We analyze the effects of captive off-shoring of innovation activities on the firms’
ability to adapt their organizational processes and structures. Starting from
complexity theory, we use three consecutive waves of the German part of the
Community Innovation Survey to test our hypotheses. We find an inverted u-shape
of innovation off-shoring on the effectiveness of organizational adaptability,
implying an optimal threshold value of innovation off-shoring. This value is 11%
for share of off-shored R&D, 15% for downstream innovation activities such as
local market adaptation, and 34% for design activities. We also analyze several
contingency variables. In particular we show that the costs of innovation off-shoring
in terms of reduced organizational adaptability are exacerbated by a strong focus on
R&D and a strong embeddedness in on-shore networks. Smaller firms find it easier to
deal with the management complexity induced by geographical dispersion of
innovation activities because of their greater flexibility
