To outsource or not to outsource in an integrated worldInternational Review of Economics and Finance
Publication VersionSubmitted Manuscript
AbstractThis 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.
Copyright OwnerElsevier Inc.
Citation InformationE. Kwan Choi. "To outsource or not to outsource in an integrated world" International Review of Economics and Finance Vol. 16 Iss. 4 (2007) p. 521 - 527
Available at: http://works.bepress.com/ekwan-choi/19/