This paper presents an empirical analysis of “outsourcing” using firm level data for Taiwan manufacturing industries. I analyze a firm’s decision to outsourcing and the subsequent effects of outsourcing on the firm’s productivity. My empirical results suggest that high wages are positively related to outsourcing, suggesting that the cost saving motive is important. In the productivity analysis I find that a firm’s outsourcing intensity is positively related to its relative labor productivity and relative total factor productivity growth.