The impact of outsourcing new technologies on integrative capabilities and performance

Outsourcing plays an important role for firms adopting new technologies. Although outsourcing provides access to a new technology, it does not guarantee that a firm can subsequently integrate the technology with existing business processes and leverage it in the marketplace. This distinction, however, has rarely been made in the literature. In the context of business process enhancing technologies, this study builds on the resource‐based and knowledge‐based views to study the impact of outsourcing on firms' subsequent performance in the market and their integrative capabilities, that is, a firm's capacity to use and assimilate a new technology with its business processes and build upon it. The study argues that greater reliance on outsourcing may reduce a firm's learning by doing, internal investment, and tacit knowledge applications, thereby impeding a firm's integrative capabilities and performance in the market. The study uses survey and archival data on banks' outsourcing strategies for Internet adoption to test for the performance consequences of outsourcing, which are found to be negative. However, the findings also show that outsourcing is less detrimental for firms with experience in prior related technology. Copyright © 2009 John Wiley & Sons, Ltd.     

Who explores further? Evidence on R&D outsourcing from the survey of research and development

Building off the resource‐based view and the knowledge‐based view, our study aims to examine determinants of firms’ R&D outsourcing, using annually‐conducted firm‐level survey data of Japanese R&D companies from 1984–2012. This survey allows us to measure strategic R&D outsourcing, isolated from those more for cost‐reducing, such as prototyping, testing and inspecting. The results corroborate the argument of complementarity in scale between internal R&D and R&D outsourcing. We also find that firms employing more doctorate holders and diversifying in knowledge spaces tend to make more use of R&D outsourcing. This study sheds light on firms’ absorptive capacity, associated both with higher‐order R&D human capital and diversified knowledge spaces, as determinants of R&D outsourcing.     

Production costs, scope economies, and multi-client outsourcing under quantity competition

Two game models are developed based on production costs and scope economies to investigate the widely observed multi-client outsourcing (MCO) phenomenon. Analytical results demonstrate that outsourcers’ high in-house production costs and the advantage of scope economies motivate firms to outsource collectively to an independent vendor. Under certain conditions, if both firms make their outsourcing decisions simultaneously, collective outsourcing is one of the two equilibria; if both firms make decisions sequentially, collective outsourcing becomes the unique equilibrium. Furthermore, the comparative statics of the critical degree of scope economies are examined for the occurrence of MCO with regard to diverse market parameters. Finally, it is proved that market prices decrease as the degree of scope economies increases when MCO occurs. This research helps explain some widely observed phenomena such as malls, supply chain cities, and the China price.     

The hidden costs of outsourcing: evidence from patent data

Drawing on patent data for approximately 500 firms over 20 years, we advance recent theory on firm boundaries and test these propositions for the first time. We first provide evidence for the existence of knowledge complementarities between vertically related activities in a firm's value chain by showing that firms face increasing (decreasing) performance in conducting downstream activities (i.e., patent litigation) the less (more) they outsource related upstream activities (i.e., patent filing). We then propose and empirically demonstrate that vertical integration benefits through learning differ from vertical outsourcing costs through forgetting. We show that firms can partly offset these hidden outsourcing costs by sourcing similar upstream products from internal and external suppliers. Copyright © 2010 John Wiley & Sons, Ltd.     

Does peripheral knowledge complement control? An empirical test in technology outsourcing alliances

While the normative logic for forming technology outsourcing alliances is that such alliances allow outsourcing firms to specialize deeper in their domain of core competence without being distracted by noncore activities, recent empirical studies have reported the puzzling phenomenon of some firms continuing to invest in R&D in domains that are fully outsourced to specialized alliance partners. An underlying—and widely made—assertion that can potentially reconcile this contradiction is that ‘peripheral’ knowledge (specialized knowledge in the domain of outsourced activities) complements control in technology outsourcing alliances. However, this assertion is untested; and empirically testing it is the objective of this research study. Using data from 59 software services outsourcing alliances, we show that such peripheral knowledge and alliance control are imperfect complements: peripheral knowledge complements outcomes‐based formal control but not process‐based control. Thus, outsourcing firms might sometimes need knowledge outside their core domain because such knowledge facilitates effective alliance governance. Our theoretical elaboration and empirical testing of the assumed complementarities between peripheral knowledge and control in technology outsourcing alliances has significant implications for strategy theory and practice, which are also discussed. Copyright © 2007 John Wiley & Sons, Ltd.     

Balancing vertical integration and strategic outsourcing: effects on product portfolio,product success,and firm performance

Most prior research has focused on vertical integration or strategic outsourcing in isolation to examine their effects on important performance outcomes. In contrast, we focus on the simultaneous pursuit of vertical integration and strategic outsourcing. Our baseline proposition is that balancing vertical integration and strategic outsourcing in the pursuit of taper integration enriches a firm's product portfolio and product success, and in turn contributes to competitive advantage and thus to overall firm performance. We derive a set of detailed hypotheses, and test them on a unique and fine‐grained panel of longitudinal data documenting over 3,500 product introductions in the global microcomputer industry. The results provide strong support for the notion that carefully balancing vertical integration and strategic outsourcing when organizing for innovation helps firms to achieve superior performance. Copyright © 2006 John Wiley & Sons, Ltd.     

Integration,knowledge creation and B2B governance: The role of resource hierarchies in financial performance

Knowledge is a critical competitive resource for firms that increasingly exploit resources and capabilities combined with those of channel partners to create new knowledge. However, the opportunism risks inherent in any B2B relationship require firms to employ governance mechanisms to protect their interests. These tensions call for further study of how B2B partners exploit combined resources to produce new knowledge. This research employs a Resource Hierarchy View of resource bundling to describe the ways that firms integrate internal and external processes to achieve financial performance through knowledge creation, and the role that relational governance approaches play in enabling those resource combinations. The study finds that normative and formalized governance forms both enable complex combinations of knowledge creation and integration resources in a way that affects financial performance more than either resource could in simpler combination. However, there are differences in how knowledge is created through internal and external process integration.     

Resource linkages and capability development

In this paper, we examine the different resource linkages sought by manufacturing firms through strategic alliance. We look closely at the impact of manufacturing activities on choice of resource linkage. Using a sample of Taiwanese firms, we found that product development ability and marketing distribution channels are the top priority resource linkages that Taiwanese manufacturing firms seek to establish. The authors also found it interesting that marketing know-how was not a resource commonly sought by Original Design and Manufacturing (ODM) firms, nor by Own-Brand Manufacturing (OBM) firms. Some implications are further discussed. Instead of outsourcing production to external suppliers, Taiwanese OBM firms remained committed to manufacturing as a core competence when they established their own brands overseas.     

Role of quality management capabilities in developing market-based organisational learning capabilities: Case study evidence from four Indian business process outsourcing firms

Business-to-business marketing literature acknowledges the value firms, including business process outsourcing firms, realise through their supplier networks. Such value realisation is often possible through a dynamic exchange of complementary organisational capabilities between a firm and its network partners. However, little is known about how outsourcing firms develop these capabilities and thus realise value. This paper addresses an unexplored theoretical gap of developing market-based organisational learning capabilities in business process outsourcing firms. Using a capabilities lens, this study assesses the impact of quality management capabilities in developing market-based organisational learning capability. Findings from a case study of four business process outsourcing firms in India suggest that effective knowledge transfer, diffusion and the development of market-based organisational learning capabilities are contingent upon the strength of a firm's quality management capabilities. Implications for theory and practice are discussed.     

The role of design method and process technology in stable outsourcing equilibria

We analyze a model of vertical (dis)integration between manufacturing and design in a monopolistically competitive market. Specialized input manufacturers can serve multiple design firms and the manufacturer-designer pairs negotiate a non-binding contract to share input customization cost and production surplus. Hand-collected data on 387 product lines from 118 semiconductor firms are used to predict the firm’s decision to outsource manufacturing. We find that, for instance, the use of design tools that facilitate collaboration and process technologies that facilitate learning are both positively associated with outsourcing, consistent with the model’s prediction.     

The impact of formal control and guanxi on task conflict in outsourcing relationships in China

The purpose of this study is to explore how manufacturing firms manage task conflict with their outsourcing suppliers in the context of China. Using survey data collected from manufacturing firms operating in China, we found that when implementing R&D and manufacturing outsourcing, both formal control and Chinese guanxi are useful governance mechanisms for suppressing outsourcing task conflict. We also observe that Chinese guanxi moderates the impact of formal control on task conflict, especially when implementing R&D outsourcing. By investigating the roles of formal control and Chinese guanxi in outsourcing practices in China, this study contributes to a better understanding of how to manage task conflict effectively.     

Bricolage as a Path to Innovativeness for Resource‐Constrained New Firms

Evidence suggests that both nascent and young firms (henceforth: “new firms”)—despite typically being small and resource‐constrained—are sometimes able to innovate effectively. Such firms are seldom able to invest in lengthy and expensive development processes, which suggests that they may frequently rely instead on other pathways to generate innovativeness within the firm. In this paper, we develop and test arguments that “bricolage,” defined as making do by applying combinations of the resources at hand to new problems and opportunities, provides an important pathway to achieve innovation for new resource‐constrained firms. Through bricolage, resource‐constrained firms engage in the processes of “recombination” that are core to creating innovative outcomes. Based on a large longitudinal dataset, our results suggest that variations in the degree to which firms engage in bricolage behaviors can provide a broadly applicable explanation of innovativeness under resource constraints by new firms. We find no general support for our competing hypothesis that the positive effects may level off or even turn negative at high levels of bricolage.     

Implications of service processes outsourcing on firm value

Outsourcing is one of the important strategies acknowledged by firms recently. With an increase in globalization and the proliferation of information technology, more and more firms outsource not only their production but also their service processes including back office business processes and information technology functions to external suppliers. Recognizing the criticality of outsourcing service processes in marketing management, the authors build on the outsourcing literature and integrate it with the finance literature on market efficiency to develop a conceptual framework. The authors collect outsourcing announcements from the Wall Street Journal and business news available at Lexis-Nexis between 1995 and 2005 to conduct an event analysis. Results indicate that outsourcing in general creates positive firm value, i.e., cumulative abnormal returns; however, such effects vary depending upon different levels and dimensions of an outsourcing decision. The authors conclude with managerial implications and future research at the end.     

An empirical study of manufacturing flexibility of exporting firms in China: How do strategic and organizational contexts matter?

Using evidence from exporting firms in China, this research aims to determine the conditions that foster manufacturing flexibility and the way in which firms support it. The contingency perspective and the competence and capability theory are utilized to develop a framework to enhance the knowledge of internal competence, external flexibility, and manufacturing performance, and the understanding of the moderating roles of strategic and organizational choice on the competence-flexibility and flexibility-performance relationships. Empirical evidence from a sample of 222 export product/market ventures confirmed the main effect that manufacturing, assembly outsourcing, and marketing competencies support a firm's manufacturing flexibility and in turn enhance manufacturing performance. Several notable moderating effects were also identified. Although a strategic emphasis on low-cost manufacturing and long-term contracting weakens a firm's transformation of core competencies into flexible capabilities, specific organizational choices regarding private ownership and direct exporting strengthen the conversion of manufacturing flexibility to superior manufacturing performance.     

Conflict handling, trust and commitment in outsourcing relationship: A Chinese and Indian study

This paper presents a theoretical and empirical model that identifies conflict handling typologies which affect trust and commitment in B2B outsourcing relationship. Three typologies of conflict handling namely integrating, accommodating and compromising were examined for their effects on trust and commitment of Chinese and Indian human resource (HR) outsourcing service providers. The paper also considered the moderating effect of culture in the relationship. Data was collected from Chinese and Indian firms providing HR outsourcing services and analyzed using factor and hierarchical multiple regression analyses. We found both similarities and dissimilarities in the outcomes of the study. Specifically, conflict handling styles are significantly associated with trust and commitment. Trust mediates in the association of conflict handling styles with commitment. The impact of compromising conflict handling on trust and commitment is moderated by culture — significantly higher for the Chinese service providers compared to the Indians. Culture has also a direct impact on commitment but not on trust. Theoretical, cultural and managerial implications of the findings are presented.     

Capabilities as shift parameters for the outsourcing decision

In this paper, we argue that capabilities serve as shift parameters that result in a change in the critical value of asset specificity at which firms switch from in‐sourcing to outsourcing. Capabilities have two effects: they result in a change in firm production costs and in firm governance costs relative to the market. As a result, the frontier at which market governance gives way to firm governance shifts. Three factors that produce such shifts are the value, rarity, and inimitability of capabilities employed in firm processes. Considered as shift parameters, the effect of capabilities integrates seamlessly into transaction costs reasoning and is not a competing view of firm governance. We demonstrate these arguments empirically using a sample of 180 information systems sourcing decisions. Copyright © 2013 John Wiley & Sons, Ltd.     

The turtle–hare race story revisited: Social capital and resource accumulation for firms from emerging economies

How can firms from emerging economies, given their internal resource constraints, compete effectively with established multinational enterprises (MNEs) in home markets and gain capabilities for international expansion? We develop an integrative view of resources by incorporating network-based social capital theories and articulate that the depth and nature of emerging economy firms’ external social capital determine the direction and magnitude of resource exchanges with their business partners, and thus their effectiveness in accumulating critical internal resources. Throughout the development of our theoretical framework, we have also relied on empirical evidences from various business sources, including the cases on Lenovo and Shanghai Automotive Industry Corporation (SAIC). We conclude with scholarly and practical implications and future research avenues.     

Slack resources,firm performance,and the institutional context: Evidence from privately held European firms

Research summary : Integrating the behavioral and institutional perspectives, we propose that a country's formal institutions, particularly its legal frameworks, affect managers' deployment of slack resources. Specifically, we explore the moderating effects of creditor and employee rights on the performance effects of slack. Using longitudinal data from 162,633 European private firms in 26 countries, we find that financial slack enhances firm performance at diminishing rates, whereas human resource (HR) slack lowers performance at diminishing rates. However, financial slack has a more positive effect on firm performance in countries with weaker creditor rights, whereas HR slack has a more negative effect on performance in countries with stronger employee rights. The results provide a richer view of the relationship between slack and firm performance than currently assumed in the literature. Managerial summary : A key dilemma managers often encounter is whether, on the one hand, they should build in excess resources to buffer their firms from internal and external shocks and to pursue new opportunities or whether, on the other hand, they should develop “lean” firms. Our study suggests that excess cash resources—which are usually viewed as easy to redeploy—benefit firm performance, especially when firms operate in countries with weaker creditor rights. However, excess human resources—which are usually viewed as more difficult to redeploy—hamper firm performance, particularly when firms operate in countries with stronger labor protection laws. Thus, the management of slack resources critically depends on the characteristics of these resources (e.g., redeployability) and the institutional context in which managers operate. Copyright © 2016 John Wiley & Sons, Ltd.     

A decision method for supplier selection in multi-service outsourcing

Although supplier selection in multi-service outsourcing is a very important decision problem, research concerning this issue is still relatively scarce. This paper proposes a decision method for selecting a pool of suppliers for the provision of different service process/product elements. It pioneers the use of collaborative utility between partner firms for supplier selection. A multi-objective model is built to select desired suppliers. This model is proved to be NP-hard, so we develop a multi-objective algorithm based on Tabu search for solving it. We then use an example to show the applicability of the proposed model and algorithm. Extensive computational experiments are also conducted to further test the performance of the proposed algorithm.     

A bargaining perspective on strategic outsourcing and supply competition

This article considers the outsourcing choice of a downstream firm with its own upstream production resources or assets. The novelty of the approach is to consider the outsourced function as involving resources consistent with the resource‐based view of the firm. From a bargaining perspective, we characterize a downstream firm's decision whether to outsource to an independent or to an established upstream firm. In so doing, the downstream firm faces a trade‐off between lower input costs afforded by independent competition, and higher resource value associated with those who can consolidate upstream capabilities. We show that this trade‐off is resolved in favor of outsourcing to an established firm. Copyright © 2008 John Wiley & Sons, Ltd.