The Encapsulation of Decentralized Information in Networks of Firms
University of Siena, Department of Economics Working Paper No. 286
23 Pages Posted: 4 Nov 2000
Date Written: April 2000
This paper gives an interpretation of the recent diffusion of the processes of productive outsourcing founded on two explanatory points. The first is that such processes replace a hierarchical paradigm of information diffusion with a decentralized paradigm in which independent subcontracting firms autonomously collect and process part or all of the prominent information. The second is constituted by the change of the modality of production innovation, becoming the result of autonomously developed inputs that are successively made complementary by the work of the network through an encapsulation process of the information. This is made possible by the fact that after an initial phase in which a new input is jointly projected by the contractor and the subcontractor and in which the information comes shared, a phase follows in which the prominent information for the specification of the characteristics of the product and for the solution of the local and unforeseen problems is collected and processed in a sequential manner and then encapsulated in the input by autonomous production units. In comparison with the vertical integration (make) or the market (buy), this form of governance (subcontract) allows for the organization in more efficient manner of the processing of the information, for the reduction of the informative costs and for the minimization of the risk of spillover.
JEL Classification: L11, L22
Suggested Citation: Suggested Citation