Outsourcing versus joint venture from vendor's perspective

Yongma Moon, Tao Yao and Bin Jiang

International Journal of Production Economics, 2011, vol. 129, issue 1, 23-31

Abstract: Even though many studies have discussed outsourcing contracts from the client's perspective, little research has been done from the vendor's perspective. In this paper, we consider a vendor's outsourcing contract decision-making process, during which the market price and the vendor's operation cost are uncertain. This paper develops real option models to investigate whether a vendor firm should sign an outsourcing contract from its client or establish a joint venture with this client. Our results show that, while the feasibility of an outsourcing contract to the vendor increases with a higher contract price offered by the client, the feasibility of a joint venture depends on market conditions. We also find that there are loss-by-acceptance regions, in which either an outsourcing or a joint venture contract is currently feasible to start, but a vendor may sustain a loss by accepting such a contract.

Keywords: Outsourcing; Joint; venture; Net; present; value; Real; options (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:129:y:2011:i:1:p:23-31

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