On the Organizational Structure of Multinational Firms: Which Sourcing Mode for Which Input?

33 Pages Posted: 26 May 2012

See all articles by Jens Suedekum

Jens Suedekum

Heinrich-Heine-University Duesseldorf, Duesseldorf Institute for Competition Economics (DICE); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Institute for the Study of Labor (IZA)

Verena Nowak

University of Duisburg-Essen

Christian Schwarz

University of Applied Sciences Duesseldorf

Abstract

Recent studies indicate that firms often outsource standard and simple tasks, while keeping complex and important inputs inside their boundaries. This observation is difficult to reconcile with the property rights approach of the firm, which suggests that important components should be outsourced in order to properly incentivize the respective suppliers. In this paper we introduce economies of scope into a property rights model where a producer contracts with two suppliers. The organizational decision is driven by two countervailing effects: the ownership rights effect favors outsourcing, while the "indirect" effect via the suppliers' costs favors vertical integration of both inputs. If production is highly component intensive, and if one input is much more important than the other, we show that vertical integration of the "more important" and outsourcing of the "less important" supplier is chosen in equilibrium. We also consider an open economy setup where the producer decides whether to offshore inputs.

Keywords: multinational firms, outsourcing, intra-firm trade, property rights approach

JEL Classification: D23, F12, L23

Suggested Citation

Südekum, Jens and Nowak, Verena and Schwarz, Christian, On the Organizational Structure of Multinational Firms: Which Sourcing Mode for Which Input?. IZA Discussion Paper No. 6564, Available at SSRN: https://ssrn.com/abstract=2066987

Jens Südekum (Contact Author)

Heinrich-Heine-University Duesseldorf, Duesseldorf Institute for Competition Economics (DICE) ( email )

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Verena Nowak

University of Duisburg-Essen ( email )

Lotharstrasse 1
Duisburg, 47048
Germany

Christian Schwarz

University of Applied Sciences Duesseldorf ( email )

Münsterstraße
156
Düsseldorf, 40476
Germany

HOME PAGE: http://https://wiwi.hs-duesseldorf.de/personen/christian.schwarz/Seiten/default.aspx

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
31
Abstract Views
483
PlumX Metrics