Captive Offshoring of New Product Development in Brazil How Does Arbitrage Influence Local, Collaborative Relationships?

This paper focuses on captive offshoring of new product development (NPD), i.e., relocating projects or project phases to foreign-based, wholly-owned, multinational corporation (MNC) subsidiaries (captive offshore units) to benefit from cost and efficiency advantages and/or from access to complementary technological resources and capabilities. Adopting a host country perspective, we theorize why different forms of local collaboration may complement or conflict with efficiency-seeking or arbitrage strategies and may thus influence why captive offshore units receive new product development orders from other MNC units located abroad. Using a sample from Brazil and applying structural equation modeling with partial least squares (PLS), we find that local NPD outsourcing constitutes a complementary relationship, while local cooperation with clients creates a trade-off relationship with captive offshoring. That these relationships are moderated by the captive offshore unit's cost position within the MNC suggests that arbitrage effects transcend the headquarter-subsidiary relationship into the sphere of MNC subsidiaries' local collaborations. Our findings imply that arbitrage in multinational contexts affects the interdependence between resources and transaction costs.