This paper explores deployment of innovation capability in outsourcing from the vendor perspective. Vendor’s innovation-related competences are used to capture vendor innovativeness. A multiple-case study was applied with two Contract Electronic Manufacturers. Based on the data analysis we propose a model for calculating a vendor’s innovation potential measured by the deployment effect of innovation-related competences. The model suggests that a vendor’s innovation potential will be higher if it fosters innovation capability as a distinctive competitive advantage than if it develops innovation capability as an adjunct to other capabilities.