This implies firms are less likely to switch

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This implies firms are less likely to switch production simply because some underlying variable like wage rates has changed. Outsourcing Production: Make-or-Buy These decisions are important factors in many firms' manufacturing strategies.
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Today, service firms also face make-or-buy decisions as they choose which activities to outsource. Should an international business make or buy the component parts to go into their final product? A more complex decision in the international market. The Advantages of Making It - Vertical integration (making component parts in-house) can: 1. lower costs - if a firm is more efficient than any other enterprise, it may pay the firm to continue manufacturing the part in-house. 2. facilitate investments in highly specialized assets - internal production makes sense when substantial investments in specialized assets. 3. protect proprietary technology - a firm might prefer to make component parts to control proprietary technology. 4. facilitate the scheduling of adjacent processes - the weakest argument for vertical integration is that the resulting production cost savings make planning, coordination, and scheduling of adjacent processes easier.
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  • Summer '13
  • Calhoun
  • Globalization, Firm, minimum efficient scale, Strategic Role of Foreign Factories

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