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Overview: Offshore outsourcing has witnessed rapid increase the world over and has become a topic of much discussion. Most analyses of the phenomenon focus on economies of scale and cost effectiveness. For instance, if there are increasing returns to scale in the production of the outsourced goods and offshore costs happen to be lower, then the pressure to cut costs will drive domestic firms to congregate on one of the foreign companies as the sole provider. On the other hand, one could also imagine a regime where decreasing returns to scale are prevalent across the whole industry.
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