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Strategic outsourcing under technology spillovers

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  • Ying‐Ju Chen
  • Yutian Chen

Abstract

We study a supply chain in which an original equipment manufacturer (OEM) and a contract manufacturer (CM) compete in the finished goods market. The OEM can decide whether to outsource the intermediate good, a critical component for producing the finished good, from the CM or make in‐house production. Technology transition improves the CM's production efficiency, and it can take two different forms: a direct technology transfer from the OEM to the CM or technology spillovers through outsourcing from the OEM to the CM. We document the possibility of strategic outsourcing, that is, the CM supplies the intermediate good to the OEM when she is less efficient than the OEM's in‐house production. We find that technology spillovers can strengthen the incentive for strategic outsourcing. Furthermore, compared with direct technology transfers, outsourcing coupled with technology spillovers may generate more technology transition. Outsourcing is a particularly appropriate channel for implicit collusion when the OEM is not very efficient with the production of the intermediate good. Our results suggest that ex post competition on the finished goods can create room for ex ante collaboration and provide some implications on the OEM's outsourcing strategies when facing a competitive CM.© 2014 Wiley Periodicals, Inc. Naval Research Logistics 61: 501–514, 2014

Suggested Citation

  • Ying‐Ju Chen & Yutian Chen, 2014. "Strategic outsourcing under technology spillovers," Naval Research Logistics (NRL), John Wiley & Sons, vol. 61(7), pages 501-514, October.
    • Handle: RePEc:wly:navres:v:61:y:2014:i:7:p:501-514
    DOI: 10.1002/nav.21599
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    Cited by:

    1. Bin Hu & Yunke Mai & Saša Pekeč, 2020. "Managing Innovation Spillover in Outsourcing," Production and Operations Management, Production and Operations Management Society, vol. 29(10), pages 2252-2267, October.
    2. Xiaole Wu & Fuqiang Zhang & Yu Zhou, 2022. "Brand Spillover as a Marketing Strategy," Management Science, INFORMS, vol. 68(7), pages 5348-5363, July.
    3. Wu, Huamin & Li, Guo & Zheng, Hong & Zhang, Xuefeng, 2022. "Contingent channel strategies for combating brand spillover in a co-opetitive supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 164(C).
    4. Liu, Guanmei & Shao, Xiaofeng & Lang, Xiao, 2020. "On the interaction of technology upgrade and buyer entry in a supply chain," International Journal of Production Economics, Elsevier, vol. 221(C).
    5. Zhang, Qiao & Wang, Kai & Feng, Lin & Dai, Rui, 2023. "For better or worse: Impacts of information leakage by a common supplier with innovation imitation of downstream firms," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 170(C).
    6. Li, Wei & Zhao, Xuan & Chen, Jing, 2023. "Co-opetition or decentralization? A study of manufacturers’ sourcing and distribution strategies," European Journal of Operational Research, Elsevier, vol. 311(3), pages 867-886.
    7. Sim, Jeongeun & Kim, Bosung, 2021. "Sourcing decision in the presence of a complementary component," Omega, Elsevier, vol. 101(C).

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