Innovation and the geographical and organisational dimensions of outsourcing: Evidence from Italian firm-level data

The paper investigates the diversified patterns of outsourcing in the Lombardy region and relates them to the probability of introducing product and process innovation. Based on a large firm-level survey, we show that outsourcing processes are strongly regionally embedded and that offshoring is still a limited phenomenon. Outsourcing strategies are shown to be positively related to firms' innovation. In particular, the outsourcing of service activities is mostly related to product innovation, thus suggesting that firms successfully pursue core strengthening strategies. Our econometric estimates show that both geographical and organisational proximity matter. Indeed, the positive association of services with innovation is strongly related to their regional dimension, which points towards the importance of local user-producer relationships. When outsourcing crosses national borders, keeping the outsourced activities within extended organisational boundaries (i.e. within the group or network of affiliates) appears relevant, particularly with reference to R&D activities.