I analyse the organisational choices of heterogeneous firms in a model of incomplete contracts under uncertainty about foreign institutions. Under institutional uncertainty, 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 impacts the optimal organisation of the firm: firms initially choose vertical integration, but the 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.