Abstract: With the current outsourcing market, outsourcing projects suppliers from emerging economies, such as India, act very actively; the knowledge intensity and management complexity of outsourcing projects is continuously enhanced, and the fact evokes a theoretical thinking on how service outsourcing effects technology development of outsourcing suppliers. Using the theory of knowledge management under the international production and analysis perspective of value chain, and software outsourcing is taken as the analytic object, first a decomposition of software value chain is made, and then knowledge nature and determinants of knowledge transfer are demonstrated. It is first pointed out that while the outsourcing businesses of outsourcing suppliers grows along with the value chain of software development from low end to high end, the tacit knowledge degree of value chain link covered by outsourcing activity is gradually increasing. Second, the evolvements of MNC strategy and absorption capacity construction are composed of two determinants of technology transfer. The method of knowledge management is transferred from simply codified knowledge requirements to the combination of codified knowledge and personalized communication. The absorption capacity of outsourcing suppliers as another determinant of knowledge transfer is built on organizational transformation oriented by outsourcing target and self technology effort plays an important role for effectively promoting the transformation of knowledge transfer.

Key words: software outsourcing, technology transfer, value chain