Make Or Buy: Internalization and Externalization of Producer Service Inputs in the Montreal Metropolitan Area‪.‬

Producer or intermediate-demand services enhance the efficiency of operation and the value of output at various stages in the production process. All firms, whether specializing in the fabrication of goods or in the provision of services, employ a range of producer services as inputs into their production functions. The more advanced or modern the "value chain" (such as, the production process) of a firm, the more numerous and more complicated will be the links in the chain and the greater will be the importance of service inputs (Porter 1985; 1990). Indeed, a wide range of empirical evidence has demonstrated that producer services occupy a major and expanding role both within firms (Britton 1990; Quinn 1993) and within national, regional and metropolitan economies (Beyers 1989; Coffey 1994). A fundamental decision that each firm (and, indeed, each establishment within a firm) must face concerns whether to "make" or to "buy" a specific producer service input; that is, whether to provide a given service internally by assigning its own personnel to the production of the service or, rather, to contract-out the provision of the service to experts in the employ of external (either affiliated or free-standing) specialized establishments. The decision to internalize or to externalize given service inputs is one of the most important strategic decisions that an establishment must make, as this choice ultimately affects the establishment's cost structure, its modes of operation and organization, and possibly its location (Coffey and Polese 1984; 1986).