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.
Download InfoIf 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.
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:
Contact details of provider:
Postal: Australian School of Business Building, Sydney 2052
Fax: +61)-2- 9313- 6337
Web page: http://www.economics.unsw.edu.au/
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)
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.:
- Robert Breunig & Marn-Heong Wong, 2007.
"A Richer Understanding of Australia’s Productivity Performance in the 1990s: Improved estimates based upon firm-level panel data,"
CEPR Discussion Papers
545, Centre for Economic Policy Research, Research School of Economics, Australian National University.
- Robert Breunig & Marn-Heong Wong, 2008. "A Richer Understanding of Australia's Productivity Performance in the 1990s: Improved Estimates Based Upon Firm-Level Panel Data," The Economic Record, The Economic Society of Australia, vol. 84(265), pages 157-176, 06.
- Criscuolo, Chiara & Haskel, Jonathan E. & Slaughter, Matthew J., 2010.
"Global engagement and the innovation activities of firms,"
International Journal of Industrial Organization,
Elsevier, vol. 28(2), pages 191-202, March.
- Chiara Criscuolo & Jonathan E. Haskel & Matthew J. Slaughter, 2005. "Global Engagement and the Innovation Activities of Firms," NBER Working Papers 11479, National Bureau of Economic Research, Inc.
- Arindrajit Dube & Ethan Kaplan, 2010.
"Does Outsourcing Reduce Wages in the Low-Wage Service Occupations? Evidence from Janitors and Guards,"
Industrial and Labor Relations Review,
ILR Review, Cornell University, ILR School, vol. 63(2), pages 287-306, January.
- Dube, Arindrajit & Kaplan, Ethan, 2008. "Does Outsourcing Reduce Wages in the Low Wage Service Occupations? Evidence from Janitors and Guards," Institute for Research on Labor and Employment, Working Paper Series qt6s89498v, Institute of Industrial Relations, UC Berkeley.
- Leslie E. Papke & Jeffrey M. Wooldridge, 1993.
"Econometric Methods for Fractional Response Variables with an Application to 401(k) Plan Participation Rates,"
NBER Technical Working Papers
0147, National Bureau of Economic Research, Inc.
- Papke, Leslie E & Wooldridge, Jeffrey M, 1996. "Econometric Methods for Fractional Response Variables with an Application to 401(K) Plan Participation Rates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 619-32, Nov.-Dec..
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gabriele Gratton).
If references are entirely missing, you can add them using this form.