Firm Size Evolution and Outsourcing
AbstractThis paper sheds new light on forces shaping the outsourcing decision by linking the decision to a certain form of non-linearity in overhead costs which divides a firm’s operation into small and large regimes. Marginal firms that find evolution into a large business too costly outsource in a bid to grow out of bounds instead of expanding internally. This process leads to a lumpy relationship between size and outsourcing, in which outsourcing is only practiced by narrow set of firms in the middle of the distribution. The theoretical implication for size distribution is a bunching of firms at the size where the transition to large regime takes place with a missing middle immediately following it. A panel of Australian small and medium-size firms is used to put the predictions to test with mostly supportive results. The findings open a new avenue to rethink growth and job creation amongst small businesses.
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Bibliographic InfoPaper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2013-07.
Length: 41 pages
Date of creation: Jul 2013
Date of revision:
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More information through EDIRC
Small Business; Outsourcing; Management Organization; Size Distribution.;
Find related papers by JEL classification:
- C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
- D2 - Microeconomics - - Production and Organizations
- 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-BEC-2013-06-16 (Business Economics)
- NEP-CSE-2013-06-16 (Economics of Strategic Management)
- NEP-SBM-2013-06-16 (Small Business Management)
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