This lecture defines outsourcing in terms of value-added of a firm and not in terms of its revenue. It shows how and increasing share of the a firm's revenue is composed of purchases that are produced through outsourcing. The presentation shows the distribution of outsourcing ratios - a metric defined by Strassmann as an index of outsourcing intensity. Case studies from General Motors and from Caterpillar illustrate the effects of different outsourcing policies. A comprehensive case study illustrates how outsourcing affects the automobile industry.

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