Abstract
Off shore outsourcing has grown phenomenally as a form of industrial organisation in recent times and has also been viewed as a strategic move by firms to out-compete their rivals. The gains from this exercise may however not necessarily be at par with expectations due to the presence of a host of hidden costs which have been documented in the literature. This paper tries to address and analyse the nature of strategic interaction that takes place in the decision to o shore, in the presence of signals with imperfect precision to players(i.e. firms seeking to o shore their jobs to lower cost destinations) in a Cournot framework. It offers insights into the decision making process and outlines policy suggestions for countries which are potential hosts to o shore outsourcing. Amongst other important conclusions it is found that the precision of signals about the hidden cost and the range of possible hidden costs play a crucial role in determining o shoring destinations. Updating of information about hidden costs leads to different equilibria including the possibility of herding in o shore outsourcing.
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