Global Outsourcing or Foreign Direct Investment: Why Apple Chose Outsourcing for the iPod
Resource
Japan and the World Economy, 23 (3): 163-169
Journal
Japan and the World Economy
Pages
163-169
Date Issued
2011
Date
2011
Author(s)
Abstract
A simple model is presented, where a firm's productivity is endogenized by its R&D investment. It shows that the most productive firms may prefer international outsourcing to foreign direct investment (FDI) in industries with a high innovation share. The high innovation share motivates the firms to economize on organizational cost in order to save resources for R&D investment, making outsourcing preferable to FDI because the former incurs a smaller organizational cost. This model helps explain why Apple Inc., belonging to the electronics industry, which has a particularly high innovation share, launched its innovative iPod through international outsourcing instead of FDI. © 2011 Elsevier B.V.
Subjects
trade
Type
journal article