Achieving economically sustainable subcontracting through the hotelling model by considering the spillover effect

Achieving economically sustainable subcontracting through the hotelling model by considering the spillover effect

Zhu, Jianbo (Nanjing University; Curtin University)
Shi, Q. (TU Delft Integral Design & Management; Nanjing University)
Wu, Peng (Curtin University)
Sheng, Zhaohan (Nanjing University)
Wang, Xiangyu (Chongqing Normal University; Kyung Hee University)

2018-09-14

In the process of internationalization of construction contractors, international enterprises as main contractors (IMC) need to consider whether part of the contract should be subcontracted to local subcontractors (LSC) to gain a competitive advantage when competing with local main contractors (LMC). The involvement of local subcontractors can usually help reduce cost through the cost spillover effect. However, it should be noted that the share of local subcontractors with local main contractors with an inferior quality may lead to quality spillover. The Hotelling model is therefore adopted to investigate the subcontracting decisions of main contractors considering both cost and quality spillover effects. Many scenarios are simulated and the results show that LMCs with inferior quality can always choose the subcontracting strategy to obtain increased profit regardless of the strategy that IMCs adopt. On the other hand, IMCs need to balance the cost spillover of subcontracting and the quality spillover for improving the quality level of LSCs. The results are useful for contractors to make decisions that are relevant to the adoption of subcontracting strategies to obtain competitive advantages.

Decision making
Hotelling model
Internationalization
Spillover effect
Subcontracting

http://resolver.tudelft.nl/uuid:86bb89a5-a0a2-40a2-94dd-c1419667a0ec

https://doi.org/10.3390/su10093291

2071-1050

Sustainability, 10 (9)

Institutional Repository

journal article

© 2018 Jianbo Zhu, Q. Shi, Peng Wu, Zhaohan Sheng, Xiangyu Wang