Articles © Indian Institute of Management, Lucknow OFFSHORE OUTSOURCING OF BUSINESS PROCESSES: UNDERSTANDING IPR IMPLICATIONS Preeti Goyal and Arun Sahay Management Development Institute, Gurgaon ABSTRACT Business process outsourcing is a multi billion-dollar industry today. Intellectual property becomes important in such arrangements; as such projects may require resources and information to be shared between the client and the service provider . Underlying the availability and application of these resources such as personnel, hardware and software are intellectual property issues, more specifically patents, copyrights, trademarks and trade secrets. These intellectual properties have the potential of providing firms with sustained competitive advantage which, in turn, affect the firm performance of the business. Given the importance of IPR implications and the growing BPO industry, the paper attempts to develop a framework for understanding IPR implications for offshore outsourcing of business processes. The framework can be used by both the client and service provider for development and sharing of IPRs to their mutual advantage. Keywords: Offshore, Outsourcing, Business Process Outsourcing, Intellectual Property Rights INTRODUCTION It has often been argued that firms in today's economy primarily invest in intangible assets and keep their investment in fixed assets at minimal level, since intangible assets are value drivers (Davis, 2004, Daum, 2001) of today. Among these intangible assets, Intellectual Capital (IC) plays an important role. Edvinsson (2002) has defined IC as follows: "Intellectual capital is a combination of human capital- the brains, skills, insights, and potential of those in an organization- and structural capital- things like the capital wrapped up in customers, processes, databases, brands, and IT systems. It is the ability to transform knowledge and intangible assets into wealth creating resources, by multiplying human capital with structural capital." Due to the investments in IC and the advantages that can be gained from it, this has become an important topic. It is now widely recognized that value today is primarily created from intellectual capital and other intangible 105 assets, rather than from physical assets [Ray et al., 2004, Hall (1992, 1993), Bollen et al., 2005]. These intangible resources range from intellectual property rights (IPRs), contracts, public knowledge such as scientific works, to the people dependant, or subjective resources of know-how, networks, organizational culture, and the reputation of the product and company (Hall, 1992). The focus of this paper is on IPRs. Firms own resources that are necessary for the conduct of operations, and resources that are vital for competitive advantages and strong financial performance. The first types of resources, generally tangible, such as property, plant and equipment and physical technologies are commonplace in the market, easily imitable and substitutable, and can be easily purchased and sold in the open market. Resource based logic suggests that exploiting such resources can only provide competitive parity. The second types of assets, generally intangible, valuable, rare, mostly inimitable and non-substitutable, are strategic assets capable of generating sustainable competitive advantage and superior financial