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Global Sourcing of Complex Production Processes

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  • Christian Schwarz
  • Jens Suedekum

Abstract

We develop a theory of a firm in an incomplete contracts environment which decides on its complexity, organization, and global scale. Specifically, the firm decides i) how thinly it wants to slice its production process by choosing the mass of symmetric intermediate inputs that are simultaneously combined to a final product, ii) if the supplier of each component is an external contractor or an integrated affiliate, and iii) if that component is offshored to a foreign country. We also consider the case of asymmetric inputs. Our model leads to a rich set of novel predictions about the structure of multinational firms that are consistent with stylized facts from the recent empirical literature.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3559.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3559

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Keywords: multinational firms; outsourcing; intra-firm trade; offshoring; vertical FDI;

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References

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  34. repec:hrv:faseco:4784029 is not listed on IDEAS
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Citations

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Cited by:
  1. Nowak, Verena & Schwarz, Christian & Suedekum, Jens, 2014. "Asymmetric spiders: Supplier heterogeneity and the organization of firms," DICE Discussion Papers, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) 141, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  2. Pol Antràs, 2011. "Grossman-Hart (1986) Goes Global: Incomplete Contracts, Property Rights, and the International Organization of Production," NBER Working Papers 17470, National Bureau of Economic Research, Inc.
  3. Suedekum, Jens & Nowak, Verena & Schwarz, Christian, 2012. "On the Organizational Structure of Multinational Firms: Which Sourcing Mode for Which Input?," IZA Discussion Papers 6564, Institute for the Study of Labor (IZA).
  4. Johannes Van Biesebroeck & Lijun ZHANG, 2011. "Global sourcing of a complex good," Center for Economic Studies - Discussion papers, Katholieke Universiteit Leuven, Centrum voor Economische Studiën ces11.26, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.

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