Advanced Search
MyIDEAS: Login to save this paper or follow this series

On the Organizational Structure of Multinational Firms: Which Sourcing Mode for Which Input?

Contents:

Author Info

  • Suedekum, Jens

    ()
    (Heinrich Heine University Düsseldorf)

  • Nowak, Verena

    ()
    (University of Duisburg-Essen)

  • Schwarz, Christian

    ()
    (University of Duisburg-Essen)

Abstract

Recent studies indicate that firms often outsource standard and simple tasks, while keeping complex and important inputs inside their boundaries. This observation is difficult to reconcile with the property rights approach of the firm, which suggests that important components should be outsourced in order to properly incentivize the respective suppliers. In this paper we introduce economies of scope into a property rights model where a producer contracts with two suppliers. The organizational decision is driven by two countervailing effects: the ownership rights effect favors outsourcing, while the "indirect" effect via the suppliers' costs favors vertical integration of both inputs. If production is highly component intensive, and if one input is much more important than the other, we show that vertical integration of the "more important" and outsourcing of the "less important" supplier is chosen in equilibrium. We also consider an open economy setup where the producer decides whether to offshore inputs.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://ftp.iza.org/dp6564.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6564.

as in new window
Length: 33 pages
Date of creation: May 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6564

Contact details of provider:
Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org

Order Information:
Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Email:

Related research

Keywords: multinational firms; outsourcing; intra-firm trade; property rights approach;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Pol Antràs & Elhanan Helpman, 2003. "Global Sourcing," NBER Working Papers 10082, National Bureau of Economic Research, Inc.
  2. Marin, Dalia & Verdier, Thierry, 2006. "Power Inside the Firm and the Market: A General Equilibrium Approach," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 109, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  3. Du, Julan & Lu, Yi & Tao, Zhigang, 2009. "Bi-sourcing in the global economy," Journal of International Economics, Elsevier, vol. 77(2), pages 215-222, April.
  4. Stefano Federico, 2010. "Outsourcing versus integration at home or abroad and firm heterogeneity," Empirica, Springer, vol. 37(1), pages 47-63, February.
  5. Rossi-Hansberg, Esteban & Antras, Pol, 2009. "Organizations and Trade," Scholarly Articles 3199064, Harvard University Department of Economics.
  6. Christian Schwarz & Jens Suedekum, 2011. "Global Sourcing of Complex Production Processes," CESifo Working Paper Series 3559, CESifo Group Munich.
  7. repec:hrv:faseco:4784029 is not listed on IDEAS
  8. Wilhelm Kohler & Marcel Smolka, 2009. "Global Sourcing Decisions and Firm Productivity: Evidence from Spain," CESifo Working Paper Series 2903, CESifo Group Munich.
  9. Marin, Dalia & Verdier, Thierry, 2004. "Globalization and the Empowerment of Talent," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 1, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  10. Grossman, Gene M. & Helpman, Elhanan, 2004. "Managerial incentives and the international organization of production," Journal of International Economics, Elsevier, vol. 63(2), pages 237-262, July.
  11. Arnaud Costinot & Lindsay Oldenski & James Rauch, 2009. "Adaptation and the Boundary of Multinational Firms," Global COE Hi-Stat Discussion Paper Series gd09-059, Institute of Economic Research, Hitotsubashi University.
  12. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  13. Wilfred J. Ethier & James R. Markusen, 1991. "Multinational Firms, Technology Diffusion and Trade," NBER Working Papers 3825, National Bureau of Economic Research, Inc.
  14. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
  15. Liza Jabbour, . "“Slicing the Value Chain” Internationally: Empirical Evidence on the Offshoring Strategy by French Firms," Discussion Papers 08/02, University of Nottingham, GEP.
  16. Philippe Aghion & Jean Tirole, 1994. "Normal and Real Authority in Organizations," Working papers 94-13, Massachusetts Institute of Technology (MIT), Department of Economics.
  17. Defever, Fabrice & Toubal, Farid, 2011. "Productivity, Relationship-Specific Inputs and the Sourcing Modes of Multinationals," CEPR Discussion Papers 8656, C.E.P.R. Discussion Papers.
  18. Gregory Corcos & Delphine M. Irac & Giordano Mion & Thierry Verdier, 2008. "The Determinants of Intra-Firm Trade," Development Working Papers 267, Centro Studi Luca d\'Agliano, University of Milano.
  19. Carluccio, Juan & Fally, Thibault, 2010. "Global Sourcing under Imperfect Capital Markets," CEPR Discussion Papers 7868, C.E.P.R. Discussion Papers.
  20. Sergiu Hart, 2006. "Shapley Value," Discussion Paper Series dp421, The Center for the Study of Rationality, Hebrew University, Jerusalem.
  21. A. Naghavi & J. Spies & F. Toubal, 2011. "Intellectual Property Rights, Product Complexity, and the Organization of Multinational Firms," Working Papers wp773, Dipartimento Scienze Economiche, Universita' di Bologna.
  22. Patrick Bajari & Steven Tadelis, 1999. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," Working Papers 99029, Stanford University, Department of Economics.
  23. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2010. "Intrafirm Trade and Product Contractibility," American Economic Review, American Economic Association, vol. 100(2), pages 444-48, May.
  24. Jacques Crémer & Luis Garicano & Andrea Prat, 2007. "Language and the Theory of the Firm," The Quarterly Journal of Economics, MIT Press, vol. 122(1), pages 373-407, 02.
  25. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
  26. Yi Lu & Travis Ng & Zhigang Tao, 2012. "Outsourcing, Product Quality, and Contract Enforcement," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(1), pages 1-30, 03.
  27. Benjamin Bental & Bruno Deffains & Dominique Demougin, 2012. "Credibility and Monitoring: Outsourcing as a Commitment Device," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(1), pages 31-52, 03.
  28. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
  29. Eiichi Tomiura, 2005. "Foreign Outsourcing, Exporting, and FDI: A Productivity Comparison at the Firm Level," Discussion Paper Series 168, Research Institute for Economics & Business Administration, Kobe University.
  30. Ethier, Wilfred J, 1986. "The Multinational Firm," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 805-33, November.
  31. Anil Arya & Brian Mittendorf & David E. M. Sappington, 2008. "The Make-or-Buy Decision in the Presence of a Rival: Strategic Outsourcing to a Common Supplier," Management Science, INFORMS, vol. 54(10), pages 1747-1758, October.
  32. Sharon Novak & Birger Wernerfelt, 2012. "On the Grouping of Tasks into Firms: Make‐or‐Buy with Interdependent Parts," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(1), pages 53-77, 03.
  33. Stefano Federico, 2010. "Outsourcing versus Integration at Home or Abroad," Temi di discussione (Economic working papers) 742, Bank of Italy, Economic Research and International Relations Area.
  34. Rugman, Alan M, 1986. "New Theories of the Multinational Enterprise: An Assessment of Internalization Theory," Bulletin of Economic Research, Wiley Blackwell, vol. 38(2), pages 101-18, May.
  35. Steven Tadelis, 2002. "Complexity, Flexibility, and the Make-or-Buy Decision," American Economic Review, American Economic Association, vol. 92(2), pages 433-437, May.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Schwarz, Christian & Suedekum, Jens, 2010. "Global Sourcing of Complex Production Processes," IZA Discussion Papers 5305, Institute for the Study of Labor (IZA).

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp6564. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.