The emergence of foreign software development centres (SDCs) in Central and Eastern Europe has led to some debate over the reasons and consequences of location decisions. This paper analyses those factors that infl uence location and also the consequences of foreign direct investment in software development centres in Bulgaria, Estonia and Poland. Foreign companies are compared and contrasted with the indigenous SDCs which are subcontractors for foreign companies or export to foreign markets. This paper questions the degree to which cost-related considerations infl uence location decisions, contrasting their signifi cance with ‘return migration’ and the search for highly qualifi ed graduates. To ward off growing wage pressure, SDCs provide more value-added services. Foreign SDCs move up the value chain, acquiring new competences. It may be argued that an increasing shift can be observed from a dependent mode based on a dependency on a foreign headquarters to a developmental type characterised by growing freedom. The local embededdness of foreign SDCs in the analysed countries is usually limited. However, ‘backshoring’ will not occur in the near future due to their high quality of work and improved effi ciency.