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Hidden Costs of Offshore Outsourcing: an Analysis of Offshoring Decisions

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  • Deeparghya Mukherjee

    (National University of Singapore
    Indian Institute of Management Nagpur, IIM Nagpur)

Abstract

Offshore outsourcing has grown as a form of industrial organisation to increase profitability of firms. However, offshoring may be less lucrative than envisaged, due to the presence of hidden costs. We study the strategic interaction amongst onshore Cournot firms in the decision to offshore when they receive signals about offshore hidden costs. The analysis helps suggest policy implications for countries which are potential offshoring locations. We find the precision of signals and the range of possible hidden costs to be crucial in determining offshoring destinations. Updating of information about hidden costs leads to different equilibria including herding in offshoring.

Suggested Citation

  • Deeparghya Mukherjee, 2018. "Hidden Costs of Offshore Outsourcing: an Analysis of Offshoring Decisions," Journal of Industry, Competition and Trade, Springer, vol. 18(3), pages 303-318, September.
    • Handle: RePEc:kap:jincot:v:18:y:2018:i:3:d:10.1007_s10842-017-0259-y
    DOI: 10.1007/s10842-017-0259-y
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    References listed on IDEAS

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    Cited by:

    1. Lartey, Theophilus A. & Amankwah-Amoah, Joseph & Danso, Albert & Adomako, Samuel & Khan, Zaheer & Tarba, Shlomo Y., 2021. "Environmental sustainability practices and offshoring activities of multinational corporations across emerging and developed markets," International Business Review, Elsevier, vol. 30(5).

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    More about this item

    Keywords

    Offshore outsourcing; Hidden costs; Bayesian nash equilibrium; Herding;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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