Incentive of Tacit Knowledge Transfer in Outsourcing

Outsourcing was originally confined to peripheral business functions and mainly motivated by a cost saving logic,but has now developed into a means of benefiting from complementary knowledge of outside firms. This paper considers a four-stage dynamic game model on the strategies of client and vendor in new product development outsourcing and studies the incentive mechanism for knowledge transfer from the vendor to the client. By solving and analyzing the model, we get characteristics of incentive, the effectiveness of incentive mechanism and the factors which affect the vendorpsilas knowledge transfer. The results provide basis for the clientpsilas successful outsourcing decision making.