Does Outsourcing Manufacturing Enhance or Erode Firm Innovativeness?

Many firms are attracted to outsourcing manufacturing because of the cost reductions that can be attained. However, while there is consensus that outsourcing the manufacturing function may help firms in cutting costs, a critical question in the context of manufacturing outsourcing is whether it makes outsourcing firms more or less innovative. Despite decades of research on outsourcing, this debate is yet to be resolved. We aim to provide more insight into the relationship between outsourcing manufacturing and innovation by developing a contingency framework. More specifically, we argue that the effect of outsourcing on innovation depends on demand volatility, R&D intensity, and marketing intensity.