IDEAS home Printed from https://ideas.repec.org/a/bpj/bejeap/v13y2013i1p395-418n3.html
   My bibliography  Save this article

Outsourcing and Innovation: An Empirical Exploration of the Dynamic Relationship

Author

Listed:
  • V. Breunig Robert

    (Crawford School of Public Policy, Australian National University, Canberra, ACT, Australia)

  • Bakhtiari Sasan

    (Australian School of Business, University of New South Wales, Sydney NSW, Australia)

Abstract

We study the implications of vertical integration on innovation performance using firm-level data in Australian manufacturing. We use the data to distinguish between low-cost-oriented and innovation-oriented outsourcing. Outsourcing without innovation lowers the 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 49% compared to 8% for those who outsource without innovating. Comparing across firms that innovate, simultaneous outsourcing increases the probability of future innovation by 5%. Innovation-oriented outsourcing is accompanied with firms shifting expenditure to research and development. Our results offer strong support that outsourcing may be used not just as a cost-cutting strategy, but as a part of a comprehensive firm strategy to innovate and improve.

Suggested Citation

  • V. Breunig Robert & Bakhtiari Sasan, 2013. "Outsourcing and Innovation: An Empirical Exploration of the Dynamic Relationship," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(1), pages 395-418, April.
    • Handle: RePEc:bpj:bejeap:v:13:y:2013:i:1:p:395-418:n:3
    DOI: 10.1515/bejeap-2012-0016
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/bejeap-2012-0016
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.1515/bejeap-2012-0016?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Alan S. Blinder & Alan B. Krueger, 2013. "Alternative Measures of Offshorability: A Survey Approach," Journal of Labor Economics, University of Chicago Press, vol. 31(S1), pages 97-128.
    2. Alan S. Blinder & Alan B. Krueger, 2013. "Alternative Measures of Offshorability: A Survey Approach," Journal of Labor Economics, University of Chicago Press, vol. 31(S1), pages 97-128.
    3. 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, June.
    4. 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.
    5. Arindrajit Dube & Ethan Kaplan, 2010. "Does Outsourcing Reduce Wages in the Low-Wage Service Occupations? Evidence from Janitors and Guards," ILR Review, Cornell University, ILR School, vol. 63(2), pages 287-306, January.
    6. 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 619-632, Nov.-Dec..
    7. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-564, September.
    8. Stefano Federico, 2010. "Outsourcing versus integration at home or abroad and firm heterogeneity," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 37(1), pages 47-63, February.
    9. Bruno Crepon & Emmanuel Duguet & Jacques Mairesse, 1998. "Research, Innovation And Productivity: An Econometric Analysis At The Firm Level," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 7(2), pages 115-158.
    10. repec:pri:cepsud:190blinder is not listed on IDEAS
    11. Stefano Federico, 2010. "Outsourcing versus Integration at Home or Abroad," Temi di discussione (Economic working papers) 742, Bank of Italy, Economic Research and International Relations Area.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Fritsch, Ursula, 2015. "Is Offshoring Beneficial or Detrimental to Innovation in Developed Countries?," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112973, Verein für Socialpolitik / German Economic Association.
    2. Baatartogtokh, Baljir & Dunbar, W. Scott & van Zyl, Dirk, 2018. "The state of outsourcing in the Canadian mining industry," Resources Policy, Elsevier, vol. 59(C), pages 184-191.
    3. Bakhtiari Sasan, 2016. "Assortative Outsourcing with Exit," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 16(1), pages 119-142, January.
    4. Sasan Bakhtiari, 2015. "Productivity, outsourcing and exit: the case of Australian manufacturing," Small Business Economics, Springer, vol. 44(2), pages 425-447, February.
    5. Sasan Bakhtiari & Robert Breunig, 2017. "New Outsourcing, Demand Uncertainty and Labor Usage," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 50(1), pages 69-90, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sasan Bakhtiari, 2011. "Efficiency and Outsourcing: Evidence from Australian Manufacturing," Discussion Papers 2012-07, School of Economics, The University of New South Wales.
    2. Sasan Bakhtiari, 2013. "Firm Size Evolution and Outsourcing," Discussion Papers 2013-07, School of Economics, The University of New South Wales.
    3. Koray Aktas & Valeria Gattai, 2021. "Inward FDI, outward FDI, and firm-level performance in India," Working Papers 481, University of Milano-Bicocca, Department of Economics, revised Sep 2021.
    4. Sasan Bakhtiari & Robert Breunig, 2012. "Outsourcing and Innovation: An Empirical Study of Causes and Effects," Discussion Papers 2012-35, School of Economics, The University of New South Wales.
    5. Alessandro Borin & Riccardo Cristadoro, 2014. "Foreign direct investment and multinational firms," Questioni di Economia e Finanza (Occasional Papers) 243, Bank of Italy, Economic Research and International Relations Area.
    6. Sasan Bakhtiari, 2011. "Size Evolution and Outsourcing: Theory and Evidence from Australian Manufacturing," Discussion Papers 2012-08, School of Economics, The University of New South Wales.
    7. Roberto Antonietti & Giulio Cainelli, 2011. "The role of spatial agglomeration in a structural model of innovation, productivity and export: a firm-level analysis," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 46(3), pages 577-600, June.
    8. Aekapol Chongvilaivan & Jung Hur, 2012. "Trade Openness and Vertical Integration: Evidence from the U.S. Manufacturing Sector," Southern Economic Journal, John Wiley & Sons, vol. 78(4), pages 1242-1264, April.
    9. Jonas Hjort & Xuan Li & Heather Sarsons, 2020. "Across-Country Wage Compression in Multinationals," NBER Working Papers 26788, National Bureau of Economic Research, Inc.
    10. Sasan Bakhtiari, 2015. "Productivity, outsourcing and exit: the case of Australian manufacturing," Small Business Economics, Springer, vol. 44(2), pages 425-447, February.
    11. Jonas Hjort & Xuan Li & Heather Sarsons, 2020. "Random-Coefficients Logit Demand Estimation with Zero-Valued Market Shares," Working Papers 2020-15, Becker Friedman Institute for Research In Economics.
    12. Bas Scheer & Wiljan van den Berge & Maarten Goos & Alan Manning & Anna Salomons, 2022. "Alternative Work Arrangements and Worker Outcomes: Evidence from Payrolling," CPB Discussion Paper 435, CPB Netherlands Bureau for Economic Policy Analysis.
    13. de Rassenfosse, Gaétan & Schoen, Anja & Wastyn, Annelies, 2014. "Selection bias in innovation studies: A simple test," Technological Forecasting and Social Change, Elsevier, vol. 81(C), pages 287-299.
    14. Christian Pfeifer & Joachim Wagner, 2014. "Is innovative firm behavior correlated with age and gender composition of the workforce? Evidence from a new type of data for German enterprises [Besteht ein Zusammenhang zwischen dem Innovationsve," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 47(3), pages 223-231, September.
    15. James Spletzer & Elizabeth Weber Handwerker, 2015. "The Role of Establishments and the Concentration of Occupations in Wage Inequality," Working Papers id:7427, eSocialSciences.
    16. Munjal, Surender & Requejo, Ignacio & Kundu, Sumit K., 2019. "Offshore outsourcing and firm performance: Moderating effects of size, growth and slack resources," Journal of Business Research, Elsevier, vol. 103(C), pages 484-494.
    17. Ganserer, Angelika, 2021. "Non-compliance with temporary agency work regulations: Initial evidence from Germany," ZEW Discussion Papers 21-057, ZEW - Leibniz Centre for European Economic Research.
    18. Carboni, Oliviero A. & Medda, Giuseppe, 2021. "External R&D and product innovation: Is over-outsourcing an issue?," Economic Modelling, Elsevier, vol. 103(C).
    19. Georgeta Ilie, 2023. "Trade In Skill-Intensive Services - Through the Pandemic and Accelerating Digitalization," Global Economic Observer, "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences;Institute for World Economy of the Romanian Academy, vol. 11(1), pages 73-83, May.
    20. Basu, Arnab K. & Chau, Nancy H. & Soundararajan, Vidhya, 2019. "Wage fairness in a subcontracted labor market," Journal of Economic Behavior & Organization, Elsevier, vol. 168(C), pages 24-42.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:bejeap:v:13:y:2013:i:1:p:395-418:n:3. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.