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

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  • Lo, Chu-Ping

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.

Suggested Citation

  • Lo, Chu-Ping, 2011. "Global outsourcing or foreign direct investment: Why apple chose outsourcing for the iPod," Japan and the World Economy, Elsevier, vol. 23(3), pages 163-169.
    • Handle: RePEc:eee:japwor:v:23:y:2011:i:3:p:163-169
    DOI: 10.1016/j.japwor.2011.06.002
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    References listed on IDEAS

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    Cited by:

    1. Un, C. Annique & Rodríguez, Alicia, 2018. "Learning from R&D outsourcing vs. learning by R&D outsourcing," Technovation, Elsevier, vol. 72, pages 24-33.

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    More about this item

    Keywords

    Electronics industry; International outsourcing; Incomplete contract; FDI; R&D;
    All these keywords.

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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