Companies are increasingly moving sophisticated, mission-critical functions such as product design and research and development to China, India and other offshore locations primarily because these countries can provide highly skilled scientific and engineering workers who are in short supply in the United States and Europe, according to a new study by Duke University and management consulting firm Booz Allen Hamilton.

And even though companies continue to offshore more high-skilled work, they are increasingly concerned about the loss of managerial control that accompanies outsourcing functions close to their core business.

The 2006 Duke CIBER/Booz Allen offshoring study is the third in an annual series originated by the Offshoring Research Network (ORN) led by professor Arie Y. Lewin at Duke's Fuqua School of Business. It takes a comprehensive look at strategic factors driving decisions to offshore. It also examines offshore operating delivery models and performance outcomes of various companies' offshoring efforts. The 2006 study examined 530 companies from both the U.S. and Europe, through partnerships with universities in the United Kingdom, Germany, Spain, Netherlands, Belgium and Scandinavia.

Key findings of the study include:

• The need to source talent globally is replacing low-skilled, low-cost labor as the decisive factor in companies' offshoring strategy. Nearly three-quarters of the companies that establish or expand product development offshore report that "access to qualified personnel" is the most important driver of their offshoring strategy, and almost 70 percent of survey respondents select an offshoring location based on the availability of needed expertise. " Access to qualified personnel" has increased substantially (by 70 percent in the last two years) as a major reason for establishing or expanding innovation, product development and product extensions offshore.