Valuate Outsourcing Contracts from Vendors' Perspective; A Real Options Approach



To date, most applications of real options theory in the literature of outsourcing are modeled from the clients’ side. Little attention has been paid to vendors’ options in outsourcing. In this paper, 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 in that they have to exercise outsourcing contracts at clients’ given timing. Such a compensation-oriented model yields new insights about vendors’ valuation of outsourcing opportunities, and offers important practical guidance to vendors’ decision-making. 
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René de Koster