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The increased use of distributed work arrangements across organizational and national borders calls for in‐depth investigation of subgroup dynamics in globally distributed teams (GDTs). The purpose of this paper is to focus on the social dynamics that emerge across subgroups of onsite‐offshore teams and affect the process of knowledge sharing.

A qualitative study of eight GDTs working around the clock is conducted. These GDTs are part of organizations involved in offshoring of knowledge intensive work.

The evidence shows that the specific status cue of being onsite drives status differentials across subgroups; these differentials are reduced when the client is directly involved with the activities of the team. The negative effect of high status differentials on knowledge sharing is mitigated by the presence of straddlers, who assist in the transfer of codified knowledge. Conversely, when status differentials are low, straddlers hamper spontaneous direct learning between onsite members and offshore members.

This work has practical implications for organizations that want to use GDTs to achieve a faster (and cheaper) development of products and services. Managers should carefully design the organizational structures of GDTs and consider upfront the trade offs related to client involvement in teamwork and the use of straddlers across sites.

The paper contributes to the literature on subgroup dynamics, applying and extending the theory of status characteristics theory.