NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Organizing Offshoring: Middle Managers and Communication Costs

Pol Antràs, Luis Garicano, Esteban Rossi-Hansberg

NBER Working Paper No. 12196
Issued in May 2006
NBER Program(s):   ITI

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.

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Document Object Identifier (DOI): 10.3386/w12196

Published: Antras, Pol, Esteban Rossi-Hansberg, In Helpman, E., Marin D., Verdier T. (eds. The Organization of Firms in the Global Economy. Cambridge: Harvard University Press, 2007.

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