International Business 9th Edition by Charles Hill

Exercise 8

A firm must decide whether to make a component part in-house, or to contract it out to an independent supplier. Manufacturing the part requires a non-recoverable investment in specialized assets. The most efficient suppliers are located in countries with currencies that many foreign exchange analysts expect to appreciate substantially over the next decade. What are the pros and cons of (a) manufacturing the component in-house, and (b) outsourcing manufacture to an independent supplier? Which option would you recommend? Why?