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Journal of Industry, Competition and Trade

, Volume 18, Issue 3, pp 303–318 | Cite as

Hidden Costs of Offshore Outsourcing: an Analysis of Offshoring Decisions

  • Deeparghya Mukherjee
Article

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 

JEL Classification

D23 D83 L13 

Notes

Acknowledgements

The author acknowledges the help of Prof. Soumyanetra Munshi in guiding to formalise this paper.

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Copyright information

© Springer Science+Business Media, LLC 2017

Authors and Affiliations

  1. 1.Visiting Research Fellow, Institute of South Asian StudiesNational University of SingaporeSingaporeSingapore
  2. 2.Economics DepartmentIndian Institute of Management Nagpur, IIM NagpurNagpurIndia

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