Outsourcing, Delocalization and Firm Organization: Transaction Costs vs. Industrial Relations in a Local Production System of Emilia-Romagna

The paper aims at investigating how far transaction costs economics (TCE) concurs in the explanation of outsourcing decisions in firms characterized by “thick’ industrial relations, that is where unions and employees are involved in, and are sometimes able to affect, the relative managerial decisions through participatory formal and informal mechanisms. What is more, the paper aims at investigating whether the concurrence of TCE and industrial relationships has different outsourcing implications for firms which are also involved in delocalization strategies. An empirical model, translating a set of theoretical correlations between an original outsourcing extent variable, on the one hand, and a number of proxies related to TCE, industrial relations and delocalization, on the other hand, is applied to a representative sample of manufacturing firms for the local production system of Reggio Emilia (RE) (in Northern Italy). Overall, the empirical application shows that the role of TCE in accounting for outsourcing in the LPS of RE is quite blurred, if not even contradicted, while the role of industrial relations emerges instead quite straightforwardly. Finally, RE firms generally use outsourcing and international delocalization in a complementary way, but the correlation between outsourcing and delocalization turns out to be dependent on the kind of activity and of the nature of the delocalization channel.