Search results

The purpose of this paper is to present an empirical investigation of firm level productivity effects of outsourcing against the background of a review of recent theoretical considerations about the topic.

The empirical research is based on a large representative data set from the German manufacturing industries containing detailed data about almost 500 establishments. It investigates productivity effects of outsourcing under control of other relevant factors influencing firm level productivity by means of a multivariate regression analysis.

In sharp contrast to common belief and prevailing management practices, outsourcing, i.e. the extent to which the vertical range of manufacturing is reduced, has a strong negative impact on a firm's labour productivity. Against the background of the theoretical considerations reviewed from the literature, this result can be explained such that mere cost‐efficiency comparisons are insufficient for appropriate decisions on vertical manufacturing range as the effects of opportunism, of disturbed competence formation, and of limited innovative value creation processes may be overcompensating cost benefits.

The investigation focuses on productivity effects of outsourcing as a relevant long‐term performance measure not regarding other firm level performance indicators. Although covering a significant range of industrial sectors in Germany, more empirical evidence is needed from other sectors and regions. Moreover, performance effects of different types of outsourcing implementations (e.g. simple part supply versus outsourcing of whole business processes including design, production, and marketing) should be investigated as they might have different impacts.

The findings strongly recommend a revision of established decision‐making schemes for vertical manufacturing range based on cost‐efficiency considerations. Decision making should instead integrate cost efficiency and transaction cost analysis with the competence and innovation capability formation perspectives. Procedural schemes for this integrated view are still to be developed, however.

The research described in this paper considerably widens the empirical knowledge about productivity effects of outsourcing and has strong impact on management practice.

The purpose of this paper is to investigate the performance implications associated with production outsourcing. Specifically, the paper analyzes the cost of goods sold for firms who outsource core manufacturing processes, using empirical data from a variety of industries. The paper seeks to better understand the influence of outsourcing on factory cost by looking at these in the context of related strategies, such as supplier integration, information technology (IT) implementation, and manufacturing process decisions.

The paper draws on transaction cost economics, manufacturing strategy, and supply chain management literature to aid in predicting the performance to be expected when outsourcing production activities. Furthermore, the paper investigates the moderating effects of manufacturing strategies, supplier integration, and IT expenditures on outsourcing. The primary model is a two-way panel model for the cross-sectional and longitudinal data drawn from the MPI Census of Manufacturers Survey of US manufacturing plants.

The analysis indicates that production outsourcing tends to shift costs among cost of goods sold (COGS) categories, but does not consistently reduce them as measured by overall COGS. The effects of production outsourcing on both the cost of labor and the cost of materials are strong, tending to decrease labor, and increase materials. Additionally, this study shows that a high level of supplier integration has a notable moderating influence on overall COGS, but that process strategies do not. Finally, this analysis indicates that IT expenditures were not influential as a moderator variable when outsourcing, but did have a marked influence on overall COGS, as well as on labor and materials costs.

This research investigates the effects of outsourcing on the components of COGS, a level of analysis that is typically not looked at relative to outsourcing. This research also provides methodological contributions with the development of a nested random effects structural model for use with a secondary data source.