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Exporting independently or entering the global market as a contract manufacturer?

Author

Listed:
  • Xuan Nguyen

    (Department of Economics, Deakin University, Geelong, Victoria, Australia)

  • Yuqing Xing

    (National Graduate Institute for Policy Studies, Tokyo, Japan)

Abstract

Why do some firms in developing countries (South) choose to be contract manufacturers of multinational corporations in developed countries (North) instead of independently developing home-grown products to compete with the latter? In this paper, we provide an explanation through the lens of global value chains (GVCs). To this end, we develop an international duopoly model in which a Southern firm seeks to enter a global market dominated by a Northern conglomerate, either by having a competing product or participating in the GVC managed by the latter. We show that in a broad range of parameterizations, the North-South GVC arrangement yields a win-win solution for the firms, and hence it can justify the active involvement of Southern firms in the GVCs led by Northern conglomerates as a means to boost exports from the South, even though firms from the South have low productivity.

Suggested Citation

  • Xuan Nguyen & Yuqing Xing, 2022. "Exporting independently or entering the global market as a contract manufacturer?," GRIPS Discussion Papers 22-04, National Graduate Institute for Policy Studies.
    • Handle: RePEc:ngi:dpaper:22-04
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    References listed on IDEAS

    as
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    Keywords

    Global value chain; export; oligopoly; North; South.;
    All these keywords.

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