Technological Change and Decision of Make-or-Buy in Developing Economy

Abstract

This paper aims to investigate the effect of technological change on manufacturing decisions in the surgical manufacturing Industry of Pakistan. The research was concentrated on three manufacturing decisions, outsourcing (International), in-house manufacturing, and both (in-house/International).  This paper used multinomial logistic regression to investigate the set of relationships with categorical outcome variables (Manufacturing Decisions), using a set of data composed of 115 firms. Technological change factors and non-technological factors as control variables (Firm Age, Firm Size, and Human Capital), the paper provides causal evidence of how advanced technology increases the outsourcing probability. This strategy will help the firm avoid incurring the sunk cost on their investment when a new technology is introduced. The sunk cost is even higher when a firm produces at a small scale and is mitigated by other high-scale producers in the market. Therefore, the increased scale producers to which other low-scale producers outsource their production should be manufactured products prone to technological changes. The governments may extend their integration within the global economy and diversify exports from merchandise to value-added presentations and services. Considering the technological changes and, most significantly, offer economy-wide developmental advantages in terms of increased employment ratios and a higher standard of living while adopting technological changes. A firm faces the challenge of producing a specific product internally or purchasing it from a specialized vendor. The findings also suggest that firms outsource products prone to rapid technological advancement. It will benefit the industry where technological changes are frequent.

    Keywords: outsourcing, technological advancement, make-or-buy