Flexible outsourcing

Flexibility is de fi nitely a key for success and is crucial in vertical relationships. Then, it seems worth analyzing the selection of the optimal degree of vertical integration and/or separation in a dynamic uncertain environment, where a fl exible fi rm can switch from a certain degree of outsourcing back to vertical integration. The enterprise we investigate never throws away the vertical control of the manufacturing chain as it does not outsource the entire input requirement. On the contrary, it keeps the ability to make the intermediate good in-house as a kind of prudential conduct. Higher uncertainty lets fi rms enter earlier, as vertical fl exibility provides a hedge against risk. After entry, an increase in uncertainty boosts the probability of outsourcing. These results differ from received literature. Copyright © 2011 John Wiley & Sons, Lt