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The dynamics of the outsourcing relationship

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posted on 2023-06-08, 23:38 authored by Stefano Denicolai, Roger StrangeRoger Strange, Antonella Zucchella
Purpose To provide a theoretical explanation of why outsourcing relationships are inherently dynamic, in that the dependence of each party upon the other inevitably changes over time and thus so too will the power asymmetries between the parties. Methodology/approach Our approach is theoretical and draws upon insights from resource dependence theory, transaction cost economics, and the resource-based view of the firm, to focus on the power asymmetries between the focal firm undertaking the outsourcing and its suppliers. We illustrate our arguments using a longitudinal case study of the evolving relationship between Apple and the Foxconn Technology Group. Practical implications For supplier firms, the message is to upgrade, develop distinctive resources and capabilities, and diversify the customer base. Otherwise, suppliers will forever be condemned to low operating margins and the threat of being replaced by cheaper, more agile rivals. For focal firms, the message is not to rest on your laurels. The potency of isolating mechanisms may well dissipate, suppliers will no doubt strive to lessen their positions of dependence and competitors will inevitably emerge, with the result that once-profitable outsourcing arrangements may quickly erode. Originality/value We highlight the crucial role played by isolating mechanisms to underpin power asymmetries in outsourcing relationships, and thus enable focal firms to appropriate the rents from externalized value chain activities. We argue that the efficacy of many isolating mechanisms will tend to dissipate over time as competitors emerge to imitate successful strategies and products, and as resource and capability asymmetries erode.

History

Publication status

  • Published

Publisher

Emerald Group Publishing Limited

Issue

10

Page range

341-364

Book title

The future of global organizing

Place of publication

London

Series

Progress in international business research

Department affiliated with

  • Business and Management Publications

Full text available

  • No

Peer reviewed?

  • Yes

Editors

Rian Drogendijk, Rob Van Tulder, Alain Verbeke

Legacy Posted Date

2015-12-04

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