International Subcontracting Research Articles

Knowledge sharing dynamics in international subcontracting arrangements: The case of Finnish high-tech SMEs

This paper focuses on an under-researched topic of knowledge sharing dynamics in international subcontracting relationships of SMEs. Based on in-depth qualitative analysis of three Finnish high-tech firms, our findings reveal that not only cost and performance expectations motivate SMEs for international subcontracting, but also the factors like lack of in-house alternatives, the volatility of workload, and need for speed in growth-related activities such as deliveries play an important role. We further found that the SMEs try to balance internal risks/uncertainty and external risks/uncertainty throughout international subcontracting. Our paper contributes to the extant literature by being one of the first studies to specifically highlight the range of knowledge sharing and knowledge protection mechanisms used in international subcontracting in SME-SME relationships in which partners come from different institutional settings and physical locations. Moreover, this paper is one of the few studies to specifically highlight the role of time in knowledge sharing from the buyer's point of view as well, specifically by emphasizing the need to balance the internal and external risks during the life-cycle of international subcontracting while balancing short-term challenges and long-term strategic development plans.

Internationalization of SMEs; Evidence from Mexican Leather Footwear Industry

Despite Mexican leather footwear industry is traditional, it has not increased or even maintained the level of competitiveness in the global market; the export problems of SMEs (Small and Medium Enterprises) have been studied by some authors but the internationalization (beyond exports and imports and including foreign direct investment, international subcontracting and international technical cooperation) has not been deeply explored so it is not documented how the process of this economic segment is occurring and if that is evolving accordingly to the theory (E.g. Uppsala model). The objective of this study is to analyze the internationalization of SMEs of the Mexican leather footwear industry to know if accumulated knowledge and experience in foreign markets effectively leads the organization to more advanced and complex stages of international exchange. A survey composed by 47 questions was applied to a sample of 21 SMEs of the Mexican leather footwear industry, their experience was also collected by semi-structured interviews. Results show that SMEs are involved in the internationalization process strongly oriented to the development of exports and imports and only a small number of them have been able to reach the stage of foreign direct investment. These results suggest that internationalization is only conceived in terms of imports and exports and efforts are carried out only to those stages even if SMEs could obtain a great benefit from the rest of the internationalization exchange (FDI, international subcontracting and technical cooperation). This behaviour might be due to some factors as: (1) the relatively low level of competitiveness of the Mexican firms in the global industry, (2) the lack of know-how and (3) the vision of the owners and managers of the company.

Information Barriers in Global Markets: Evidence from International Subcontracting Relationships

We study the link between information barriers in global markets and the organizational form of asset management. Fund families outsource funds in which they are at an informational disadvantage to generate performance. Using a structural model of self-selection, we endogenize the outsourcing decision and estimate positive gains from outsourcing of 4–14 basis points per month, thereby reconciling underperformance of outsourced funds with performance maximization by fund families. The gains from outsourcing provide a novel proxy for the information barriers that segment global financial markets: The more segmented the underlying markets where the funds invest, the larger the gains from outsourcing.

Situating Labour in the Global Production Network Debate: As if the ‘South’ Mattered

Through a critical review of literature, this paper provides a ‘Southern’ perspective on the positioning of informal labour within global production networks (GPNs). The imperatives to understand the labour processes and possible strategies of labour agencies in the South under the GPNs ensue from rapid advances in the globalisation of production and the concomitant job creation and decent work promises. The reluctance to address or non-recognition of the question of persistent exploitative work arrangements especially at the lower tiers of the commodity chain has been underscored as a serious lapse in the discourse on labour in international subcontracting arrangements. Unsubstantiated optimistim about the outcome of participation of southern producers in these GPNs have, thus, obscured the challenges and intensity of the crisis of informal labour.

Information Barriers in Global Markets: Evidence from International Subcontracting Relationships

We study the link between information barriers in global markets and the organizational form of asset management. Fund families outsource funds in which they are at an informational disadvantage to generate performance. Using a structural model of self-selection, we endogenize the outsourcing decision and estimate positive gains from outsourcing of around 9-14 bps per month despite the ex-post underperformance of outsourced funds vis-a-vis in-house funds. The gains from outsourcing provide a novel proxy for the information barriers that segment global financial markets. The more segmented the underlying markets where the funds invest, the larger the gains from outsourcing.

Information technology and partnership dynamic capabilities in international subcontracting relationships

Previous studies have noted the positive impacts of information technology (IT) investments on firm performance. The purpose of this paper is to show that IT investments also improve the joint performance of partners in a relational setting. We argue that IT investments enhance the partnership dynamic capability, which in turn, increases the partnership value. With a higher partnership value, the joint performance of the partners improves. Partnership dynamic capability refers to the ability of partners to coordinate actions in pursuit of market opportunities or in response to threats. Partnership dynamic capability plays the role of a catalyst in transforming the IT-related investments into partnership value which is the strategic value co-created by the partners and can only be exploited jointly by the partners. We test this argument in the international subcontracting business of the personal computer industry. The working hypotheses were developed by drawing on the resource-based view (RBV) and the dynamic capability perspective of the firm. Partnership dynamic capability is captured by three constructs in the empirical study: information exchange, relationship-specific knowledge (RSK) stores, and joint actions. The data, which were collected from 126 Taiwanese personal computer firms, substantiate the hypotheses.

Une extension du domaine de la lutte : l'internationalisation des savoir-faire syndicaux américains en Amérique centrale

In massively externalizing their production to the countries of the Global South, many Western companies have concealed from consumers the commonly illegal labor conditions that characterize work in factories engaged in international subcontracting. Going beyond campaigns to raise consumer awareness concerning these practices, in the 1980s American and international labor unions launched direct labor organizing campaigns targeting southern hemisphere workers employed in the sub-contracting factories of electronics and clothing multinationals, particularly Central American sweatshops. The present article describes the origin of this labor union repertory in the context of the externalization of production to the South, focusing on labor organization campaigns in Central America.

SUBCONTRACTING, R&D AND LABOUR PRODUCTIVITY: A THEORETICAL EXPLANATION

While a large body of researches discusses the effects of international subcontracting on firm dynamics, the present work deals with the similar issues of a domestic firm who subcontracts to the informal sector in a typical developing world. Theoretically, we develop a model that if the formal sector wage is higher than that of informal sector, the choice of informal sector subcontracting and in-house R&D investment appears to be alternative options to the firm to bypass expensive labour in the formal sector. We argue that the R&D and labour productivity in formal sector are highly influenced by the informal wage but not the formal sector one. Since the subcontracting can raise both supply and demand for informal workers due to a rise of formal sector wage, the movement of informal sector wage is uncertain and thereby, the formal sector R&D and labour-productivity are also ambiguous. Thus, countries with a vast segment of lowly-paid informal workers exhibit lowly-productive formal workers.

The Study of CSPX Information Support Technology

To promote international industrial subcontracting in China, this paper introduced the advanced information network technologies of international industrial subcontracting (SPX), and presented an information support system for china union of international industrial subcontracting (CSPX). The functions of the support system include technical information search, information retrieval, information dissemination, information exchange etc. In order to promote the service function of SPX and role in promoting enterprise development, we analyze the integration need of SPX system and other information systems and given and present an approach to realize the enterprise application integration between all these information systems.

OH&S Small and Medium-Size Enterprises and the Issue of Cultural Diversity: Ongoing Research in the Construction Industry

This paper reports on the findings from stage one of a collaborative New Zealand and French research project on the construction industry and in particular the link between occupational health and safety (OHS), subcontracting and cultural diversity. The construction sector in France, New Zealand and elsewhere has not only one of the highest injury, illness and fatality rates but the sector also has a prevalence of small subcontracting firms and a substantial migrant labour force (CNAM, 2008; Department of Labour, 2009). The practice of outsourcing in this industry has created a complex web of sub­contracting with an international dimension and resultant confusion over regulatory responsibilities for the health and safety of workers. Thus, those in the industry are grappling with challenges of managing a culturally diverse workforce within a hazardous working environment. Hiring poorly paid migrant labours in the construction industry, however, is not a recent phenomenon in either France or New Zealand. This in turn has created a melting pot where diversity can be both an advantage and a weaknesses in terms of safety. One the on hand the enormous variability of demographic and social status (Jounin, 2009) and cultures (a term which here encompass personal, collective and professional elements) can lead to dissonance on construction site and yet on the other hand diversity can stimulate innovative ways of implementing safety measures more effectively (Mearns and Yule, 2009). Given that the international subcontracting process and migrant labour are central to the construction industry, the aim of this qualitative research is to identify and explain the sources of OHS failure and suggest adjustments that need to be made.

INTERNATIONAL ORIGINAL EQUIPMENT MANUFACTURING AND ORIGINAL DESIGN MANUFACTURING CONTRACTS WITH QUALITY-DIFFERENTIATED PRODUCTS

We build a model of international subcontracting in quality-differentiated goods. Assuming no entry in an original equipment manufacturing (OEM) market, we show that the foreign outsourcer will choose an original design manufacturing (ODM) contract only if the subcontractor is good enough at product design. However, the product quality with the ODM contract is not necessarily higher than that with the OEM contract. When the subcontracting market becomes perfectly competitive, the outsourcer will always choose an OEM contract. In a two-period model with learning and entry effects, the foreign outsourcer chooses between different modes of manufacturing contracts. We demonstrate that a laissez-faire policy on research and development (R&D) activity may be optimal even if the subcontracting firm can only obtain an OEM contract. In the case where the OEM market becomes perfectly competitive in the second period, we predict that a positive R&D subsidy in the first period can help the domestic subcontractor obtain OEM–ODM contracts and, as a result, national welfare rises.

Towards a Structural Model of a Small Family Business in Taiwan

This paper presents a structural model of a small family business in Taiwan. It argues that a typical small business in Taiwan consists of three major components: entrepreneur (laoban), boss's wife (laoban liang) and core team (bandi). Underlying small business dynamics in Taiwan is the Chinese family style of management which enhances competitiveness and flexibility in global markets. Small entrepreneurs in Taiwan are always alert to profit opportunities and surf on the waves of rising markets. With short-term planning, they act as imitators as well as original equipment manufacturers in international subcontracting. The boss's wife is a multi-functional worker. She moves between the family (private domain) and the factory (public domain) with great flexibility. Combining the roles of housewife and deputy head, the boss's wife contributes significantly to the dynamics of small businesses in Taiwan. Finally, the entrepreneur cultivates a core production team (bandi) to enable the small enterprise to compete in world markets with a high degree of organizational capability and efficiency.

Strategic Management of International Subcontracting

Research on international subcontracting has been policy-oriented and industry-focused. There is a lack of understanding of the phenomenon from strategic management and international business perspectives. This article conceptualizes international subcontracting as a type of relational contract formed by buyers and suppliers from different countries, aiming to facilitate the sourcing of products or components with buyer-specific requirements. It builds a transaction cost model for studying the strategic choice of international subcontracting as an intermediate governance structure, sitting between arm’s length outsourcing arrangement and vertically integrated multinational enterprises (MNEs). A set of propositions are developed to aid future empirical research and to provide managers with some guidelines for organizing supply chain across borders. The model also allows managers to examine the complex nature of a range of subcontracting relationships and identify the specific mechanisms that can be used to preserve and manage the dyadic principal-subcontractor exchanges.

Global networks and the reorganization of production in the clothing industry of post‐socialist Ukraine

AbstractIn this article we examine how processes of globalization and the nature of emerging inter‐firm relationships influence the organization of production in a post‐socialist region, using the case of the clothing industry in Transcarpathia, Western Ukraine. We combine insights from two perspectives, the global commodity chain approach and the new regionalism. The focus on both institutional setting and interfirm relationships is essential in regions undergoing rapid change. In the article we also use Burt's concept of structural holes and the idea of a competence‐difficulty gap to examine the nature of relationships within networks of firms, arguing that global integration can be viewed as a bridging process. The evidence comes from surveys and fieldwork conducted between 1997 and 2004, providing a longitudinal analysis of the same firms. Among other findings, we show that the difficulty of doing business locally may make relationships more stable. With respect to industrial structure, international subcontracting and joint‐venture arrangements enable technological modernization in assembly and parts of preassembly, but also result in the demise of high‐value added competences.

A Moral Hazard Model of a Multinational Firm’s Decision between Foreign Direct Investment and International Subcontracting

This paper develops a moral hazard model applied to a multinational firm’s decision between foreign direct investment and international subcontracting. We compare the results of the moral hazard model, characterised by the fact that the multinational firm cannot control the operations performed by the subcontractor firm, with the traditional model of symmetric information. We conclude that the uncertainty associated with the subcontractor firm’s behaviour, despite increasing the multinational firm’s preference to engage in foreign direct investment, does not change its optimal decision, which is to subcontract. The exception occurs when the subsidiary stands as more efficient than the subcontractor firm.

Safeguarding investments and creation of transaction value in asymmetric international subcontracting relationships: The role of relationship learning and relational capital

This study examines how suppliers who do not have bargaining power to protect relationship-specific investments (RSIs) can use safeguarding mechanisms to create transaction value in the context of asymmetric international subcontracting partnerships. From a supplier perspective, two different types of bilateral safeguarding mechanisms, relationship learning and relational capital, play discrete roles in the process of creating transaction value. Drawing on a resource-based view (RBV) of the firm, this study proposes that RSIs (a firm's resources), can enhance relationship learning (capabilities), which in turn, facilitates dyadic capability enhancing (joint competitive advantage). In addition, from a social capital perspective, relational capital facilitates relationship learning and strengthens the positive relationship between RSIs and relationship learning. Relationship learning plays the key role, and acts as the catalyst in transforming RSIs and relational capital into dyadic capability enhancing. The hypotheses are tested using data from a survey of 118 Taiwanese supplier–international buyer relationships in information technology industries. The study finds that relationship learning mediates the relationship between RSIs and dyadic capability enhancing, and that relational capital moderates the relationship between RSIs and relationship learning.

To internationally subcontract or not?: (Multinational firms)

Yue Wangs conceptual model of international subcontracting provides an analytical framework for supply chain managers choosing between outsourcing, subcontracting and vertical integration. Copyright 2007 Yue Wang. No part of this article may be reproduced by any means without the written consent of the publisher.

To internationally subcontract or not?

Yue Wangs conceptual model of international subcontracting provides an analytical framework for supply chain managers choosing between outsourcing, subcontracting and vertical integration. Copyright 2007 Yue Wang. No part of this article may be reproduced by any means without the written consent of the publisher.

Lion or paper-made tiger?: Critique of SME-led Development Approach

Restructitring efforts in tire world economy since the 80\'s have brought small and Medium-sized Enterprises (SMEs) once more to the stage. Accordirrg to the wiev that nowadays SMEs represent an important source of load and regional dynamism and that the development is above all local matter, SMEs should have been promoted in order to create employment, stimulate competition and innovation and to provide better working environment in developing economies. This article aims to discuss and criticize different approaches on SMEs about their role in economic development and test this view by taking the Turkish experience since 1980 as a case study. It is based on the argunent that presence of SMEs in a region does not necessarily mean development without taking the company strategies of large firms based on international subcontracting into account. The Turkish experience according to this article shows that SMEs in an export-oriented development environment which aims to integrate into global value chains can not much contribute to the development problems of the country.

Subcontracting and International Trade Policy

This paper examines the optimal trade policies when international subcontracting occurs between two competing firms. It shows that if the strategic substitutes effect dominates the cost saving transfer effect, then the exporting country will impose a different policy on each export. In contrast, if the cost saving transfer effect dominates the strategic substitutes effect, then the exporting country will impose a tax policy on both exports. However, there has never existed an optimal policy to subsidize the export of both the subcontracted product and final product. Even though the exporting firm assumes away its export of the final good, to subsidize the export of the subcontracted good is not necessarily an optimal policy for the exporting country. For the importing country, if the price elasticity of demand is sufficiently small and the marketing cost of the final product is large enough, then it is optimal to set a negative tariff.