Sasan Bakhtiari

Outsourcing and Innovation: An Empirical Exploration of the Dynamic Relationship

Abstract: We study the implications of vertical integration on innovation performance using firm-level data in Australian manufacturing. We use the data to distinguish between low-cost-oriented and innovation-oriented outsourcing. Outsourcing without innovation lowers the costs at the expense of damaging the future chances of innovation, while innovation-oriented outsourcing leads to higher costs but increases the likelihood of future innovation. For firms that innovate and outsource, the probability of future innovation is 49% compared to 8% for those who outsource without innovating. Comparing across firms that innovate, simultaneous outsourcing increases the probability of future innovation by 5%. Innovation-oriented outsourcing is accompanied with firms shifting expenditure to research and development. Our results offer strong support that outsourcing may be used not just as a cost-cutting strategy, but as a part of a comprehensive firm strategy to innovate and improve.

The Role of Spillovers in Research and Development Expenditure in Australian Industries

ABSTRACT Using administrative data from firms in Australia that conduct research and development (R&D), we examine how R&D activity of other firms and public institutions affect a firms own R&D expenditure. We distinguish between the impact of peers, suppliers and clients. We examine whether geographical proximity and industrial clustering affect R&D spillovers. Overall, we detect positive effects on R&D expenditure from spillovers from peers and clients to firms that are nearby; within 25 or 50u2009km. R&D expenditure by academia, unlike by government bodies, has a positive influence on a firms own R&D expenditure within state boundaries. We fail to find any significant role for industrial clusters in augmenting spillover effects.

Markets and the Non‐Monotonic Relation between Productivity and Establishment Size (Marchés Et La Relation Non‐Monotone Entre La Productivité Et La Taille De L’Établissement)

A model of monopolistic competition is presented in which the relation between the productivity and input size of producers is non-monotonic and bell-shaped. The model predicts that markets matter and the average size of the producers is directly scaled by the size of the market. An indirect effect increases the cutoff productivity, making the bell narrower in larger markets or when the transportation cost falls. Empirical evidence from the concrete industry and a few other 4-digit industries supports the models predictions. The bell-shaped relation has especially important implications on how size distributions are formed across localized versus globalized market industries.

Markets and the non‐monotonic relation between productivity and establishment size

A model of monopolistic competition is presented in which the relation between the productivity and input size of producers is non-monotonic and bell-shaped. The model predicts that markets matter and the average size of the producers is directly scaled by the size of the market. An indirect effect increases the cutoff productivity, making the bell narrower in larger markets or when the transportation cost falls. Empirical evidence from the concrete industry and a few other 4-digit industries supports the models predictions. The bell-shaped relation has especially important implications on how size distributions are formed across localized versus globalized market industries.

Coming Out Clean: Australian Carbon Pricing and Clean Technology Adoption

Australia implemented a carbon pricing scheme from July 2012 to July 2014 to reduce emissions. Using data envelopment analysis, I investigate whether the uptake of clean technology accelerated during this period or whether firms opted for alternate responses. I find that during the scheme firms accelerated the adoption of cleaner technology. Much of this acceleration came from firms lagging in technology catching up with the frontier. Some laggard firms also resorted to reallocating operation to their cleaner facilities to avoid investing in clean technology. The pattern shows some variation from industry to industry. The rate of technology adoption falls as soon as the carbon pricing scheme is repealed.

New Outsourcing, Demand Uncertainty and Labor Usage

It has been theorized that businesses are more likely to outsource when demand uncertainty is large in order to gain flexibility in production. We provide the first firm-level test of this hypothesis, making use of unique longitudinal data on Australian manufacturing. We find that new outsourcing is related to lower net job growth and an increase in work intensity within the firm. Overall, we find no relationship between unexpectedly high demand and new outsourcing. The inly exception is for large firms who expect sales to decrease. New outsourcing appears to be related to the firms overall approach to labor utilization rather than a response to demand fluctuations.It has been theorized that businesses are more likely to outsource when demand uncertainty is large in order to gain flexibility in production. We provide the first firm-level test of this hypothesis, making use of unique longitudinal data on Australian manufacturing. We find an asymmetric relationship between outsourcing and demand fluctuations. Firms outsource in response to negative demand shocks but do not use outsourcing in response to positive shocks. We find that firms hoard capital, but not labor, in advance of expected sales increases. Outsourcing seems to be concentrated amongst those firms who acquired capital in expectation of a sales increase. For most firms, outsourcing is related to both high levels of hiring and firing. The one exception is firms with moderate levels of unionization who appear to use outsourcing to shed jobs.

Corporate Credit Ratings: Selection on Size or Productivity?

Productivity growth is largely driven by the reallocation of resources from less productive firms to more productive ones. Whether corporate credit ratings function in a supportive role is, however, unknown. I use a panel of US manufacturing firms matched to their SP the practice only came under spotlight in the recent decade.

Outsourcing and Innovation: An Empirical Study of Causes and Effects

We study the implications of vertical integration on innovation performance using firm-level data on Australian manufacturing. We use the data to distinguish between low-cost-oriented and innovation-oriented outsourcing. Outsourcing without innovation lowers costs at the expense of damaging the future chances of innovation, while innovation-oriented outsourcing leads to higher costs but increases the likelihood of future innovation. For firms that innovate and outsource, the probability of future innovation is 54 per cent compared to 15 per cent for those who outsource without innovating. Comparing across firms that innovate, simultaneously outsourcing increases the probability of future innovation by 4 per cent. Innovation-oriented outsourcing is accompanied by firms shifting focus to research and marketing of new products. Our results offer strong support that outsourcing may be used not just as a cost-cutting strategy, but as part of comprehensive firm strategy to innovate and improve.

Innovation and Economic Crisis: Lessons and Prospects from the Economic Downturn, by Daniele Archibugi and Andrea Filippetti (Routledge, London and New York, 2011), pp. 200.

The article reviews the book Innovation and Economic Crisis: Lessons and Prospects From the Economic Downturn, by Daniele Archibugi and Andrea Filippetti.