Managerial Economics and Strategy, 2/e

17.5 Outsourcing

Probably no international trade issue has been more controversial than international outsourcing, where a firm buys goods and services from foreign suppliers that the firm would otherwise provide internally. In extreme cases, a manager who outsources abroad to reduce costs may face a boycott by consumers, which can hurt the firm’s bottom line.

Less controversial and more common is domestic outsourcing. For example, a restaurant may outsource its cleaning needs to a company that provides janitorial services rather than hire its own cleaning staff. No firm produces all its own inputs and provides all the necessary services to sell its product. All firms outsource to some degree.

International outsourcing used to be rare. However, ...