Does Outsourcing Increase Profitability?

29 Pages Posted: 29 Oct 2004

See all articles by Holger Görg

Holger Görg

University of Kiel; Kiel Institute for the World Economy

Aoife Hanley

Nottingham University Business School (NUBS) - Industrial Economics Division

Date Written: October 2004


We investigate the relationship between outsourcing and profitability paying particular attention to the endogeneity of outsourcing. The empirical analysis uses unique plant level data for the electronics sector in Ireland. A particular feature of the data is that it records detailed information for 12 electronics sub-sectors covering both manufacturing and services activities. We distinguish outsourcing of materials from outsourcing of services inputs. We find that plants that are substantially larger than the mean employment size benefit from outsourcing materials and services inputs, while this does not appear to be the case for small plants. Results for outsourcing of services are not as clear-cut, however.

Keywords: outsourcing, subcontracting, profitability, electronics

JEL Classification: L23, L63

Suggested Citation

Gorg, Holger and Hanley, Aoife, Does Outsourcing Increase Profitability? (October 2004). Available at SSRN: or

Holger Gorg (Contact Author)

University of Kiel ( email )

Olshausenstr. 40
D-24118 Kiel, Schleswig-Holstein 24118

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, Schleswig-Hosltein D-24100

Aoife Hanley

Nottingham University Business School (NUBS) - Industrial Economics Division ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

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