Impact of international outsourcing on the value adding of industries

Abstract

Purpose – The value adding of each industry represents the value difference between the outputs and inputs of that industry. The purpose of this paper is to investigate the effect of international outsourcing on the value adding of industries. Design/methodology/approach – Input output analysis and linear programming are used as for the research methodology. Australian Motor Vehicle and Parts Manufacturing (AMVPM) industry as an outsourcer and its main suppliers were selected for ten alternative international outsourcing scenarios in a case study. Findings – In all international outsourcing scenarios except the baseline scenario, the reduction in the value adding of Australia would be approximately three times more than the value adding reduction of the AMVPM industry. Moreover, the international outsourcing ratio has negative relationships with the value adding of the Australian industries and positive relationship with the international industries. Finally, it was found that the degree of supplier's dependency on the orders of the outsourcer effects the percentage reduction of supplier's value adding. Research limitations/implications – The aggregated data and the uncertainties in the technical coefficients are the main limitations of this research. The social and environmental costs, other tangible and intangible costs, as well as benefits of international outsourcing need to be further analysed in future research. Practical implications – This study would help decision makers at the macro level to analyse and control the effect of international outsourcing on the value adding of their economies. Originality/value – This study expands the current research at the industry level of international outsourcing by quantifying the effect of international outsourcing upon the value adding of all respected industries.