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Home–Host Country Distance in Offshore Governance Choices

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  • Gooris, Julien
  • Peeters, Carine

Abstract

This paper studies the effect of home–host country distance on the choice of governance mode in service offshoring. Using a Transaction Cost Economics approach, we explore the comparative costs of the hierarchical and contractual models to show that different dimensions of distance (geographic, cultural and institutional), because they generate different types of uncertainties, impact offshore governance choices in different ways. Empirical results confirm that, on the one hand, firms are more likely to respond to internal uncertainties resulting from geographic and cultural distance by leveraging the internal controls and collaboration mechanisms of a captive offshore service center. On the other hand, they tend to respond to external uncertainties resulting from institutional distance by limiting their foreign commitment and leveraging the resources and local experience of third party service providers. Finally, we find that the temporal distance component (time zone difference) of geographical dispersion between onshore and offshore countries plays a dominant role over the spatial distance component.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Management.

Volume (Year): 20 (2014)
Issue (Month): 1 ()
Pages: 73-86

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Handle: RePEc:eee:intman:v:20:y:2014:i:1:p:73-86

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Keywords: Offshoring; Home–host country distance; Governance mode; Global value chains; Transaction cost economics; Logistic regression;

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References

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Cited by:
  1. Florence Duvivier & Carine Peeters, 2011. "The use of expatriates in the offshoring of services - Framework and research propositions," Working Papers CEB 11-059, ULB -- Universite Libre de Bruxelles.
  2. George Peng & Paul Beamish, 2014. "The effect of host country long term orientation on subsidiary ownership and survival," Asia Pacific Journal of Management, Springer, vol. 31(2), pages 423-453, June.
  3. De Beule, Filip & Elia, Stefano & Piscitello, Lucia, 2014. "Entry and access to competencies abroad: Emerging market firms versus advanced market firms," Journal of International Management, Elsevier, vol. 20(2), pages 137-152.

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