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Flexible Outsourcing[Note 1. 1 A companion paper has been presented at the ...]
Author(s) -
Moretto Michele,
Rossini Gianpaolo
Publication year - 2012
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.1560
Subject(s) - outsourcing , flexibility (engineering) , vertical integration , hedge , industrial organization , business , adaptation (eye) , key (lock) , operations management , microeconomics , economics , computer science , marketing , management , computer security , ecology , physics , optics , biology
Flexibility is definitely a key for success and is crucial in vertical relationships. Then, it seems worth analyzing the selection of the optimal degree of vertical integration and/or separation in a dynamic uncertain environment, where a flexible firm can switch from a certain degree of outsourcing back to vertical integration. The enterprise we investigate never throws away the vertical control of the manufacturing chain as it does not outsource the entire input requirement. On the contrary, it keeps the ability to make the intermediate good in‐house as a kind of prudential conduct. Higher uncertainty lets firms enter earlier, as vertical flexibility provides a hedge against risk. After entry, an increase in uncertainty boosts the probability of outsourcing. These results differ from received literature. Copyright © 2011 John Wiley & Sons, Ltd.