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Asymmetric Information and Global Sourcing

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  • Shin Chen Huang
  • Chia Hui Lu

Abstract

This paper aims to study the choice of offshoring modes made by multinationals in the presence of asymmetric information. We focus on two types of asymmetric information, namely hidden characteristics and hidden action. The former creates adverse selection problem, and the later leads to moral hazard problem, both of which incur non-trivial costs to multinationals. We show that different offshoring modes, including greenfield foreign direct investment, joint venture, and outsourcing, can serve as a means to overcome or mitigate the problem of information asymmetry. We study the conditions under which one particular type of offshore modes dominates the others. The model generates implications consistent with the patterns of the prevalence of various offshoring models over time, and across industries and countries.

Suggested Citation

  • Shin Chen Huang & Chia Hui Lu, 2009. "Asymmetric Information and Global Sourcing," Global COE Hi-Stat Discussion Paper Series gd09-067, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hst:ghsdps:gd09-067
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    File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd09-067.pdf
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    Cited by:

    1. Al-Mudimigh, Abdullah S. & Ullah, Zahid & Alsubaie, Talal Abdullah, 2011. "A framework for portal implementation: A case for Saudi organizations," International Journal of Information Management, Elsevier, vol. 31(1), pages 38-43.

    More about this item

    Keywords

    Asymmetric Information; Global Sourcing; Foreign Direct Investment; Joint Venture; Outsourcing;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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