the best strategy for Chinese software firms to deal with uncertainty in the future?” The paper defined four operation modes: Offshore Downstream, Offshore SI, Domestic market Downstream and Domestic market SI. We examined the merits and demerits of each operation modes and switching costs. Through numerical examples and Monte Carlo simulations, the researcher confirmed as follows; (1) To be going concern firms, Chinese offshore companies “must” have switching options between Japanese and Chinese markets, (2) The Offshore SI modes with switching options are superior to the Offshore Domestic mode with switching options.