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Global Sourcing of Complex Production Processes

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  • Schwarz, Christian

    ()
    (University of Duisburg-Essen)

  • Suedekum, Jens

    ()
    (Heinrich Heine University Düsseldorf)

Abstract

We develop a theory of a firm in an environment with incomplete contracts. The firm’s headquarter decides on the complexity, the organization, and the global scale of its production process. Specifically, it decides: i) on the mass of symmetric intermediate inputs that are part of the value chain, ii) if the supplier of each component is an external contractor or an integrated affiliate, and iii) if the supplier is offshored to a foreign low-wage country. Afterwards we consider a related scenario where the headquarter contracts with a given number of two asymmetric suppliers. Our model is consistent with several stylized facts from the recent literature that existing theories of multinational firms cannot account for.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5305.

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Length: 45 pages
Date of creation: Nov 2010
Date of revision:
Handle: RePEc:iza:izadps:dp5305

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

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References

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  1. Baldwin, Richard & Venables, Anthony J., 2013. "Spiders and snakes: Offshoring and agglomeration in the global economy," Journal of International Economics, Elsevier, Elsevier, vol. 90(2), pages 245-254.
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Citations

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Cited by:
  1. Verena Nowak & Christian Schwarz & Jens Suedekum, 2012. "On the Organizational Structure of Multinational Firms - Which Sourcing Mode for which Input?," CESifo Working Paper Series 3823, CESifo Group Munich.
  2. 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.
  3. Antràs, Pol, 2011. "Grossman-Hart (1986) Goes Global: Incomplete Contracts, Property Rights, and the International Organization of Production," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8598, C.E.P.R. Discussion Papers.
  4. Nowak, Verena & Schwarz, Christian & Suedekum, Jens, 2014. "Asymmetric spiders: Supplier heterogeneity and the organization of firms," DICE Discussion Papers 141, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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