This paper proposes a theoretical framework for adoption of onshore and offshore business process outsourcing (BPO) by firms. Our analysis of data from 244 firms publicly traded in the United States indicates that firms with a stronger information technology infrastructure and business process knowledge are more likely to engage in onshore and offshore BPO. We also find a positive association between offshore BPO and cost-cutting business strategy, and between offshore BPO and IT department focus on innovation. This study makes three contributions. First, we integrate multiple streams of literature (transaction cost economics and capabilities) to create a theoretical framework to understand the drivers of BPO. This theoret- ical framework extends the emerging literature on BPO. Second, we establish a link between IT infrastructure and BPO, using contributions from the information systems literature on IT outsourcing and business process management. Third, we distinguish between onshore and offshore BPO, including contributions from the inter- national business literature on internationalization, to identify any differences between onshore and offshore BPO.