TY - JOUR
T1 - How and where to offshore
T2 - A productivity comparison at the firm level
AU - Han, Jae Joon
AU - Lee, Hongshik
AU - Lee, Joonhyung
N1 - Copyright:
Copyright 2014 Elsevier B.V., All rights reserved.
PY - 2014/5
Y1 - 2014/5
N2 - Using recent survey data on South Korean firms' strategies for sourcing intermediate goods from abroad, we investigate whether there exists a productivity premium of offshoring by considering organizational forms (insourcing versus outsourcing) and the income level of offshored countries (North versus South) altogether. Thus, we consider the following four offshoring types: outsourcing from South, insourcing from South, outsourcing from North and insourcing from North. Unlike previous studies, we give particular attention to the comparison between outsourcing from North and insourcing from South and find that firms outsourcing from North are more productive than firms sourcing from their own affiliates in South. We offer three critical conditions to incorporate our empirical findings into the standard firm heterogeneity model: the fixed cost is higher for insourcing than for outsourcing and is higher in North than in South, the headquarters receive a larger share of the final revenue through insourcing than through outsourcing, and sourcing from North guarantees better profitability (or a bigger share) in the market for the headquarters than sourcing from South. Thus, this article contributes to the literature by identifying a new productivity order.
AB - Using recent survey data on South Korean firms' strategies for sourcing intermediate goods from abroad, we investigate whether there exists a productivity premium of offshoring by considering organizational forms (insourcing versus outsourcing) and the income level of offshored countries (North versus South) altogether. Thus, we consider the following four offshoring types: outsourcing from South, insourcing from South, outsourcing from North and insourcing from North. Unlike previous studies, we give particular attention to the comparison between outsourcing from North and insourcing from South and find that firms outsourcing from North are more productive than firms sourcing from their own affiliates in South. We offer three critical conditions to incorporate our empirical findings into the standard firm heterogeneity model: the fixed cost is higher for insourcing than for outsourcing and is higher in North than in South, the headquarters receive a larger share of the final revenue through insourcing than through outsourcing, and sourcing from North guarantees better profitability (or a bigger share) in the market for the headquarters than sourcing from South. Thus, this article contributes to the literature by identifying a new productivity order.
KW - South Korea
KW - firm heterogeneity
KW - offshore
KW - outsourcing
UR - http://www.scopus.com/inward/record.url?scp=84894236444&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84894236444&partnerID=8YFLogxK
U2 - 10.1080/00036846.2014.881975
DO - 10.1080/00036846.2014.881975
M3 - Article
AN - SCOPUS:84894236444
VL - 46
SP - 1704
EP - 1715
JO - Applied Economics
JF - Applied Economics
SN - 0003-6846
IS - 15
ER -