Organizational Production Form Choice Of Firm: Integration Or Outsourcing?

Multinationals play an important role in the process of globalization by their different choices of production organization and thus adjusting their boundaries of firm. Focusing on multinationals role, there is an emerging exciting area in research, which combines theory of firm boundary and multinational analysis together. This paper tries to make academic contribution in this direction.There are mainly four parts in this paper. Part one is comparative case analysis. Part two is survey of related literature. Part three is individual firm model, in which key factors affecting the organizational choice of firm are considered.Based on Antràs & Helpman(2004), this model focuses on policy factor that affecting bargaining power of firm in incomplete contract environment. By considering bargaining power of firm in different form of organization, heterogeneous productivity of firm, wage difference between countries and intensity of input in production of firm of firm together, this model argues that firm has to tradeoff form function and fixed cost so as to make organizational decision. Part four is strategic choice model between duopoly firms, and this part pays special attention to market competition factors.By extending basic model in Shy & Stenbacka(2003), this paper analyzes how factors, including marginal cost difference between outsourcing and integration, product differentiation, firms’initial location, affect Nash Equilibrium in organizational choice game between rivals in Hotelling market setting.