Global outsourcing or foreign direct investment: Why apple chose outsourcing for the iPod

Chu-Ping Lo

Japan and the World Economy, 2011, vol. 23, issue 3, 163-169

Abstract: A simple model is presented, where a firm's productivity is endogenized by its R&D investment. It shows that the most productive firms may prefer international outsourcing to foreign direct investment (FDI) in industries with a high innovation share. The high innovation share motivates the firms to economize on organizational cost in order to save resources for R&D investment, making outsourcing preferable to FDI because the former incurs a smaller organizational cost. This model helps explain why Apple Inc., belonging to the electronics industry, which has a particularly high innovation share, launched its innovative iPod through international outsourcing instead of FDI.

Keywords: Electronics industry; International outsourcing; Incomplete contract; FDI; R&D (search for similar items in EconPapers)
JEL-codes: F02 F14 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:japwor:v:23:y:2011:i:3:p:163-169

DOI: 10.1016/j.japwor.2011.06.002

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