Outsourcing versus joint venture from vendor's perspective

Yongma Moon, Tao Yao, Bin Jiang

Research output: Contribution to journalArticlepeer-review

10 Scopus citations


Even though many studies have discussed outsourcing contracts from the client's perspective, little research has been done from the vendor's perspective. In this paper, we consider a vendor's outsourcing contract decision-making process, during which the market price and the vendor's operation cost are uncertain. This paper develops real option models to investigate whether a vendor firm should sign an outsourcing contract from its client or establish a joint venture with this client. Our results show that, while the feasibility of an outsourcing contract to the vendor increases with a higher contract price offered by the client, the feasibility of a joint venture depends on market conditions. We also find that there are loss-by-acceptance regions, in which either an outsourcing or a joint venture contract is currently feasible to start, but a vendor may sustain a loss by accepting such a contract.

Original languageEnglish
Pages (from-to)23-31
Number of pages9
JournalInternational Journal of Production Economics
Issue number1
StatePublished - Jan 2011


  • Joint venture
  • Net present value
  • Outsourcing
  • Real options


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