Services Across Borders: How Firms Organize Remote Work at Scale

Remote work has transformed the globalization of services, moving beyond arm’s-length trade toward complex within-firm reorganization. Over the past two decades, multinational firms have increasingly established Global Capability Centers (GCCs) — large captive offshore service units through which knowledge-intensive tasks are performed at scale. We develop a model of heterogeneous service firms in which the scale and organization of remote work are endogenous choices. Adapting the logic of Helpman et al. (2004) to the services context, firms trade off the variable cost savings of remote labor against the fixed costs of coordination and organizational capacity. Moderately productive firms reorganize through partial outsourcing, while only the most productive firms exceed a unique adoption threshold and establish GCCs, which offer the lowest variable costs but require the highest fixed investments. A general equilibrium extension characterizes a “self-limiting expansion†mechanism: the growth of large-scale remote work raises offshore labor demand and wages, endogenously tightening the productivity requirements for further adoption. The paper provides a unified framework connecting remote work to theories of multinational firms and positions GCCs as the services analogue of horizontal foreign direct investment.