Information technology (IT) outsourcing, including foreign or offshore outsourcing, has been steadily growing over the last two decades. This growth in IT outsourcing has led to the development of different hubs of services across nations, and has resulted in increased competition among service providers. Firms have been using IT outsourcing to not only leverage advanced technologies and services at lower costs, but also to maintain their competitive edge and grow. Furthermore, as prior studies have shown, there are systematic differences among industries in terms of the degree and impact of IT outsourcing. This dissertation uses a three-study approach to investigate issues related to IT outsourcing at the macro and micro levels, and provides different perspectives for understanding the issues associated with IT outsourcing at a firm and industry level. The first study evaluates the diffusion patterns of IT outsourcing across industries at aggregate level and within industries at a firm level. In addition, it analyzes the factors that influence the diffusion of IT outsourcing and tests models that help us understand the rate and patterns of diffusion at the industry level. This study establishes the presence of hierarchical contagion effects in the diffusion of IT outsourcing. The second study explores the role of location and proximity of industries to understand the diffusion patterns of IT outsourcing within clusters using the spatial analysis technique of space-time clustering. It establishes the presence of simultaneous space and time interactions at the global level in the diffusion of IT outsourcing. The third study examines the development of specialized hubs for IT outsourcing services in four developing economies: Brazil, Russia, India, and China (BRIC). In this study, I adopt a theory-building approach involving the identification of explanatory anomalies, and propose a new hybrid theory called- knowledge network theory. The proposed theory suggests that the growth and development of the IT and related services sector is a result of close interactions among adaptive institutions. It is also based on new knowledge that is created, and which flows through a country's national diaspora of expatriate entrepreneurs, technologists and business leaders. In addition, relevant economic history and regional geography factors are important. This view diverges from the traditional view, wherein effective institutions are considered to be the key determinants of long-term economic growth.