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Firm Size Evolution and Outsourcing

Author

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  • Sasan Bakhtiari

    (School of Economics, the University of New South Wales)

Abstract

This paper sheds new light on forces shaping the outsourcing decision by linking the decision to a certain form of non-linearity in overhead costs which divides a firm’s operation into small and large regimes. Marginal firms that find evolution into a large business too costly outsource in a bid to grow out of bounds instead of expanding internally. This process leads to a lumpy relationship between size and outsourcing, in which outsourcing is only practiced by narrow set of firms in the middle of the distribution. The theoretical implication for size distribution is a bunching of firms at the size where the transition to large regime takes place with a missing middle immediately following it. A panel of Australian small and medium-size firms is used to put the predictions to test with mostly supportive results. The findings open a new avenue to rethink growth and job creation amongst small businesses.

Suggested Citation

  • Sasan Bakhtiari, 2013. "Firm Size Evolution and Outsourcing," Discussion Papers 2013-07, School of Economics, The University of New South Wales.
    • Handle: RePEc:swe:wpaper:2013-07
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    File URL: http://research.economics.unsw.edu.au/RePEc/papers/2013-07.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Small Business; Outsourcing; Management Organization; Size Distribution.;
    All these keywords.

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • D2 - Microeconomics - - Production and Organizations
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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