FIGURE 4.1 Foreign co-inventors listed on patents with Silicon Valley inventors, 1990-2005. SOURCE: AnnaLee Saxenian, University of California, Berkeley, presentation to the committee, Mountain View, Calif., February 23, 2007. Based on data analysis conducted by Collaborative Economics, Inc., Palo Alto, Calif., 2007.

tion of work and business processes. One powerful trend is for firms to consider what work they should retain internally and what they should purchase from outside vendors. The decision to purchase from an outside vendor work that was formerly done internally is termed outsourcing.

The other powerful trend is to scan the globe to decide where specific work processes should be undertaken. Often, firms are deciding that work can be done more efficiently and effectively in nations outside the United States. Of course, multinational firms have a long history of establishing subsidiaries abroad. What has changed in the past four decades is the increasing movement of work to developing nations. This practice is referred to as offshoring. More recently, there has been an upsurge in offshore outsourcing. Finally, this offshoring initially was for the manufacture of goods, but recently it has extended to the production of software and IT services.¹

According to a recent study by the McKinsey Global Institute, the offshoring of work is more prevalent in the IT sector than it is in any of the other U.S. industry sectors studied. Published in 2005, the report estimated that by 2008, U.S. firms would offshore 18 percent of their demand for high-wage workers in the packaged-software sector and 13 percent