Offshoring and Transfer of Intellectual Property

Abstract

Offshore outsourcing of work to support software development and services is seen primarily as a transfer of labor to another shore. But with every outsourced job intellectual property is transferred as well. Such transfers have significant long term effects on the balance of intellectual property (IP) generation and consumption. The value of intangibles is based on the income that these intangibles are expected to generate in the future. Software is part of intangible goods. The paper presents the issues of IP residing in software to the business models used for outsourcing. The use of a quantitative model for software valuation allows formal exploration of business alternatives. The motivation for this paper is to increase the awareness of the need for software valuation when developers of software and the users of that software reside in different countries. A scenario that involves Controlled Foreign Corporations as the mechanism for IP transfer is analyzed in detail.