Overseas Assembly and Country Sourcing Choices

This paper studies the cross-country pattern of U.S. overseas assembly activities between 1980 and 2000 to examine how outsourcing decisions are affected by changes in country and competitor costs. A number of interesting regularities emerge. When a country's costs rise, the share of U.S. overseas assembly activities in that location decline. Conversely, a country's share of U.S. overseas assembly activities grows when competitor country costs increase. While own and competitor country costs affect overseas assembly in all countries, the magnitude of these effects is larger for developing countries than it is for developed countries. In many cases, the measured responses to cost changes appear to correspond with outsourcing theories that are based on search and customization costs.