Premium
Monitoring process quality in off‐shore outsourcing: A model and findings from multi‐country survey
Author(s) -
Aron Ravi,
Bandyopadhyay Subhajyoti,
Jayanty Siddharth,
Pathak Praveen
Publication year - 2008
Publication title -
journal of operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.649
H-Index - 191
eISSN - 1873-1317
pISSN - 0272-6963
DOI - 10.1016/j.jom.2007.02.014
Subject(s) - outsourcing , moral hazard , quality (philosophy) , business , shore , process (computing) , construct (python library) , industrial organization , computer science , globe , survey data collection , environmental economics , operations research , marketing , microeconomics , economics , incentive , medicine , philosophy , oceanography , epistemology , programming language , geology , operating system , statistics , mathematics , engineering , ophthalmology
We investigate how recent advances in information technology and telecommunications have led to real‐time monitoring of processes at the site of the provider by a buyer located across the globe. We construct a game‐theoretic model of the dynamics of the buyer–supplier interaction in the presence of moral hazard and incomplete contracting. We derive the Minimum Quality Threshold (MQT) below which the provider's output will certainly be inspected. Our findings show that the buyer can pick a level of monitoring and thereby force the provider to exceed the quality level of the MQT in output quality and avoid costly and wasteful inspection. Finally, our model explains why the production of processes that are complex and more prone to errors are actually monitored less by the buyers. We furnish the results of a comprehensive, multi‐year, multi‐country survey of the efficacy of monitoring in off‐shore outsourcing projects and demonstrate strong empirical support for the findings of the model.