On the Organizational Structure of Multinational Firms - Which Sourcing Mode for which Input?

Verena Nowak, Christian Schwarz and Jens Suedekum

No 3823, CESifo Working Paper Series from CESifo

Abstract: Recent studies indicate that firms often outsource standard and simple tasks, while keeping complex and important inputs inside their boundaries. This observation is difficult to reconcile with the property rights approach of the firm, which suggests that important components should be outsourced in order to properly incentivize the respective suppliers. In this paper we introduce economies of scope into a property rights model where a producer contracts with two suppliers. The organizational decision is driven by two countervailing effects: the ownership rights effect favors outsourcing, while the “indirect” effect via the suppliers’ costs favors vertical integration of both inputs. If production is highly component-intensive, and if one input is much more important than the other, we show that vertical integration of the “more important” and outsourcing of the “less important” supplier is chosen in equilibrium. We also consider an open economy setup where the producer decides whether to offshore inputs.

Keywords: multinational firms; outsourcing; intra-firm trade; property rights approach (search for similar items in EconPapers)
JEL-codes: D23 F12 L23 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp3823.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 503 Service Unavailable

Related works:
Working Paper: On the Organizational Structure of Multinational Firms: Which Sourcing Mode for Which Input? (2012)
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:ces:ceswps:_3823

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().