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

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  • Roberto Antonietti
  • Giulio Cainelli

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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Bibliographic Info

Article provided by IUP Publications in its journal The IUP 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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References

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  1. Ann Bartel & Saul Lach & Nachum Sicherman, 2005. "Outsourcing and Technological Change," NBER Working Papers 11158, National Bureau of Economic Research, Inc.
  2. Massimiliano Mazzanti & Sandro Montresor & Paolo Pini, 2006. "The General Profile of the Outsourcing Firm Evidence for a Local Production System of Emilia Romagna," DRUID Working Papers 06-20, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  3. Görg, Holger & Hanley, Aoife, 2004. "Does Outsourcing Increase Profitability?," IZA Discussion Papers 1372, Institute for the Study of Labor (IZA).
  4. Teece, David J., 1996. "Firm organization, industrial structure, and technological innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 31(2), pages 193-224, November.
  5. 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.
  6. Rossi-Hansberg, Esteban & Garicano, Luis & Antras, Pol, 2006. "Offshoring in a Knowledge Economy," Scholarly Articles 3196323, Harvard University Department of Economics.
  7. 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.
  8. Sourafel Girma & Holger Görg, 2003. "Outsourcing, Foreign Ownership and Productivity: Evidence from UK Establishment Level Data," Discussion Papers of DIW Berlin 361, DIW Berlin, German Institute for Economic Research.
  9. 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.
  10. Glass, Amy Jocelyn & Saggi, Kamal, 2001. "Innovation and wage effects of international outsourcing," European Economic Review, Elsevier, vol. 45(1), pages 67-86, January.
  11. 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.
  12. Bernd Görzig & Andreas Stephan, 2002. "Outsourcing and Firm-level Performance," Discussion Papers of DIW Berlin 309, DIW Berlin, German Institute for Economic Research.
  13. Tomiura, Eiichi, 2005. "Foreign outsourcing and firm-level characteristics: Evidence from Japanese manufacturers," Journal of the Japanese and International Economies, Elsevier, vol. 19(2), pages 255-271, June.
  14. Heshmati, Almas, 2000. "Productivity Growth, Efficiency and Outsourcing in Manufacturing and Service Industries," Working Paper Series in Economics and Finance 394, Stockholm School of Economics, revised 18 Oct 2001.
  15. Swenson, Deborah L, 2000. "Firm Outsourcing Decisions: Evidence from U.S. Foreign Trade Zones," Economic Inquiry, Western Economic Association International, vol. 38(2), pages 175-89, April.
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Cited by:
  1. Roberto Antonietti, 2014. "From Outsourcing to Productivity, Passing Through Training: Microeconometric Evidence from Italy," Working Papers 2014.12, Fondazione Eni Enrico Mattei.

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