EXPRESS: The Performance Impact Of Core Component Outsourcing: Insights From The LCD TV Industry

Firms in technology markets often outsource the manufacture of core components – components that are central to product performance and comprise a substantial portion of product costs. Despite the strategic importance of core component outsourcing, there is little empirical evidence (and many conflicting opinions) about its impact on consumer demand.We address this gap with an examination of panel data from the flat panel television industry, across key regions globally. Results from our estimation indicate that core component outsourcing reduces the firm’s ability to be on the technological frontier; this hurts demand, because our estimates suggest that consumers care about firms being on the frontier. On the other hand, such outsourcing also reduces costs. Finally, we find that outsourcing increases the intensity of competition in the marketplace. We assess these (often opposing) effects, and conduct thought experiments to quantify the performance impact of core component outsourcing.