Outsourcing and the Search for `Flexibility'

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Abstract
Organizational restructuring during the 1980s consisted in part of efforts by large and small firms alike to achieve functional, wage or numerical 'flexibility' in their relationships with employees. The practice of contracting-out, or 'out-sourcing' work which might otherwise have been performed 'in-house', is one aspect of numerical flexibility. From analysis of a nationally representative sample of production managers in one thousand manufacturing establishments in the US, conducted in 1986-87, we find that management's motivation for engaging in this practice is multi-dimensional. The relatively high cost of labour is only one among several factors favouring the use of subcontracting. In addition, a significant fraction of manufacturing outsourcing is motivated by managers' desire to access specialized assets - such as tooling and skilled labour - that are available only (or most expeditiously) by 'going outside'. Greater scope (product diversity) at the level of the production process and size (as a proxy for resourcefulness) at the firm level increase the likelihood that managers will outsource production.

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