The Governance of Offshore Outsourcing: The ‘Play’ and the ‘Rules’ of the Game
Prof. Jan B Heide
Professor
Wisconsin School of Business
University of Wisconsin-Madison
Firms are increasingly outsourcing marketing functions to offshore parties. In general, a decision to outsource must be accompanied by the deployment of governance mechanisms that regulate the “play of the game” with an exchange partner. Offshore outsourcing raises particular challenges, since governance mechanisms are deployed in institutional contexts with unique “rules of the game”. We develop a conceptual framework based on the premise that particular governance mechanisms have unique requirements for institutional support. Ultimately, relationship efficiency depends on the interactions between governance mechanisms (which regulate the “play of the game”) and the institutional environment (which represent the “rules of the game”). Based on an empirical study comprising primary and secondary data, we show that standard governance mechanisms like financial incentives, formal contracts, and informal norms have important boundary conditions tied to the institutional context in which they are deployed. Furthermore, these effects themselves have boundary conditions related to the characteristics of an offshore partner. Our findings extend existing governance research and suggest specific guidelines for managing offshore outsourcing relationships.
