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Home-host country distance in offshore governance choices
Gooris, Julien Peeters, Carine
Gooris, Julien
Peeters, Carine
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Publication Type
Journal article with impact factor
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Supervisor
Publication Year
2014
Journal
Journal of International Management
Book
Publication Volume
20
Publication Issue
1
Publication Begin page
73
Publication End page
86
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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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Keywords
Offshoring, Home–host Country Distance, Governance Mode, Global Value Chains, Transaction Cost Economics, Logistic Regression