Abstract: Within the context of software outsourcing, this paper constructs a two-stage moderated mediation model to investigate the mechanisms and effects of impact of domain knowledge-specific investments(DKSIs) on competence-building of the investing parties. Based on 194 pairs of software outsourcing relationsips, we adopt the general path analysis framework to conduct our empirical study. The main conclusions are as follows. Firstly, DKSIs promote competence-building via the mediation of clients’ knowledge spillover. Secondly, software vendors’ subcontracting capacities and absorptive capacities exert moderating impacts on the indirect effect at the first and second-stage, respectively. This research provides a new evidence regarding the heterogeneous effects of DKSIs on the investing parties, further reveals the impact mechanisms and cotingent factors. Furthermore, our findings have strong managerial implications for the software vendors.

Key words: domain knowledge-specific investments, competence-building, knowledge spillover, absorptive capacity, general path analysis framework