In-house capability and supply chain decisions

Kashi R. Balachandran, Hsiao-Wen Wang, Shu-Hsing Li and Taychang Wang

Omega, 2013, vol. 41, issue 2, 473-484

Abstract: This study considers an internal production option for a contractor and analyzes its effect on the supply chain decisions when the contractor has innovated and the subcontractor has an incentive for opportunistic behavior. In contrast to the single disclosure threshold in the benchmark scenario where the contractor lacks in-house capability, we find two thresholds in the referred scenario. When information misappropriation is possible and the contractor has in-house capability, the contractor will organize a coordinated supply chain only when innovations fall between the two thresholds. Compared to the benchmark scenario, in-house capability has a positive effect on the contractor's incentive to innovate and an ambiguous effect on the subcontractor's incentive to invest in the production process. When the contractor needs to incur an extra cost to build in-house capability, the contractor keeps the same levels of investment compared to the case of no additional in-house capability cost, whereas the subcontractor increases the levels of investment. Furthermore, we find that in the presence of potential misappropriation on the part of the subcontractor, the higher the level of in-house capability, the less likely the contractor will be to outsource innovative products that generate higher profitability. This study can explain why firms strategically outsource low-end products and produce high-end products themselves. This study provides new results on the effects of in-house capability on the strategic interactions of parties in supply chains and, hence, on supply chain efficiency.

Keywords: Coordinated supply chains; In-house capability; Outsourcing; Information sharing; Misappropriation; Game theory (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0305048312000047
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jomega:v:41:y:2013:i:2:p:473-484

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/supportfaq.cws_home/regional
https://shop.elsevie ... _01_ooc_1&version=01

DOI: 10.1016/j.omega.2012.01.003

Access Statistics for this article

Omega is currently edited by B. Lev

More articles in Omega from Elsevier
Bibliographic data for series maintained by Catherine Liu ().