of 3 - Center for Global Outsourcings

The multinomial probit model maybe used to estimate the probability of choosing option i. In
practice, because the number of options considered may be large, the logit approximation to the
probit model may prove more tractable. (Domencich & McFadden, 1975) demonstrate the
closeness of the double exponential and normal error distribution assumptions. Under the logit
formulation, the conditional probability of selecting option i becomes
Tenth Annual International Daejeon, South Korea P a g e | 20
Smart Sourcing Conference June 28-29, 2012
(∑
∑ (∑
Hence the outsourcing option (company) i’s profit is denoted by
( )
where is the unit price that the outsourcing company could offer, is the variable
cost, is the fixed cost.
Option I maximize his profit with regards to price advantage and corporate social image.
Conclusion
With our preliminary results, we illustrate the significance of the social image in a company's
sourcing decision. Our results explain, from a managerial point of view, whether or why, if
applicable, low manpower cost countries are losing their competitive advantages.
Bibliography
1. Byrne, P. M. (2005). Global sourcing: Opportunities and approaches for the 21st century.
Logistics Management , 44 (1), 27-28.
2. Domencich, T., & McFadden, D. (1975). Urban Travel Demand: A Behavioral Analysis.
Amsterdam: North-Hollan.
3. Lancaster, K. (1966). A New Approach to Consumer Theory. Journal of Political Economy , 132-
157.
4. Mickey, N. R. (2007). Driving value with global sourcing. Supply Chain Management Review , 11
(7), 13-13.
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