Firm Boundaries' Redefining And Firm Strategy: From The Outsourcing Perspective

Nowadays, more and more enterprises intend to outsource some less competitive link to other external specialized suppliers. Integration into the global outsourcing networks has become an important ways to reduce costs, access to resources, and to seek cooperation opportunity. In this context, the study of enterprise growth in the outsourcing network became an important issue.This paper intends to explain the impact mechanism of outsourcing networks on enterprise growth by means of firm boundaries theory, and to provide some suggestions to the enterprises when they choose firm strategy and adjust firm boundaries to enhance competitive advantage.The research drew five main conclusions:Firstly, according to the status in the outsourcing network and the location on global value chain, we can divide the enterprises in the outsourcing network into three categories, namely, leading company, high-level suppliers and component manufacturers. Firm boundaries can be divided into two dimensions of scale boundaries and capacity boundaries. Scale boundaries can be measured by vertical boundaries and horizontal boundaries.Secondly, Vertical boundaries rest on the internal bureaucratic coordination cost and external transaction costs. In the face of outsourcing and outsourcing network, leading companies trend to shrink vertical boundaries; As for the high-level suppliers, their transaction costs and bureaucratic coordination cost has been reduced at the same time, just based on the relationship between the two, we can not judge the alteration trend of the vertical boundaries, it is also depends on the firm strategy; For the component manufacturers, their production activities and internal organization structure are not so much different from those of the traditional ones, but taking the uncertainty of the environment and the restriction of company resources into account, they may focus on the production of certain parts and accessories to get more profit originates from scale economy and specialization in production. Thirdly, Horizontal boundaries rest on the comparison between internal production cost and internal bureaucratic coordination cost. Leading companies' horizontal boundaries will not change obviously. But for the high-level suppliers the component manufacturers, they intend to expand their horizontal boundaries. Specialization in production enable them to focus more resources on developing their core business and core competitiveness, and apply them in some related business to achieve scale economy and scope economy, which is also the most important driving force for the expansion of the horizontal boundaries.Fourth, leading companies' capacity boundaries tends to expand. For the high-level suppliers, there are two ways to broad their capacity boundaries. It is difficult for the component manufacturers to expand capacity boundaries unless they develop some practical and long-term firm strategy.Fifth, enterprises should choose different firm strategies, such as asset-light strategy, M&A strategy, strategic alliance and niche strategy to change firm boundaries. Leading companies and some high-level suppliers could use asset-light strategy to shrink vertical boundaries and expand horizontal boundaries. As for some high-level suppliers and some component manufacturers, they could choose M&A strategy to expand scale boundaries and increase their influence in the outsourcing network. In the early stage of development, component manufacturers usually choose niche strategy and M&A strategy to expand scale boundaries and achieve scale economy. Strategic alliance is a strategy can be adopted by every kind company.