Abstract
Most empirical studies provide evidence that the relationship between the degree of outsourcing and firm performance is an inverted U-shape. Those studies implemented regression analysis to provide evidence of the inverted U-shaped relationship statistically. Cost reduction is used to represent firm performance in this study. Therefore, the purpose of this study is to examine how the relationship between the degree of outsourcing and the total cost of a firm becomes a U-shape instead of an inverted U-shape in the manufacturing industry. Cost analysis is implemented by simulations using a learning model of outsourcing to provide a more structural explanation than a statistical method. As a result, I suggest that the internal coordination cost and external coordination cost affect the relationship between the total cost of a firm and the outsourcing rate.
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