Hidden Costs of Offshore Outsourcing: an Analysis of Offshoring Decisions

Deeparghya Mukherjee ()

Journal of Industry, Competition and Trade, 2018, vol. 18, issue 3, No 3, 303-318

Abstract: 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.

Keywords: Offshore outsourcing; Hidden costs; Bayesian nash equilibrium; Herding (search for similar items in EconPapers)
JEL-codes: D23 D83 L13 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10842-017-0259-y

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