The Production Organization Form Choice In Intra-product Division

The purpose of this study focuses on exploring the influence on the choice of multinational companies’ organizational form choice by the factors of China’s manufacturing enterprises. This will provide policy advice to governments and enterprises, which will make them to take full advantage of resource endowment and decide between foreign direct investment(FDI) and international outsourcing.The content of research mainly includes four parts. The first part is literature review, summarizing the research about the organization form choice of multinational companies from the view of theory and empirical tests. We build the constant elasticity of substitution consumer behavior function and Cobb-Douglas producer behavior function on the basis of Antras and Helpman(2003). Then we make the model concretely by assuming China is the host country.The third part focuses on dealing with the data used in empirical test. In this part, we use the export and feature data of China’s industrial export enterprises which is from Resset Economic Database. At the same time, we find the corresponding customs HS codes of the export enterprises’ main products, then search for the corresponding Classification by Broad Economic Categories(BEC) published by United Nations Economic and Social Council Statistics. At last, we use the System of National Accounts(SNA) published by United Nations to find the enterprises that export intermediate products. To carry on the research, we divide the enterprises into two types include the foreign investment enterprises and domestic enterprises.In the fourth part we mainly study the building of empirical model. According to the research question of this article and characteristic of the sample data, we selected the Binary Discrete Choice Model to do regression test. We set the foreign direct investment enterprises as the substitution dependent variable for multinational companies that adopted integration and marked as 1; we set the domestic enterprises as the substitution variable for multinational companies that adopted outsourcing and marked as 0. The variables are the enterprises’ physical capital intensity, labor intensity, sunk cost, thickness of sector, telecommunication level, intangible assets. We aim to research the effect on the organizational form choice when facing the integration and outsourcing by multinational companies.The paper uses three methods to carry on the research which are the combination of normative analysis and empirical analysis, qualitative analysis and quantitative analysis, comparative analysis.The combination of theory model and empirical test is the application of normative analysis and empirical analysis method. Based on the perspective of incomplete contract and transaction cost, we build the model involving the multinational companies and intermediate production companies. We then deduce the assumption about the effect on the organizational form choice by the factors of intermediate companies. In the end, we use the logit model to do the empirical test with the data of China industrial export enterprises. The variables and equation are all through the significance test means the assumptions given are credible.The analysis of the effect on the degree of offshoring by the feature of countries and sectors is the application of qualitative and quantitative analysis method. In the process of research, this article uses the export value of merchandise and service of 29 countries in OECD(Organization for Economic Co-operation and Development) to calculate the degree of offshoring(the percentage of import inputs accounting for all inputs). According to the degree of offshoring, we rank the highest 5 countries and sectors and the lowest 5 countries and sectors. From the graph, we can see small countries mainly have the low degree of offshoring and big countries mainly have the high degree of offshoring. This is because small countries can focus on several production processes to take full advantage of their resources endowment. Big countries have relatively more capital and labor resources so that allow them to focus on many production processes in order to achieve the scale economy. From the ranking list of degree of offshoring, we can see the degree of goods is higher than service because of its characteristic of un-tradable.The comparative analysis method provide the development and promotion on the basis of previous scholars’ research achievement. Foreign scholars are used to research the heterogeneous firms trade theory in the view of multinational companies in developed countries. On the contrary, this article study from the view of intermediate product enterprises in developing countries. Nannan Zhao(2012) choose the export value of domestic and foreign enterprises as the dependent variables to do the OLS(Ordinary Least Square) regression test. This paper chooses the intermediate products exporting value of domestic and foreign enterprises to do OLS regression test.According to the conclusion of model, we make assumptions as follows:(1) The capital intensity of intermediate product has a positive relationship with the possibility of integration;(2) The labor intensity of intermediate product has a negative relationship with the possibility of international outsourcing;(3) Sunk cost of supplier of intermediate inputs has a negative relationship with the possibility of international outsourcing;(4) When the thickness of intermediate product market is high, multinational companies prefer to choose the form of international outsourcing to acquire the inputs;(5) The standard of telecommunications have a positive relationship with the possibility of international outsourcing;(6) The property right of manufacturing plant operators is a positive signal to the organization form of integration.The conclusion of logit model empirical test shows variable and equation all through the significance test, which means variables and equation have a good explanation to the dependent variables. According to the empirical test, we can conclude that:(1) When the physical capital intensity of China’s manufacturing enterprises is high, multinational companies prefer to through vertical FDI to set up enterprises to obtain intermediate products in China; on the contrary, multinational companies tend to adopt outsourcing to obtain intermediate inputs.(2) When supplier’s labor intensity is high, the multinational companies tend to adopt outsourcing organization pattern; on the other hand, multinational companies prefer integration.(3) When the sunk cost of enterprises is high, multinational companies prefer to through outsourcing to obtain intermediate products; On the contrary, multinational companies prefer to through integration to obtain intermediate inputs.(4) When the thickness of Chinese manufacturing market measured by the cost profit rate is low which means the industry is more likely competitive market. Multinational companies are more inclined to choose outsourcing as the organizational production form; on the other hand, it will tend to choose integration.(5) The increasingly communication level of manufacturing enterprises decreases the risk and cost in outsourcing for multinational companies. It is encouraging for multinational companies to outsourcing when the supplier of intermediate inputs have a good infrastructure and the increasingly reduction of service costs.(6) High intangible assets mean manufacturing enterprises own intellectual properties. It increases the bargaining power of supplier of intermediate input in negotiation. Under the form of outsourcing, the ex post gains from trade is lower for multinational companies. Therefore, multinational companies have a tendency to choose organization production form of integration; on the contrary, they prefer to choose the international outsourcing.