Abstract
Over the last years, it has become common practice for most firms to outsource basic business functions to low-cost countries. Recently, this has also included critical core competences like innovation. Beyond traditional cost concerns, it has been argued that accessing external capabilities and transforming internal knowledge are desirable benefits. However, the few extant studies on innovation outsourcing show mixed results and hint at a variety of potential pitfalls, such as capability erosion and revenue decline. In this article, we propose a research model based on the current and future importance as well as the maturity of existing capabilities. Six longitudinal case studies highlight multinational firms’ outsourcing trajectories, their propensity to outsource innovation as well as their respective management approaches to balance associated risks and returns.