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Achieving Economically Sustainable Subcontracting through the Hotelling Model by Considering the Spillover Effect

Author

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  • Jianbo Zhu

    (School of Management and Engineering, Nanjing University, Nanjing 210093, China
    School of Design and the Built Environment, Curtin University, Bentley, WA 6102, Australia)

  • Qianqian Shi

    (School of Management and Engineering, Nanjing University, Nanjing 210093, China
    Faculty of Civil Engineering and Geosciences, Delft University of Technology, Stevinweg 1, 2628 CN Delft, The Netherlands)

  • Peng Wu

    (School of Design and the Built Environment, Curtin University, Bentley, WA 6102, Australia)

  • Zhaohan Sheng

    (School of Management and Engineering, Nanjing University, Nanjing 210093, China)

  • Xiangyu Wang

    (School of Mathematical Sciences, Chongqing Normal University, Chongqing 400700, China
    Department of Housing and Interior Design, Kyung Hee University, Seoul 02447, Korea)

Abstract

In the process of internationalization of construction contractors, international enterprises as main contractors (IMC) need to consider whether part of the contract should be subcontracted to local subcontractors (LSC) to gain a competitive advantage when competing with local main contractors (LMC). The involvement of local subcontractors can usually help reduce cost through the cost spillover effect. However, it should be noted that the share of local subcontractors with local main contractors with an inferior quality may lead to quality spillover. The Hotelling model is therefore adopted to investigate the subcontracting decisions of main contractors considering both cost and quality spillover effects. Many scenarios are simulated and the results show that LMCs with inferior quality can always choose the subcontracting strategy to obtain increased profit regardless of the strategy that IMCs adopt. On the other hand, IMCs need to balance the cost spillover of subcontracting and the quality spillover for improving the quality level of LSCs. The results are useful for contractors to make decisions that are relevant to the adoption of subcontracting strategies to obtain competitive advantages.

Suggested Citation

  • Jianbo Zhu & Qianqian Shi & Peng Wu & Zhaohan Sheng & Xiangyu Wang, 2018. "Achieving Economically Sustainable Subcontracting through the Hotelling Model by Considering the Spillover Effect," Sustainability, MDPI, vol. 10(9), pages 1-17, September.
    • Handle: RePEc:gam:jsusta:v:10:y:2018:i:9:p:3291-:d:169946
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    References listed on IDEAS

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