Author(s)
Stefan Wagner
Source
ZfB Zeitschrift fur Betriebswirtschaft. Special Issue, April 2007, 47-68.
Summary
This paper looks at why firms outsource work instead of doing it themselves.
Policy Relevance
Firms tend to outsource to handle peaks and valleys in work flow, and when their own internal resources are best put to other uses.
Main Points
- Firms that use new technology must either pay others to handle the costs of managing paperwork such as patent applications, or do it themselves. Most firms pay outside firms to handle most of the work.
- Data from 107 European firms over eight years shows:
- Firms outsource more when they want more patent applications filed, that is, when demand for patent applications rises.
- Firms to which patents are more important also outsource less.
- “Transaction costs economics” explains that firms choose to outsource when the costs of dealing with outsiders is low, or when the costs of dealing with internal personnel is too high (exchange costs between firms).
- Another area, the resource-based view, explains that firms choose to outsource when internal resources can best be put to other uses (resource costs).
- Both theories explain aspects of our data about outsourcing, and could be integrated.
