Entrusted Outsourcing, Productive Performance and Risks

Based on an unbalanced sample of 27,311 French manufacturing firms over the period 1998-2007, our estimates indicate that firms' performance has a positive effect on the probability of being outsourcer. The best-performing firms are also those for which the volume of outsourcing is highest. Outsourcing improves the performance of firms in low and medium technology sectors, while it reduces performance in high and medium-high technology sectors. This reduction is particularly noticeable for the firms that turn most to subcontracting; there is a U-shaped relationship between outsourcing and performance in these sectors. We also observe that firms use outsourcing to externalise cyclical risks, but they prefer to internalise technological risks. Finally, firms do not seem to use outsourcing as a means to minimise their production costs.