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To Outsource or Not to Outsource in an Integrated World

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  • Choi, E. Kwan

Abstract

This paper investigates outsourcing decision under certainty and uncertainty. When the production activity can be fragmented into two or more processes, an integrated firm must be competitive in each of the fragmented processes. There are gains from outsourcing when factor prices differ between countries. When factor prices are not equalized internationally, a firm may outsource the process which uses its scarce source intensively. If the cost of outsourcing is lower in the foreign country, full outsourcing occurs under certainty. However, even if the outside supplier has a cost advantage, uncertainty in outsourcing cost ensures that partial outsourcing is optimal for risk-averse firms.

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 12535.

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Date of creation: 01 Jan 2007
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Publication status: Published in International Review of Economics and Finance 2007, vol. 16, pp. 521-527
Handle: RePEc:isu:genres:12535

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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  1. Gorg, Holger & Hanley, Aoife, 2005. "Labour demand effects of international outsourcing: Evidence from plant-level data," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 365-376.
  2. Long, Ngo Van, 2005. "Outsourcing and technology spillovers," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 297-304.
  3. Chi-Chur Chao & Eden S. H. Yu, 1993. "Content Protection, Urban Unemployment and Welfare," Canadian Journal of Economics, Canadian Economics Association, vol. 26(2), pages 481-92, May.
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Cited by:
  1. Choi, E. Kwan, 2010. "To Outsource or Not to Outsource Inn North-South Trade," Staff General Research Papers 34997, Iowa State University, Department of Economics.
  2. Stijepic, Denis & Wagner, Helmut, 2008. "Impacts of Intermediate Trade on Structural Change," MPRA Paper 40841, University Library of Munich, Germany, revised 23 Aug 2012.
  3. Choi, Jai Young & Choi, E Kwan, 2013. "Financial Advantage, Outsourcing and FDI under Wage Uncertainty," Staff General Research Papers 37376, Iowa State University, Department of Economics.

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