Supplier switching and outsourcing

We examine supplier switching decisions using a unique database that tracks firms (credit unions) and their suppliers (data processing vendors); the data are in a panel, allowing us to track supplier switching decisions at a new level of detail. We focus on two sets of relationships. First, we estimate a model that relates supplier choices and switching to a variety of buyer- and supplier-specific characteristics. Second, we examine how> switching depends on the vendor relationships that credit unions choose: one is a partial form of outsourcing while the other is more complete. This allows us to estimate how supplier switching interacts with organizational form.Credit unions ; Contracting out

Offshore outsourcing - A global shift in the present IT industry

The paper analyses the offshore outsourcing of IT services (OOIT), which have become increasingly important for the global IT industry. Through this rapid process of firm relocation, a new terminology has emerged, which forms the starting point for our paper. We compare wage cost differentials of IT workers in key offshore locations like India to those in the US and Europe, incorporating the hidden costs of offshoring - including long-term risks and opportunities - in order to determine the total cost of offshore outsourcing activities. The debate on the potential future negative employment impacts in the major OECD countries recently became a point of political contention in the US presidential election campaign, reflecting widespread fears in the US and elsewhere that outsourcing will lead to decreased income and job loss. In Europe, policy makers are searching for instruments to guide these developments so that major social disruptions do not lead to disproportionately negative welfare impacts in the short term. The future costs and benefits of outsourcing can currently be assessed only in broad terms due to the lack of adequate data and representative statistics. However, the theory of comparative advantages suggests that overall, offshoring and inshoring countries will gain from the new international division of labour in the long run. --offshore outsourcing of IT,international factor movements and labour markets,international business,multinational firms

Value Creation and Value Claiming in Make-Or-Buy Decisions

Transaction value analysis (TVA) integrates the concepts of resourceheterogeneity and transaction cost economics into a single framework,which emphasizes both value creation and value claiming in firms'vertical integration decisions. Using a TVA perspective, we develophypotheses to explain the firm's intent to outsource applicationservices. A sample of 178 firms in the publishing and printingindustry in The Netherlands is used to test the hypotheses. This paperfinds that firms take both value-creation and value-claimingmotivations into consideration, with value creation having on averagea dominating impact, thus substantiating the TVA framework. However,we also find that if the risks of opportunism in outsourcingcontracting are high, value creation becomes the less important factorin make-or-buy decisions. Furthermore, the paper shows that the needfor flexibility is a major driver of governance choice forvalue-creation as well as for value-claiming motivations. Implicationsand future research directions are discussed.information technology;interorganizational strategy;make-or-buy decisions;outsourcing relationships;transaction value analysis

A comparative Test of the Efficiency, focus and Learning Perspectives of Outsourcing

Despite the fact that vertical integration has been a key question of management studies for more than fifty years, we still do not have a unified, coherent view of outsourcing. In particular, multiple theoretical perspectives such as transaction cost economics, industrial organization, and strategy, could explain the outsourcing decision, but the implications of these different streams have neither been theoretically integrated, nor tested simultaneously. In an attempt to disentangle the various causes of outsourcing, we suggest three different rationales for outsourcing: cost reduction, focusing on core capabilities and importing knowledge into the firm. We develop several hypotheses, which we then test on secondary data on French small- and medium-sized enterprises. Results indicate that the learning rationale appears to be the strongest factor influencing the outsourcing decision. Some performance implications of this rationale are also suggested and tested.outsourcing; transaction cost economics; resource-based view; knowledge-based view

IT Outsourcing Risk Management at British Petroleum

This paper reports the results of a study of three successive IT outsourcing contracts at British Petroleum (BP). We offer an operational definition of IT outsourcing risk and use it to assess the risk exposure associated with each contract. We then examine how the management at BP dealt with outsourcing risk. Our results show that careful and deliberate risk management can substantially attenuate the level of risk exposure, and that IT outsourcing risks can be managed. Ce document présente les résultats d'une étude de trois contrats d'impartition successifs. L'étude fut conduite chez British Petroleum. Une définition opérationnelle du risque d'impartition est donnée. Cette définition est ensuite utilisée pour déterminer le niveau de risque associé à chacun des contrats. Les mécanismes de gestion de risque sont également identifiés. Les résultats démontrent qu'une gestion active du risque permet de réduire sensiblement les niveau d'exposition au risque, notamment dans le cas de contrats d'impartition des technologies de l'information.Outsourcing of IS, IS risk management, agency theory, transaction cost economics, case study, Impartition des systèmes informatiques, gestion du risque d'impartition, gestion du risque, théories de l'agence et des coûts de transaction, étude de cas

THE OUTSOURCING DECISION: A STRATEGIC FRAMEWORK

Outsourcing grew rapidly during the 1990s and has now become an accepted dimension of corporate strategy. While outsourcing continues to grow in importance, the nature and focus of outsourcing is evolving. Historically, most outsourcing took place in manufacturing industries, but it is now spreading rapidly within service industries. Whether in manufacturing or services, outsourcing is becoming increasingly cross- national and global. The growth of international outsourcing has accentuated controversy surrounding trade liberalization efforts in developed economies, especially in the United States.outsourcing, trade liberalization, international trade

Path Dependence in Personal Selling : A Meso-Analysis of Vertical Integration

We examine an unusual form of path dependence, in which suppliers that take different decision paths end up in the same position: excessive vertical integration of the personal selling function. We argue that this is the case even though outsourcing is more seriously considered than ever, and economic arguments for outsourcing the sales function are compelling. We develop an institutional explanation at the meso level (a combination of individual, organization, and environmental forces, explicitly considering how these levels combine). This meso-analysis focuses on four forces driving firms toward being locked into employee sales forces. We enumerate and classify these mechanisms, illustrating them with a simple simulation of how outsourcing sales becomes rare. We close with testable propositions about which firms are most likely to break their dependence on a vertically integrated path.path dependence; personal selling; outsourcing; sales function

The optimal length of contracts with application to outsourcing

This paper resolves three empirical puzzles in outsourcing by formalizing the adaptation cost of long-term performance contracts. Side-trading with a new partner alongside a long- term contract (to exploit an adaptation-requiring investment) is usually less effective than switching to the new partner when the contract expires. So long-term contracts that prevent holdup of specific investments may induce holdup of adaptation investments. Contract length therefore trades of specific and adaptation investments. Length should increase with the importance and specificity of self-investments, and decrease with the importance of adaptation investments for which side-trading is ineffective. My general model also shows how optimal length falls with cross-investments and wasteful investments.Contract length, market forces, incomplete contracts, holdup