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Competition and the location of overseas assembly

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  • Deborah L. Swenson

Abstract

. How does international competition affect overseas outsourcing? To address this question, this paper studies production decisions in the U.S.'s overseas assembly program (OAP). In this setting, a number of regularities emerge. First, prior participation is highly correlated with current participation, which suggests that sunk costs influence outsourcing choices. Second, increases in own‐country costs and declines in competitor‐country costs reduce participation probabilities. In addition, these persistence and cost effects are much larger for outsourcing in developing countries. Finally, outsourcing responses appear to reflect differences in 'market thickness,’ as cost sensitivity generally rises with competitor presence. Comment est‐ce que la concurrence affecte la sous‐traitance à l'étranger? Pour analyser cette question, ce texte étudie les décisions de production dans le programme de chaînes de montage à l'étranger des entreprises américaines. Dans ce contexte, un certain nombre de régularités émergent. D'abord, l'expérience antérieure est fortement co‐reliée à l'expérience présente; voilà qui suggère que les coûts déjà engloutis ont un impact sur les choix de sous‐traitance. Ensuite, l'accroissement des coûts pour le pays de base et la chute des coûts dans le pays concurrent réduisent les probabilités de participation. De plus, ces effets de persistance et de coûts sont beaucoup plus grands pour ce qui est de la sous‐traitance dans les pays en voie de développement. Enfin, les réponses dans les stratégies de sous‐traitance dépendent de « l'épaisseur du marché» car la sensibilité des coûts augmente généralement à proportion que la présence de la concurrence est plus importante. Email: dswenson@ucdavis.edu

Suggested Citation

  • Deborah L. Swenson, 2007. "Competition and the location of overseas assembly," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 40(1), pages 155-175, February.
  • Handle: RePEc:wly:canjec:v:40:y:2007:i:1:p:155-175
    DOI: 10.1111/j.1365-2966.2007.00403.x
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    Cited by:

    1. Amador, João & Cabral, Sónia, 2014. "Global value chains: surveying drivers and measures," Working Paper Series 1739, European Central Bank.
    2. Thomas Hutzschenreuter & Florian Gröne, 2009. "Changing Vertical Integration Strategies under Pressure from Foreign Competition: The Case of US and German Multinationals," Journal of Management Studies, Wiley Blackwell, vol. 46(2), pages 269-307, March.
    3. Fernando Merino, 2017. "Offshoring, outsourcing and the economic geography of Europe," Papers in Regional Science, Wiley Blackwell, vol. 96(2), pages 299-323, June.
    4. Broocks, Annette & Van Biesebroeck, Johannes, 2017. "The impact of export promotion on export market entry," Journal of International Economics, Elsevier, vol. 107(C), pages 19-33.
    5. João Amador & Sónia Cabral, 2014. "Global Value Chains: Surveying Drivers, Measures and Impacts," Working Papers w201403, Banco de Portugal, Economics and Research Department.
    6. Yamashita, Nobuaki, 2011. "Production sharing and trade flows: A comparative analysis of Japan and the US," Journal of Asian Economics, Elsevier, vol. 22(5), pages 383-397, October.
    7. Liza Jabbour, 2013. "Market thickness, sunk costs, productivity, and the outsourcing decision: an empirical analysis of manufacturing firms in France," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 46(1), pages 103-134, February.

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    More about this item

    JEL classification:

    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business

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