Article ID: | iaor20108298 |
Volume: | 129 |
Issue: | 1 |
Start Page Number: | 23 |
End Page Number: | 31 |
Publication Date: | Jan 2011 |
Journal: | International Journal of Production Economics |
Authors: | Jiang Bin, Yao Tao, Moon Yongma |
Keywords: | outsourcing |
Even though many studies have discussed outsourcing contracts from the client’s perspective, little research has been done from the vendor’s perspective. In this paper, we consider a vendor’s outsourcing contract decision-making process, during which the market price and the vendor’s operation cost are uncertain. This paper develops real option models to investigate whether a vendor firm should sign an outsourcing contract from its client or establish a joint venture with this client. Our results show that, while the feasibility of an outsourcing contract to the vendor increases with a higher contract price offered by the client, the feasibility of a joint venture depends on market conditions. We also find that there are loss-by-acceptance regions, in which either an outsourcing or a joint venture contract is currently feasible to start, but a vendor may sustain a loss by accepting such a contract.