IDEAS home Printed from https://ideas.repec.org/p/swe/wpaper/2012-35.html
   My bibliography  Save this paper

Outsourcing and Innovation: An Empirical Study of Causes and Effects

Author

Listed:
  • Sasan Bakhtiari

    (The University of New South Wales)

  • Robert Breunig

    (Australian National University)

Abstract

We study the implications of vertical integration on innovation performance using firm-level data on Australian manufacturing. We use the data to distinguish between low-cost-oriented and innovation-oriented outsourcing. Outsourcing without innovation lowers 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 54 per cent compared to 15 per cent for those who outsource without innovating. Comparing across firms that innovate, simultaneously outsourcing increases the probability of future innovation by 4 per cent. Innovation-oriented outsourcing is accompanied by firms shifting focus to research and marketing of new products. Our results offer strong support that outsourcing may be used not just as a cost-cutting strategy, but as part of comprehensive firm strategy to innovate and improve.

Suggested Citation

  • Sasan Bakhtiari & Robert Breunig, 2012. "Outsourcing and Innovation: An Empirical Study of Causes and Effects," Discussion Papers 2012-35, School of Economics, The University of New South Wales.
  • Handle: RePEc:swe:wpaper:2012-35
    as

    Download full text from publisher

    File URL: http://research.economics.unsw.edu.au/RePEc/papers/2012-35.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Arindrajit Dube & Ethan Kaplan, 2010. "Does Outsourcing Reduce Wages in the Low-Wage Service Occupations? Evidence from Janitors and Guards," ILR Review, Cornell University, ILR School, vol. 63(2), pages 287-306, January.
    2. Daron Acemoglu & Philippe Aghion & Fabrizio Zilibotti, 2003. "Vertical Integration and Distance to Frontier," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 630-638, 04/05.
    3. Criscuolo, Chiara & Haskel, Jonathan E. & Slaughter, Matthew J., 2010. "Global engagement and the innovation activities of firms," International Journal of Industrial Organization, Elsevier, vol. 28(2), pages 191-202, March.
    4. Robert Breunig & Marn‐Heong Wong, 2008. "A Richer Understanding of Australia's Productivity Performance in the 1990s: Improved Estimates Based Upon Firm‐Level Panel Data," The Economic Record, The Economic Society of Australia, vol. 84(265), pages 157-176, June.
    5. Papke, Leslie E & Wooldridge, Jeffrey M, 1996. "Econometric Methods for Fractional Response Variables with an Application to 401(K) Plan Participation Rates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 619-632, Nov.-Dec..
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sasan Bakhtiari, 2011. "Efficiency and Outsourcing: Evidence from Australian Manufacturing," Discussion Papers 2012-07, School of Economics, The University of New South Wales.
    2. V. Breunig Robert & Bakhtiari Sasan, 2013. "Outsourcing and Innovation: An Empirical Exploration of the Dynamic Relationship," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(1), pages 395-418, April.
    3. Helmut Fryges & Joachim Wagner, 2021. "Exports and Productivity Growth — First Evidence from a Continuous Treatment Approach," World Scientific Book Chapters, in: Joachim Wagner (ed.), MICROECONOMETRIC STUDIES OF FIRMS’ IMPORTS AND EXPORTS Advanced Methods of Analysis and Evidence from German Enterprises, chapter 6, pages 57-86, World Scientific Publishing Co. Pte. Ltd..
    4. Sasan Bakhtiari, 2013. "Firm Size Evolution and Outsourcing," Discussion Papers 2013-07, School of Economics, The University of New South Wales.
    5. Wagner, Joachim, 2006. "International Firm Activities and Innovation: Evidence from Knowledge Production Functions for German Firms," HWWA Discussion Papers 344, Hamburg Institute of International Economics (HWWA).
    6. Bas Scheer & Wiljan van den Berge & Maarten Goos & Alan Manning & Anna Salomons, 2022. "Alternative Work Arrangements and Worker Outcomes: Evidence from Payrolling," CPB Discussion Paper 435, CPB Netherlands Bureau for Economic Policy Analysis.
    7. Jinsuk Yang & Qing Hao & Mahmut Yaşar, 2023. "Institutional investors and cross‐border mergers and acquisitions: The 2000–2018 period," International Review of Finance, International Review of Finance Ltd., vol. 23(3), pages 553-583, September.
    8. Alexander Klein & Karl Gunnar Persson & Paul Sharp, 2023. "Populism and the first wave of globalization: Evidence from the 1892 US presidential election," Rivista di storia economica, Società editrice il Mulino, issue 2, pages 163-202.
    9. Giuliani, Elisa & Martinelli, Arianna & Rabellotti, Roberta, 2016. "Is Co-Invention Expediting Technological Catch Up? A Study of Collaboration between Emerging Country Firms and EU Inventors," World Development, Elsevier, vol. 77(C), pages 192-205.
    10. Daron Acemoglu & Philippe Aghion & Claire Lelarge & John Van Reenen & Fabrizio Zilibotti, 2007. "Technology, Information, and the Decentralization of the Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(4), pages 1759-1799.
    11. de Rassenfosse, Gaétan, 2013. "Do firms face a trade-off between the quantity and the quality of their inventions?," Research Policy, Elsevier, vol. 42(5), pages 1072-1079.
    12. Alessandro Barattieri & Matteo Cacciatore, 2023. "Self-Harming Trade Policy? Protectionism and Production Networks," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(2), pages 97-128, April.
    13. Richard Harris & John Moffat, 2011. "R&D, Innovation and Exporting," SERC Discussion Papers 0073, Centre for Economic Performance, LSE.
    14. Dawson Chris & Veliziotis Michail & Hopkins Benjamin, 2014. "Assimilation of the migrant work ethic," Working Papers 20141407, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
    15. Nicole M. Mason & Thomas S. Jayne & Nicolas van de Walle, 2017. "The Political Economy of Fertilizer Subsidy Programs in Africa: Evidence from Zambia," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(3), pages 705-731.
    16. Kassie, Menale & Fisher, Monica & Muricho, Geoffrey & Diiro, Gracious, 2020. "Women’s empowerment boosts the gains in dietary diversity from agricultural technology adoption in rural Kenya," Food Policy, Elsevier, vol. 95(C).
    17. Seán Ó Riain & Amy Erbe Healy, 2024. "Workplace regimes in Western Europe, 1995–2015: Implications for intensification, intrusion, income and insecurity," Economic and Industrial Democracy, Department of Economic History, Uppsala University, Sweden, vol. 45(2), pages 415-446, May.
    18. Christian Pfeifer & Joachim Wagner, 2014. "Is innovative firm behavior correlated with age and gender composition of the workforce? Evidence from a new type of data for German enterprises [Besteht ein Zusammenhang zwischen dem Innovationsve," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 47(3), pages 223-231, September.
    19. Teixeira, Aurora A.C. & Tavares-Lehmann, Ana Teresa, 2014. "Human capital intensity in technology-based firms located in Portugal: Does foreign ownership matter?," Research Policy, Elsevier, vol. 43(4), pages 737-748.
    20. Edoardo Bressanelli & Christel Koop & Christine Reh, 2016. "The impact of informalisation: Early agreements and voting cohesion in the European Parliament," European Union Politics, , vol. 17(1), pages 91-113, March.

    More about this item

    Keywords

    Outsourcing; Innovation; Firm Performance; Business Strategy.;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:swe:wpaper:2012-35. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Hongyi Li (email available below). General contact details of provider: https://edirc.repec.org/data/senswau.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.