Country Institutions behind Firms’ Offshoring Decisions and Location Choices

How do country institutions influence firms’ offshore outsourcing decisions and location choices? While prior offshoring research has shown that product- and firm-level factors are crucial determinants, the role of country institutions has not been fully explored. Drawing on the institution-based view, we propose three arguments in this study. First, home country institutions influence firms’ offshore outsourcing decisions. In particular, market-supporting institutions and social trust in the home countries increase firms’ tendencies to conduct offshoring. Second, firms’ offshoring location choices are affected by the distance of market-supporting institutions and that of social trust between home country and an offshoring location—the greater the distance, the lower the likelihood that a given location will be chosen. Finally, compared with local firms, multinational enterprises (MNEs) are more likely to be influenced by the distance of market-supporting institutions and that of trust in their offshoring location choices. Amassing a sample of 1,519 firms’ offshoring decisions and location choices, we find support for these arguments.