Outsourcing and Innovation: An Empirical Study of Causes and Effects
AbstractWe study the implications of vertical integration on innovation performance using firm-level data on Australian manufacturing. We use the data to distinguish between low-cost-oriented and innovation-oriented outsourcing. Outsourcing without innovation lowers costs at the expense of damaging the future chances of innovation, while innovation-oriented outsourcing leads to higher costs but increases the likelihood of future innovation. For firms that innovate and outsource, the probability of future innovation is 54 per cent compared to 15 per cent for those who outsource without innovating. Comparing across firms that innovate, simultaneously outsourcing increases the probability of future innovation by 4 per cent. Innovation-oriented outsourcing is accompanied by firms shifting focus to research and marketing of new products. Our results offer strong support that outsourcing may be used not just as a cost-cutting strategy, but as part of comprehensive firm strategy to innovate and improve.
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Bibliographic InfoPaper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2012-35.
Date of creation: Sep 2012
Date of revision:
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More information through EDIRC
Outsourcing; Innovation; Firm Performance; Business Strategy.;
Find related papers by JEL classification:
- D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
- L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
- L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
- L6 - Industrial Organization - - Industry Studies: Manufacturing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-16 (All new papers)
- NEP-CSE-2013-06-16 (Economics of Strategic Management)
- NEP-INO-2013-06-16 (Innovation)
- NEP-KNM-2013-06-16 (Knowledge Management & Knowledge Economy)
- NEP-SBM-2013-06-16 (Small Business Management)
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