Institutions affect the organization of global value chains. I analyze the organizational choices of heterogeneous firms in a model of incomplete contracts and uncertainty about foreign institutions. In this setting, only the most productive firms offshore production, but other firms sequentially follow as uncertainty reduces through learning. The process intensifies competition among final-good firms, which affects the optimal organization of the firm: firms initially choose vertical integration, but stronger competition tilts the balance towards outsourcing. Thus, the least productive offshoring firms sequentially shift to outsourcing. A test with sector-level data for the US manufacturing sectors provides supportive evidence of the model's main predictions.

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