Research On The Threshold Effect Of The Offshore Outsourcing Influenced By Incomplete Contracts

Managing and controlling production resources,a long time ago,enterprises generally take investment and construction by themselves,investment holding or merging to centralize most sections of the value chain within themselves.Hence it brings up the internal production system including raw materials,semi-finished products or parts and components manufacturing,which is known as the production organization model of "vertical integration" or "big and complete","small and complete" in China.Enterprises adopt the "vertical integration" management mode to strengthen the control of the whole production process and realize the industrial management,and to achieve the purpose of increasing the profit in each stage of business activities.This model has its rationality in the traditional competitive environment,however,with the rapid development of high technology,the increasingly fierce of market competition and the diversification of consumer demand,"vertical integration" mode enable enterprises a lot of opportunity cost.Also,disadvantages like failure to response quickly to the market and high production costs are gradually shown.With the strengthen of information and transportation,remote production organization and circulation reduce gradually,more and more enterprises reform or reproduce their traditional production mode.Their strategy changes to produce maximize products in the minimize time and the lowest costs.To make full use of external resources,enterprises outsourcing non-core competitiveness activities,such as spare parts,raw materials,services.In this new mode,large enterprises liberate from industry chains,focusing on production research,brand management,technological innovation and outsourcing non-core competence or low value-added aspects.Thus,production supply chain system,featuring stable-trading and profit-sharing,generates.Research conclusion drew from the traditional international trade theory concentrate on two aspects:one is that labor endowment and status of infrastructure determines outsourcing in multinational companies,another is that there exists linear relationship between influencing factors and multinational companies' offshore outsourcing.But above conclusions can't explain why offshore outsourcing enterprises mainly distributed in the east of China,where the wage is higher than other area.Nor the conclusions can explain the trend that offshore outsourcing is moving to the central and Western regions.This article provides a solution to this problem from incomplete contract theory:the contract enforcement efficiency may be a primary consideration when multinational enterprises choose to outsource offshore and the improvement of the contract enforcement efficiency can impel multinational companies to do so.But there lacks deep analysis on how the contract enforcement efficiency influence offshore outsourcing.This article takes transnational enterprises in developed countries for research object and discusses the location selection of the manufacturing industry's offshore outsourcing from the perspective of the imperfect contract and the production organization mode of transnational enterprises.Under the conditions that China's comprehensive national strength and enterprises' strength is growing,the organization models of space layout in multinational companies are worth learning and it is conducive to the realization of the value chain upgrade for China's enterprises.The offshore outsourcing model,containing the heterogeneous contract execution efficiency,is constructed under the framework of Antras and Helpman(2008).The theoretical conclusion deduced is that there is a growing threshold relationship between contract execution efficiency and the profits of multinational companies.Then use the threshold regression model of Hansen(1999)to construct the dual threshold panel model,based on the panel data of 25 provinces and cities in China in 2000-2013,the empirical test results support the theoretical hypothesis.The empirical results show that when the contract execution efficiency is lower than the threshold value(?s??1),the comparative advantage of labor force and good infrastructure to attract multinational outsourcing;when the contract execution efficiency is higher than the threshold value(?1? ?s<?2),the infrastructure of labor comparative advantage and good is the main the factors of offshore outsourcing location decision of multinational enterprises;when the contract execution efficiency to a higher threshold value(?2 ?? s),weaken the positive effect of offshore outsourcing of multinational enterprises.Theoretical and empirical results show that multinational enterprises must first examine whether contract enforcement efficiency has reached in the threshold and then decide the location of offshore outsourcing according to the contract execution efficiency,relative labor cost and infrastructure.Therefore,the existence of the threshold effect explains the location choice of offshore outsourcing made by multinational enterprises and why it is transferring towards the Midwest in China.The academic value of this article is that it not only explains the new pattern of multinational enterprises' offshore outsourcing right now and forecasts its trend in the future but also provides a theoretical investigation related to practical problems coming from China's economy.Under the situation that our offshore outsourcing is influenced by international environmental constraints and the gradual disappearance of manufacturing cost advantage together with fatigue support of low-end manufacturing industry,this article provides suggestions for production organization,transformation and upgrading of manufacturing industries in China and government's policy adjustments to attract foreign investment.