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To outsource or not to outsource in an integrated world
International Review of Economics and Finance
  • E. Kwan Choi, Iowa State University
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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.

NOTICE: this is the author’s version of a work that was accepted for publication in International Review of Economics and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in PInternational Review of Economics and Finance 16 (2007) doi: 10.1016/j.iref.2005.12.002.

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Elsevier Inc.
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Citation Information
E. 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
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