The Theories of International Outsourcing and Integration: A Theoretical Overview from the Perspective of Organizational Economics

The purpose of this essay is to provide an overview of the theories of the vertical firm boundaries from a viewpoint of a theorist whose field of specialization is organizational economics. I offer several testable theoretical hypotheses (with a few relevant empirical studies in the fields outside international economics) hoping future research will test them in the context of international vertical relationships in East Asia, and provide theorists like me with new evidence and evaluations, both positive and negative. Such interaction is crucial for our further understanding of multinational firms’ strategies in East Asia. I first summarize two approaches to the boundaries of the firm, the transaction costs approach and the property rights approach. To differentiate from those recent survey papers by scholars of international trade which mostly focus on these approaches, I put more emphasis on alternative theories, since in the field of organizational economics, the property rights approach to the firm boundaries has been criticized and alternative theories have been developing.