To outsource or not to outsource in an integrated world
This paper investigates outsourcing decision under certainty and uncertainty. When the production activity can be fragmented into two or more processes, an integrated firm must be competitive in each of the fragmented processes. There are gains from outsourcing when factor prices differ between countries. When factor prices are not equalized internationally, a firm may outsource the process which uses its scarce source intensively. If the cost of outsourcing is lower in the foreign country, full outsourcing occurs under certainty. However, even if the outside supplier has a cost advantage, uncertainty in outsourcing cost ensures that partial outsourcing is optimal for risk-averse firms.
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References listed on IDEAS
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- Chi-Chur Chao & Eden S. H. Yu, 2014.
"Content Protection, Urban Unemployment, and Welfare,"
World Scientific Book Chapters,in: TRADE-RELATED INVESTMENT MEASURES Theory and Applications, chapter 8, pages 127-140
World Scientific Publishing Co. Pte. Ltd..
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