Supply chain outsourcing under exchange rate risk and competition

We model the impacts of foreign exchange risk and competition intensity on supply chain companies that are involved in offshore‐outsourcing activities. When the competition intensity increases, the exchange rate risks of both risk‐neutral and risk‐averse firms will increase. When exchange rate volatility increases, the average profit of the risk‐neutral firm will first increase and then become stable, while the profit of the risk‐averse firm will always decrease. As the exchange rate variability becomes higher the risk‐averse firm will reduce its outsourcing activities while the risk‐neutral firm may increase its outsourcing activities.