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- Title
Outsourcing and Innovation: An Empirical Exploration of the Dynamic Relationship.
- Authors
V. Breunig, Robert; Bakhtiari, Sasan
- Abstract
Abstract: We study the implications of vertical integration on innovation performance using firm-level data in Australian manufacturing. We use the data to distinguish between low-cost-oriented and innovation-oriented outsourcing. Outsourcing without innovation lowers the costs at the expense of damaging the future chances of innovation, while innovation-oriented outsourcing leads to higher costs but increases the likelihood of future innovation. For firms that innovate and outsource, the probability of future innovation is 49% compared to 8% for those who outsource without innovating. Comparing across firms that innovate, simultaneous outsourcing increases the probability of future innovation by 5%. Innovation-oriented outsourcing is accompanied with firms shifting expenditure to research and development. Our results offer strong support that outsourcing may be used not just as a cost-cutting strategy, but as a part of a comprehensive firm strategy to innovate and improve.
- Subjects
CONTRACTING out; VERTICAL integration; BUSINESS planning
- Publication
B.E. Journal of Economic Analysis & Policy, 2013, Vol 13, Issue 1, p395
- ISSN
2194-6108
- Publication type
Article
- DOI
10.1515/bejeap-2012-0016