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Production Outsourcing, Organizational Governance and Firm’s Technological Performance: Evidence from Italy

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Author Info
Roberto Antonietti
Giulio Cainelli

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Abstract

This paper attempts to study whether and how a firm’s decision to outsource production activities affects its technological performance. In particular, it analyzes how the alignment between the firm’s governance strategy and the underlying attributes of the transactions, affect the capacity of the firm to introduce new products and processes. Using microeconomic data on a panel of Italian manufacturing firms for the period 1998-2003, the paper develops a two-stage approach. First, it estimates the determinants of the firm’s organizational governance (production outsourcing), and then it incorporates a measure of governance misalignment into the technological performance relation. It is found that firms not aligned with the optimal organizational governance perform less efficiently in terms of process innovation than more aligned competitors, but misalignment has a positive effect on product innovation. However, this counterintuitive result is strongly characterized by non-linear effects that reverse the correlation for high values of governance misfit.

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Publisher Info
Article provided by Icfai Press in its journal The Icfai University Journal of Managerial Economics.

Volume (Year): VI (2008)
Issue (Month): 1 (February)
Pages: 51-69
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Handle: RePEc:icf:icfjme:v:06:y:2008:i:1:p:51-69

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  1. Sourafel Girma & Holger Görg, 2004. "Outsourcing, Foreign Ownership, and Productivity: Evidence from UK Establishment-level Data," Review of International Economics, Blackwell Publishing, vol. 12(5), pages 817-832, November. [Downloadable!] (restricted)
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  2. Eiichi Tomiura, 2004. "Foreign outsourcing and firm-level characteristics: evidence from Japanese manufacturers," Hi-Stat Discussion Paper Series d04-64, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  3. Bartel, Ann P & Lichtenberg, Frank R, 1987. "The Comparative Advantage of Educated Workers in Implementing New Technology," The Review of Economics and Statistics, MIT Press, vol. 69(1), pages 1-11, February. [Downloadable!] (restricted)
  4. Glass, Amy Jocelyn & Saggi, Kamal, 2001. "Innovation and wage effects of international outsourcing," European Economic Review, Elsevier, vol. 45(1), pages 67-86, January. [Downloadable!] (restricted)
  5. Pol Antràs & Luis Garicano & Esteban Rossi-Hansberg, 2006. "Offshoring in a Knowledge Economy," The Quarterly Journal of Economics, MIT Press, vol. 121(1), pages 31-77, 02. [Downloadable!] (restricted)
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  6. Ann Bartel & Saul Lach & Nachum Sicherman, 2005. "Outsourcing and Technological Change," NBER Working Papers 11158, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Lyons, Bruce R., 1995. "Specific investment, economies of scale, and the make-or-buy decision: A test of transaction cost theory," Journal of Economic Behavior & Organization, Elsevier, vol. 26(3), pages 431-443, May. [Downloadable!] (restricted)
  8. Joskow, Paul L, 1988. "Asset Specificity and the Structure of Vertical Relationships: Empirical Evidence," Journal of Law, Economics and Organization, Oxford University Press, vol. 4(1), pages 95-117, Spring.
  9. Teece, David J., 1996. "Firm organization, industrial structure, and technological innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 31(2), pages 193-224, November. [Downloadable!] (restricted)
  10. Swenson, Deborah L, 2000. "Firm Outsourcing Decisions: Evidence from U.S. Foreign Trade Zones," Economic Inquiry, Oxford University Press, vol. 38(2), pages 175-89, April.
  11. Almas Heshmati, 2003. "Productivity Growth, Efficiency and Outsourcing in Manufacturing and Service Industries," Journal of Economic Surveys, Blackwell Publishing, vol. 17(1), pages 79-112, February. [Downloadable!] (restricted)
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  12. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February. [Downloadable!] (restricted)
  13. Görg, Holger & Hanley, Aoife, 2004. "Does Outsourcing Increase Profitability?," IZA Discussion Papers 1372, Institute for the Study of Labor (IZA). [Downloadable!]
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