Does being R&D intensive still discourage outsourcing? : evidence from Dutch manufacturing

Being R&D intensive has traditionally been seen as an impediment to outsourcing. This study confirms that empirically this was the case for a set of manufacturing industries in the Netherlands in the early 1990s but also shows that R&D intensity became a positive predictor for changes in outsourcing levels over the 1990s, suggesting firms in R&D intensive industries have increasingly started to rely on partnership relations with outside suppliers. This confirms the need to move the analysis from scale, opportunism and appropriation concerns to a relational perspective when studying outsourcing in R&D intensive industries

Service and price competition when customers are naive

We consider a system of two service providers each with a separate queue. Customers choose one queue to join upon arrival and can switch between queues in real time before entering service to maximize their spot utility, which is a function of price and queue length. We characterize the steady-state distribution for queue lengths, and then investigate a two-stage game in which the two service providers first simultaneously select service rates and then simultaneously charge prices. Our results indicate that neither service provider will have both a faster service and a lower price than its competitor. When price plays a less significant role in customers service selection relative to queue length or when the two service providers incur comparable costs for building capacities, they will not engage in price competition. When price plays a significant role and the capacity costs at the service providers sufficiently differ, they will adopt substitutable competition instruments: the lower cost service provider will build a faster service and the higher cost service provider will charge a lower price. Comparing our results to those in the existing literature, we find that the service providers invest in lower service rates, engage in less intense price competition, and earn higher profits, while customers wait in line longer when they are unable to infer service rates and are naive in service selection than when they can infer service rates to make sophisticated choices. The customers jockeying behavior further lowers the service providers capacity investment and lengthens the customers duration of stay

Outsourcing and financial performance: A negative curvilinear effect

This study asks how a firm's degree of outsourcing across all activities influences financial performance. We argue there is an optimal degree of outsourcing, where firms outsource some activities yet integrate others, and that deviations lower performance in a negatively curvilinear fashion. We find empirical support, using 1995 and 1998 data on a sample of manufacturing businesses in the Netherlands, and show that the steepness of the curve increases under conditions of high uncertainty. We show the magnitude of the uncertainty effect on performance outcomes through a post hoc scenario analysis. Thus we provide a specific, theoretically and empirically grounded prediction of how outsourcing affects performance with implications for theory and practice

Outsourcing and vertical integration : a survey of empirical literature

This paper provides a survey of the empirical literature of outsourcing and vertical integration. This literature shows that outsourcing and integration behave in waves, with periods of greater outsourcing activity and others of a greater activity of vertical integration.N/

Outsourcing : a survey of theoretical models

This paper provides a survey of theoretical models of outsourcing and vertical integration. It develops an overview of the models that rely on incomplete contracting and on strategic outsourcing.N/

Drivers and Inhibitors for Outsourcing Financial Processes - A Comparative Survey of Economies of Scale, Scope, and Skill

Economies of scale, scope, and skill are known to be major drivers or inhibitors for outsourcing business processes but they may play different roles for outsourcing primary or secondary processes. In this paper, based on two empirical surveys with Fortune 1,000 non-banks and Fortune 500 banks in Germany, a comparative analysis reveals different appreciation of (the impact of) economies of scale, scope, and skill by managers responsible for outsourcing financial processes in non-banks and banks. Consistent with the theory, economies of scale and skill are identified as drivers for outsourcing business processes while economies of scope represent an inhibitor. Overall, Chief Credit Officers estimate scale and skill effects due to outsourcing to be higher than non-bank Chief Financial Officers do. Furthermore, economies of scope, which inhibit selective sourcing, are evaluated as being less problematic. As a result, Chief Credit Officers are more likely to outsource (parts of) their - primary - financial processes. The surveys also suggest that quite in contrast to common perception German banks are on the verge of industrialization and modularization

Establishing Nash equilibrium of the manufacturer-supplier game in supply chain management

We study a game model of multi-leader and one-follower in supply chain optimization where n suppliers compete to provide a single product for a manufacturer. We regard the selling price of each supplier as a pre-determined parameter and consider the case that suppliers compete on the basis of delivery frequency to the manufacturer. Each supplier’s profit depends not only on its own delivery frequency, but also on other suppliers’ frequencies through their impact on manufacturer’s purchase allocation to the suppliers. We first solve the follower’s (manufacturer’s) purchase allocation problem by deducing an explicit formula of its solution. We then formulate the n leaders’ (suppliers’) game as a generalized Nash game with shared constraints, which is theoretically difficult, but in our case could be solved numerically by converting to a regular variational inequality problem. For the special case that the selling prices of all suppliers are identical, we provide a sufficient and necessary condition for the existence and uniqueness of the Nash equilibrium. An explicit formula of the Nash equilibrium is obtained and its local uniqueness property is proved

Service Co-Production, Customer Efficiency and Market Competition

Customers’ participation in service co-production processes has been increasing with the rapid development of self-service technologies and business models that rely on self-service as the main service delivery channel. However, little is known about how the level of participation of customers in service delivery processes influences the competition among service providers. In this paper, a game-theoretic model is developed to study the competition among service providers when selfservice is an option. The analysis of the equilibria from this model shows that, given a certain level of customer efficiency, the proportion of the service task outsourced to the customer is a decisive factor in the resulting competitive equilibria. In the long run, two extreme formats of service delivery are expected to prevail rather than any mixture of both: either complete employee service or complete self-service. In the two-firm queuing game, we find that both firms are better off when they both deliver their service through self-service. It is also shown that full-service providers dominate the market if firms providing service products featuring self-service fail to have enough market demand at a profitable price. Meanwhile, the limited ranges of customer efficiency and the price for the self-service-only product are shown to be essential conditions for the coexistence of the different types of service providers.

IT-enabled Excess Capacity Markets for Services: Examining the Economic Potential in Cost-driven Service Supply Chains

Capacity planning is a major challenge for service providers facing volatile demand. Inefficiencies result from idle capacity or lost revenue caused by peak loads. Concerning IT-driven services, recent technological developments offering dynamic integration and information capabilities may help. They enable an on-demand exchange of excess capacity between business partners and create value through efficient capacity allocation within a supply chain. This paper aims at examining this economic potential of IT-enabled excess capacity markets. Therefore, we use the model setting of a three-stage IT-driven service supply chain and discuss different factors influencing the capacity optimization problem. With a discrete-event simulation we then evaluate a representative factor quantitatively. Thus, we provide deeper insights about the usefulness of excess capacity markets for capacity optimization in different settings and scenarios. The results serve as a guide for practitioners, build the basis for further quantitative evaluation and represent a starting point for empirical validation