Outsourcing and Information Management. A Comparative Analysis of France, Italy and Japan in Both Small and Large Firms

By Innocenti, Alessandro; Labory, Sandrine | The European Journal of Comparative Economics, January 1, 2004 | Go to article overview

Outsourcing and Information Management. A Comparative Analysis of France, Italy and Japan in Both Small and Large Firms


Innocenti, Alessandro, Labory, Sandrine, The European Journal of Comparative Economics


Abstract

This paper compares outsourcing processes in France, Italy and Japan in two types of firms, large firms and also small firms. It is shown that outsourcing has increased over the last two decades in both small and large firms in all three countries and that mainly in the last decade the tendency has been to increasingly involve some of the suppliers in product development. We interpret this evidence by means of a cognitive framework related to the activity of information management. Specifically, we show that the more the relationships among suppliers and users are characterised by two-way communication, decentralised information processing, and accordingly balanced contractual power, the more the incentives to create knowledge and to innovate autonomously are guaranteed.

JEL Classification: D23, L11, L22

Keywords: Firm size, Information, Network, Outsourcing

1. Introduction

Subcontracting and, more generally, productive outsourcing have diffused in all industrialised countries in the last thirty years. Attention to this phenomenon arose in the field of organised vertical markets in which vertical co-ordination by large firms has been progressively substituted by decentralised network of suppliers, governed by principles of lean production and just-in-time. Outsourcing has also been the more significant source of downsizing in local systems of small firms, implying that small firms remain small.1 The result has been the growth in the informative and strategic interdependency among firms with numerous implications, ranging from the fragmentation of labour markets to the intensified use of information technology.

Industrial economics has proposed various explanations for the diffusion of outsourcing. The bureaucratic costs of the large, integrated company have been outlined (Chandler 1962), as well as the incentive and the information processing costs (especially Aoki 1988). When products become increasingly differentiated and renewed, the best strategy appears to focus on core competencies and let other firms deal with the production of other parts, maintenance of machines or distribution (Clark and Fujimoto 1991, Cusumano and Takeishi 1991). Thus, disintegrated firms have been shown to be more efficient in terms of lower costs or higher productivity by Aoki (1988) and Asanuma (1989) for the Japanese case, Coriat (1995), de Banville and Chanaron (1999) for the French case, Arrighetti (1999) and Conti and Menghinello (1998) for the Italian case. However, outsourcing yields other advantages, in particular in terms of product and process innovation. For instance, Clark and Fujimoto (1991) or Michie and Sheehan (1999) show that R&D and product innovation are higher in disintegrated firms.2

Concerning the organisation of production and market structure, such changes mean that the relevant unit of analysis becomes the relationships among firms rather than the single firm. In this paper we focus on the processes of outsourcing among firms that usually assume the form of subcontracting relationships. Specifically, outsourcing involves turning over the functions that fall outside firm's core competencies to another firm whose core competencies are the functions being outsourced. In this way a specific governance form is created, which typically includes the exchange of proprietary information between the user and the supplier.

This paper derives theoretical insights on such information exchanges by comparing some country cases. The aim is to show that the more a supplier is given autonomy of decision and, for this purpose, access to proprietary information, the higher the performance of the network (constituted by the user and the supplier(s)) in terms of innovation. The literature has amply shown the static efficiency advantages of outsourcing; in this paper, our aim therefore is to outline dynamic efficiency, more precisely learning leading to innovation.

We focus on Japan, France and Italy. …

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