Organizing Offshoring: Middle Managers and Communication Costs

29 Pages Posted: 25 May 2006 Last revised: 14 Jul 2009

See all articles by Pol Antras

Pol Antras

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Luis Garicano

IE Business School; Centre for Economic Policy Research (CEPR)

Esteban Rossi-Hansberg

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: May 2006

Abstract

Why do firms decide to offshore certain parts of their production process? What qualifies certain countries as particularly attractive locations to offshore? In this paper we address these questions with a theory of international production hierarchies in which organizations arise endogenously to make efficient use of agents' knowledge. Our theory highlights the role of host-country management skills (middle management) in bringing about the emergence of international offshoring. By shielding top management in the source country from routine problems faced by host country workers, the presence of middle managers improves the efficiency of the transmission of knowledge across countries. The model further delivers the prediction that the positive effect of middle skills on offshoring is weaker, the more advanced are communication technologies in the host country. We provide evidence consistent with this prediction.

Suggested Citation

Antras, Pol and Garicano, Luis and Rossi-Hansberg, Esteban Alejandro, Organizing Offshoring: Middle Managers and Communication Costs (May 2006). NBER Working Paper No. w12196. Available at SSRN: https://ssrn.com/abstract=900982

Pol Antras (Contact Author)

Harvard University - Department of Economics ( email )

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Luis Garicano

IE Business School ( email )

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Centre for Economic Policy Research (CEPR)

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Esteban Alejandro Rossi-Hansberg

Princeton University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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