Outsourcing, Foreign Ownership, Exporting and Productivity: An Empirical Investigation with Plant Level Data

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Non-Technical SummaryA recent survey of UK companies found that 68 percent of firms outsource at least some services and that the main rationale cited by respondents was cost reduction. However, the recent trend from the traditional pattern of outsourcing non-core activities, is the offshoring of "high abstraction", i.e., highly intellectual, and potentially core activities. In the popular press one appears to have arrived at a point where experts begin to question the validity of outsourcing as a long-term strategy or even short term as a cost reduction exercise. In fact, 56 percent of survey respondents to an IT specialists' journal claimed that outsourced IT work was at least worse than that produced in-house. More worryingly, 11 percent reported that the outsourced work induced a setback in the firm's production.Only a small number of econometric studies have thus far looked at the effect of outsourcing on company performance. The purpose of this paper is to focus on the international dimension of outsourcing (fragmentation of production) and its effects on productivity at the level of the outsourcing plant. We define international outsourcing as the value of imported intermediates at the level of the plant.This paper contributes to the literature in a number of ways. To begin with, our paper is, to the best of our knowledge, the first that uses plant level data to investigate the impact of international outsourcing (i.e. imports of intermediate inputs) on plant level productivity. Secondly, our data set enables us to separate the outsourcing of services from that of materials inputs. Furthermore, we investigate whether these productivity effects are different for purely domestic plants, exporters and foreign-owned affiliates located in the host country. These distinctions are motivated by referring to the recent theoretical model by Grossman and Helpman (2002), which shows the importance of factors such as search costs and the 'thickness' of supplier markets for international outsourcing.We investigate these issues empirically using plant level data for manufacturing industries in the Republic of Ireland. Ireland may be considered as an interesting case study since it is a small open economy that is likely to rely heavily on fragmentation of its production processes. Furthermore, Ireland has over the last few decades been an important host country for affiliates of multinational companies, and many plants, both foreign and...

Foreign outsourcing, exporting, and FDI: A productivity comparison at the firm level

“…2 See Bernard et al (2005), Brainard (1997, Girma et al (2005), Head and Ries (2003), , for example. 3 Görg et al (2004) estimate the relationship between intermediate imports and the productivity of exporters and foreign-owned firms in Ireland. They do not analyze the globalization mode decision or outward FDI, however.…”

Labour Demand Effects of International Outsourcing: Evidence from Plant Level Data

“…It follows that the cost of outsourcing is analogous to the opportunity wage that may have accrued to in-house employees, had the service not been contracted out. Accordingly, in line with Girma and Görg (2004) and Görg et al (2004), we calculate an indicator of an establishment's propensity to outsource as the expenditure on outsourcing, i.e., on either services or material inputs, relative to the plant's total wage bill.…”

Off-shoring and labor productivity: Evidence from China

“…Secondly, material off-shoring affects productivity positively, but the effect is not remarkable for all industries and less than service off-shoring, making only 5% contribution. Some scholars point out material off-shoring may have a stronger effect on productivity growth (Gorg, Hanley and Strobl, 2004;Gorg and Hanley, 2005). Especially, Siegel and Griliches (1992) propose clearly by analyzing US 4-digits manufacturing data, the positive effect of service off-shoring on productivity is over-estimated and its negative contact with productivity growth is of insignificance.…”