Outsourcing Business Services and the Role of Central Administrative Offices

In this paper, I study whether there is any evidence that the market scale surrounding a central administrative o±ce (CAO), which includes corporate headquarters, in°uences a ̄rm's cost-e®ectiveness in procuring business services. By linking plantlevel data from the 1992 Annual Survey of Manufactures with CAO information from the Survey of Auxiliary Establishments, I examine manufacturing plants' practice of outsourcing services in relation to the size of the local service market surrounding the plant and that surrounding the plant's CAO. I found statistically signi ̄cant evidence that the greater the size of local market surrounding a CAO, the higher the plant's probability of relying on the CAO for outsourcing advertising, bookkeeping and accounting, and legal services. These results are found even after controlling for the size of the local market surrounding a plant and plant characteristics. ¤[email protected], Mailing Address: Yukako Ono, Federal Reserve Bank of Chicago, 11th °oor, 230 South LaSalle, Chicago, IL 60604. I am most grateful for advice provided by J. Vernon Henderson, Andrew Foster, and Harumi Ito. I also thank Dan Aaronson, Thomas Klier, Dan McMillen, William Testa, and Rick Mattoon for helpful comments. I would also like to thank Kathryn Moran and Margrethe Krontoft. Support of the National Science Foundation (grant SBR9730142) for this research is gratefully acknowledged. All remaining errors are mine. The research in this paper was conducted while the author was a Census Bureau research associate at the Boston Research Data Center. Research results and conclusions expressed are those of the author and do not necessarily indicate concurrence by the Census Bureau, the Federal Reserve Bank of Chicago, or the Federal Reserve System. This paper has been screened to insure that no con ̄dential data are revealed.