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• Outsourcing has gained much prominence in managerial practice and academic discussions in the last two decades or so. Yet, we still do not understand the full implications of outsourcing strategy for corporate performance. No general explanation has so far been provided for how outsourcing could lead to deterioration in a firm's competence base. We longitudinally analyze three cases of major consumer electronics manufacturers, Emerson Radio from the U.S., Japan's Sony and Philips from the Netherlands to understand the dynamic process related to their sourcing strategies. • We develop an evolutionary stage model that relates outsourcing to competence development inside the firm and shows that a vicious cycle may emerge. The evolutionary stage model helps managers understand for which activities and under which conditions outsourcing across borders is not a viable option. • Results suggest that each of these firms had faced a loss of manufacturing competitiveness in its home country, to which it responded by offshoring and then outsourcing production. When a loss of competences occurred, some outsourcing decisions were reversed. [ABSTRACT FROM AUTHOR]