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Outsourcing and innovation: Evidence for a local production system of Emilia-Romagna

Massimiliano Mazzanti
Department of Economics, Institutions and Territory University of Ferrara Italy

Sandro Montresor
Department of Economics University of Bologna Italy

Paolo Pini
Department of Economics, Institutions and Territory University of Ferrara Italy

PP: 324

Abstract

The paper investigates how innovation relates to outsourcing for firms located in a specific local production system. A set of theoretical correlations between innovation related variables and outsourcing decisions is formulated by drawing on a heterogeneous body of literature. Correlations are tested with respect to a representative sample of firms of a local production system in Emilia-Romagna: Reggio Emilia.

The main result of the paper is that, in the district-like context investigated, where networking intertwines with market mediated mechanisms, the firm's innovativeness correlates positively with the complexity of the outsourcing strategies. Once the firms' embeddedness is controlled for, the ‘dualistic' argument that innovative firms do not outsource in order to avoid the impoverishment of their capabilities is not guaranteed.

On the contrary, according to a ‘developmental' argument, being innovative in Reggio Emilia requires the outsourcing of ancillary activities, in order to refocus on the business core and, though to a lesser extent, of supporting production activities in order to tap-into the external providers and benefit from their own competences. Confirming the results of other previous studies, the particular set of network interactions which make up the social capital of Reggio-Emilia thus seems to make the outsourcing-innovation relationship viable by attenuating the risks of firms getting locked in unbalanced and dependency relations from their suppliers.

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Keywords

outsourcing, firm organization, transaction costs, competences, innovation, local production systems, JEL codes: L22, D23, J53

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