Outsourcing And Firm Performance

"The performance effect of outsourcing" is the core issue of outsourcing study. Previous researches argue that a firm can reduce costs and redirect its attention to its core competences by outsourcing the non-core activities. They base their arguments primarily on the theories like the transaction cost economics and resource-based view, and take the outsourcing intensity (or the outsourcing level) as their main consideration of outsourcing strategy. But the empirical studies and the practice of outsourcing are not in line with their arguments, and the problem of why so many core activities are outsourced in practice could not be resolved by these theories too.Since the relational view points out that the relationship with external suppliers can deliver competitive advantage, and a firm could improve its performance by outsourcing items and then building idiosyncratic and valuable relationships with suppliers, we posit that the performance effect of outsourcing strategy could be desided in two ways:the outsourcing intensity and the supplier relationships, and the supplier relationships both has direct and indirect effects on firm performance. On the other hand, as the core competences could be core rigid in long run and hinder the firm's long-term development, we argue that the outsourcing effect on firm performance of long-term and short-term are different, and the dynamic capabilities could moderate the performance effect of outsourcing intensity.Bring the relational view and the interfirm networks theory together, we take the relational embeddedness in the outsourcing networks as the relationships with suppliers. By differentiating the firm performance with long-term and short-term, we use the Multinomial Regression testing the direct performance effects of the two factors-the relational embeddedness in the outsourcing networks and the outsourcing intensity, and check out whether the relational embeddedness in the outsourcing networks and the dynamic capabilities could moderate the performance effect of outsourcing intensity. The Structure Equation Modeling is also used to examin the underlying mechanism that facilitate the acquisition of firm performance through the relational embeddedness in the outsourcing networks.Hypotheses are tested with survey data on the implementation of outsourcing strategy and consequences for organizational performance in the sample of 202 companies of the manufacturing industry in Pearl River Delta, and the findings are as follows:1. The relational embeddedness in the outsourcing networks has direct positive impact on the firm's long-term and short-term performance. All dimensions of it positively correlate with the firm performance, but the ways that they affect the firm performance are different. The relationship between the strength of ties and the firm performance is totally mediated by the knowledge sharing, while the relationship between the trust and the firm performance partially mediated by the knowledge sharing. Consequently, knowledge sharing is the critical mechanism facilitating the acquisition of firm performance from the relational embeddedness in the outsourcing networks. The interaction of the relational embeddedness in the core activities outsourcing networks and the core activities outsourcing intensity also has positive impact on firm's short-term performance.2. The outsourcing intensity has direct impact on the firm performance too. But only the outsourcing intensity of non-core activities has positive impact on the firm's short-term performance. The dynamic capabilities with its three dimensions all could moderate the long-term performance consequence of non-core activities outsourcing. Among the three dimensions of dynamic capabilities, the adaptation capabilities have the strongest moderating effect, the second is absorptive capabilities, and the last is the innovative capabilities.3. Under the jointly effect of the relational embeddedness in the outsourcing networks and the outsourcing intensity, the outsourcing strategy are positively related with the firm performance. Both core activities outsourcing and non-core activities outsourcing could improve the firm performance. But the performance consequence mainly desided by the relational embeddedness in the outsourcing networks.4. The outsourcing strategy impact the firm's long-term and short-term performance in different ways. In short-term, non-core activities outsourcing intensity, the relational embeddedness in the core and nor-core activities outsourcing networks, and the the interaction of the relational embeddedness in the core activities outsourcing networks and the core activities outsourcing intensity all positively correlate to the firm performance, while in long-term, only the relational embeddedness in the outsourcing networks has positive impact on firm performance.In conclusion, we have three explanations for the paradox of previous study of outsourcing: (1) Neglecting the influence of the supplier relationships; (2) No differentiation of short-term and long-term performance; (3) Overlooking the moderating effect of dynamic capabilities. We provide implication for the outsourcing practice as follows:(1) Rediscovering the outsourcing strategy, paying more attention to the supplier relationships, and making much of the relational rent to improve the outsourcing consequences. (2) Enhancing the dynamic capabilities to raise the long-term performance of outsourcing. (3) Reasonably allocating firm's resources to improve the outsourcing consequences in line with the firm's short-term and long-term development schedule.