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Global outsourcing or foreign direct investment: Why apple chose outsourcing for the iPod

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  • Lo, Chu-Ping
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    Abstract

    A simple model is presented, where a firm's productivity is endogenized by its R&D investment. It shows that the most productive firms may prefer international outsourcing to foreign direct investment (FDI) in industries with a high innovation share. The high innovation share motivates the firms to economize on organizational cost in order to save resources for R&D investment, making outsourcing preferable to FDI because the former incurs a smaller organizational cost. This model helps explain why Apple Inc., belonging to the electronics industry, which has a particularly high innovation share, launched its innovative iPod through international outsourcing instead of FDI.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0922142511000247
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    Bibliographic Info

    Article provided by Elsevier in its journal Japan and the World Economy.

    Volume (Year): 23 (2011)
    Issue (Month): 3 ()
    Pages: 163-169

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    Handle: RePEc:eee:japwor:v:23:y:2011:i:3:p:163-169

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    Web page: http://www.elsevier.com/locate/inca/505557

    Related research

    Keywords: Electronics industry; International outsourcing; Incomplete contract; FDI; R&D;

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