Outsourcing versus joint venture from vendor’s perspective

Outsourcing versus joint venture from vendor’s perspective

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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: , ,
Keywords: outsourcing
Abstract:

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.

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