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Valuate Outsourcing Contracts from Vendors' Perspective: A Real Options Approach
Author(s) -
Jiang Bin,
Yao Tao,
Feng Baichun
Publication year - 2008
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/j.1540-5915.2008.00197.x
Subject(s) - outsourcing , valuation (finance) , knowledge process outsourcing , business , perspective (graphical) , compensation (psychology) , computer science , operations management , industrial organization , risk analysis (engineering) , marketing , finance , economics , psychology , artificial intelligence , psychoanalysis
To date, most applications of real options theory (ROT) in outsourcing literature are modeled from the clients' side. Little attention has been paid to vendors' options in outsourcing. In this article, we study outsourcing from the vendors' perspective by analyzing vendors' value of waiting. The contribution of our research to the literature lies in our analysis of a model that compensates for vendors' loss of option to wait since they have to exercise outsourcing contracts at clients' given timing. Such a compensation‐oriented model yields new insights about the vendors' valuation of outsourcing opportunities, and offers important practical guidance to vendors' decision making.