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Growing by outsourcing: a tale of two growths

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  • Sasan Bakhtiari

    (Australian Department of Industry
    Australian National University)

Abstract

This paper empirically explores the nexus between the intensity of outsourcing by an entrepreneur and its ability to scale up in size. Intensity is measured as a continuous index to proxy for the share of jobs being contracted out. Using a non-parametric Cox proportional hazard model, the paper estimates the odds that a firm grows into a medium or large firm as a function of outsourcing intensity. Two strategies stand out. In one case, the firm contracts about 10 per cent of its workforce and doubles its chance of scaling up. In the second case, the firm contracts more than 90 per cent of its workforce and the odds go up by 2.5 times. A priori, firms in both groups are indistinct in many ways, except that firms choosing to grow with minimal outsourcing show early signs of growth. The latter firms grow to larger sizes, create more jobs, pay higher wages, and are more likely to export and conduct research. Firms growing by extreme outsourcing are only apter at surviving. Resource-based view of firms and management capability seem to be part of the explanation for the observed behavior.

Suggested Citation

  • Sasan Bakhtiari, 2023. "Growing by outsourcing: a tale of two growths," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 50(2), pages 411-439, May.
    • Handle: RePEc:kap:empiri:v:50:y:2023:i:2:d:10.1007_s10663-022-09564-7
    DOI: 10.1007/s10663-022-09564-7
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    References listed on IDEAS

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    More about this item

    Keywords

    Entrepreneurship; Outsourcing; Employment; Wages; Business dynamics; Resource-based view;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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