Service Outsourcing Manufacturing Efficiency Mechanism Analysis

This paper firstly introduces the origin of service outsourcing and the role manufacturing industry has played in its growth, and then focus on analyzing how outsourcing has affected the economic efficiency of manufacturering industry in return.The division of labor and the transaction cost are the theoretical base of service outsourcing. Enterprises seeking profit maximization is the root cause of service outsourcing. Large-scale economy is the profit base of service outsourcing. Through analyzing the directional flow of service industry in 2002 and 2005, manufacturing industry turns out to be the major consumer of service industry, and the development of service industry is largely dependant on the demand from manufacturing industry.Due to lack of measuring technique of manufactures'service outsourcing intensity, this paper introduces a quantative method. As to the input-output technique, service outsourcing means buying intermediate inputs from the third industry to produce products. Therefore, the ratio of intermediate input from the third industry to total input can be used as a measure of outsourcing intensity.The non-parameter DEA-Malmquist model is applied in this paper to calculate the economic efficiency of nine different manufacturing sectors. The aim is to find out the inter-relationship between outsourcing intensity change and economic efficiency change. All the data comes from input-output tables of China (1995-2005) which are published by China National Bureau of Statistics. By decomposing total factor productivity (TFP) into technical change efficiency, pure technical efficiency and scale efficiency, this paper examines in details how outsourcing intensity change has affected TFP. The model results and data observed suggest that service outsourcing intensity change has a positive effect on the economic efficiency of manufacturing industry. Labor-intensive industry, capital-intensive industry and technology-intensive industry have different responsiveness to outsourcing intensity change. And the technical change efficiency of capital-intensive industry has the strongest positive response. The scale efficiency has negative response. And the pure technical efficiency has no obvious influence. Although partly offset by the negative response of scale efficiency, the TFP responses positively to the outsourcing intensity change. As for labor-intensive industry and technology-intensive industry, the effect of outsourcing intensity change to their economic efficiency is quite the same, only that they have lower responsiveness.This paper calculates the economic efficiency change of the whole manufacturing industry from year 1995 to 2005. And the results reveal that both technical change efficiency and TFP response positively to outsourcing intensity change. Due to the development lag of producer services, outsourcing intensity change has no significant influence on pure technical efficiency change. And it has negative influence on the scale efficiency of current period, but has positive influence to the following periods.It's the trend of world economic development that the producer service develops interactively with the manufacturing industry, and it also plays an important role in improving industrial structure of China. Through theoretical analysis and empirical test, this paper discussed how service outsourcing intensity change has influenced the economic efficiency of manufacturing industry.