Global Sourcing of Complex Production Processes

43 Pages Posted: 1 Sep 2011

See all articles by Christian Schwarz

Christian Schwarz

University of Applied Sciences Duesseldorf

Jens Suedekum

University of Duisburg-Essen

Multiple version iconThere are 2 versions of this paper

Date Written: August 31, 2011


We develop a theory of a firm in an incomplete contracts environment which decides on its complexity, organization, and global scale. Specifically, the firm decides i) how thinly it wants to slice its production process by choosing the mass of symmetric intermediate inputs that are simultaneously combined to a final product, ii) if the supplier of each component is an external contractor or an integrated affiliate, and if that component is offshored to a foreign country. We also consider the case of asymmetric inputs. Our model leads to a rich set of novel predictions about the structure of multinational firms that are consistent with stylized facts from the recent empirical literature.

Keywords: multinational firms, outsourcing, intra-firm trade, offshoring, vertical FDI

JEL Classification: F120, D230, L230

Suggested Citation

Schwarz, Christian and Suedekum, Jens, Global Sourcing of Complex Production Processes (August 31, 2011). CESifo Working Paper Series No. 3559, Available at SSRN: or

Christian Schwarz

University of Applied Sciences Duesseldorf ( email )

Düsseldorf, 40476

HOME PAGE: http://

Jens Suedekum (Contact Author)

University of Duisburg-Essen

Lotharstrasse 1
Duisburg, 47048

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