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International Journal of Management Reviews, Vol. 18, 464–497 (2016) DOI: 10.1111/ijmr.12075
Does Outsourcing Really Improve Firm Performance? Empirical Evidence and
Research Agenda
Somnath Lahiri Department of Management and Quantitative Methods, College of Business, Illinois State University, Normal,
IL 61790, USA Corresponding author email: [email protected]
The phenomenon of outsourcing has spawned a rich body of scholarly work in the last two decades. Yet, the answer to one important question has remained elusive: Does outsourcing really improve firm performance? Addressing this question is important as firms across nations continue to embark on the practice of outsourcing to save oper- ating costs and remain competitive. Scholars, practitioners and policy-makers need to understand whether and how outsourcing benefits the firm. However, no comprehensive review of empirical evidence has been published so far that can address this question. This study reviews 57 empirical research articles that investigated the outsourcing– firm performance relationship in 47 peer-reviewed scholarly journals over a 20-year time-span (1996–2015). The articles differ widely in research scope, context, level of analysis, data source, time-span, industry sector, extent of outsourcing and measure of performance. The findings suggest that outsourcing can produce positive, negative, mixed, moderated or no significant impact on the firm. This study also provides useful directions for future research on outsourcing and firm performance.
Introduction
In the two decades prior to 2015, scholarship on outsourcing of business activities and processes has spawned a voluminous body of literature. Sustained academic scrutiny of the outsourcing phenomenon is not surprising, since outsourcing of various value- chain functions continues to be a key strategic tool adopted by numerous firms across the globe. Scholars contributing to this research have focused primarily on why, where and how firms outsource, what the po- tential benefits and pitfalls of this practice are, and what factors constitute best practices or success in outsourcing (Barthélemy 2003; Hätönen and Eriks- son 2009; Kotabe et al. 2008; Maskell et al. 2007; Varadarajan 2009). In order to sum up the status
I dedicate this study to Professor Ben Kedia (University of Memphis, TN, USA) who inspired me in 2004 to conduct outsourcing research.
of ongoing research and stimulate future investiga- tions, several ‘review’ articles on outsourcing have been published (Chadee and Raman 2009; Dibbern et al. 2004; Gonzalez et al. 2006; Hätönen and Eriksson 2009; Lacity et al. 2009; Mahnke et al. 2005; Mohiuddin 2011, Schmeisser 2013).1 Yet, the answer to one question has remained unclear: Does outsourc- ing really improve firm performance?
Knowing the answer to this question is necessary, since outsourcing – the practice of turning over value chain functions or parts thereof to national or foreign specialized providers – is widely used by firms across industries as a strategic tool to enhance performance.
1Several well-known journals have published special issues on outsourcing/offshoring/global sourcing: Journal of Inter- national Business Studies (August 2009); Journal of Man- agement Studies (December 2010); Journal of International Management (March 2007; June 2009; December 2013); Journal of Operations Management (March 2008); Interna- tional Business Review (June 2011).
C© 2015 British Academy of Management and John Wiley & Sons Ltd. Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA
Does Outsourcing Improve Firm Performance? 465
Faced with cost pressures and market competition in today’s dynamic globalized business era, more and more businesses take recourse to outsourcing and, in particular, offshore outsourcing, to sustain viability and ensure survival (Mukherjee et al. 2013; Nieto and Rodrı́guez 2011; Rilla and Squicciarini 2011). From a business and competitive advantage standpoint, ex- ecutives need to understand whether their strategy to engage in outsourcing has been beneficial. Moreover, executives need to learn about the outsourcing prac- tices followed by other firms, and the consequences that have resulted from those practices. Such learn- ing will help firms to improve their own outsourcing strategies and results. In particular, depending on their assessment, executives will be in a position to con- tinue to ramp up their firms’ outsourcing moves or scale back reliance on external providers and bring in-house the outsourced functions. Although anecdo- tal evidence suggests that outsourcing can result in significant cost savings for the client firm, the ques- tion arises whether all firms benefit from outsourcing and, if not, what are the various consequences of out- sourcing for firm performance?
Like practicing executives, business researchers also need to examine whether outsourcing is really a value-creating firm-level strategy, and the type of benefits, pitfalls or trade-offs that can result for the firm. Such knowledge will result in a better under- standing of the phenomenon and the associated ratio- nale, and devising useful investigations for the future. Despite the scholarly understanding that outsourcing can result in gains for the firm if properly executed (Bolat and Yilmaz 2009; Grimpe and Kaiser 2010; Singh 2009) and pains if inadequately formulated and implemented (Grimpe and Kaiser 2010; Weigelt 2009), large-scale empirical evidence on whether out- sourcing really benefits or hurts the firm is lacking. Table 1 highlights this sentiment harbored by scholars devoted to outsourcing research.
Given this gap in the extant research, the purpose of this study is twofold. First, the study reviews prior empirical (quantitative) research that examines the influence of outsourcing on firm performance. It focuses on the outsourcing literature – both national and international – but does not consider studies that deal with captive offshoring. Captive offshoring refers to the establishment of firms’ affiliate centers in foreign locations as opposed to transacting with independent providers in those locations (Kedia and Mukherjee 2009). The review discusses in detail the findings of each of the sampled articles. This study, therefore, allows stock to be taken of the extant
outsourcing–performance research. The second purpose is to offer directions for future research that will encourage scholars to conduct insightful investigations in the domain of the outsourcing– performance relationship. The dual purpose enables this study to contribute to the growing literature on outsourcing in a significant way.
The study concludes that outsourcing can result in positive, negative, mixed or no impact on the firm, depending on how outsourcing and performance are measured. Moreover, the review finds that the impact of outsourcing needs to be assessed in association with other crucial aspects of the firm. An interesting aspect that becomes evident is that prior empirical works on the outsourcing–firm performance relation- ship differ widely in research scope, context, level of analysis, data source, time-span, industry sector, extent of outsourcing and how performance is oper- ationalized. Before describing the study’s research methodology, a brief discussion on the theoretical foundations of outsourcing seems pertinent. Scholars have used various theoretical perspectives to explain outsourcing (Hätönen and Eriksson 2009; Kedia and Lahiri 2007; Maskell et al. 2007).
According to the resource-based view of the firm, outsourcing allows clients to gain access to special- ized resources and capabilities residing in the provider firms. Through partnering with providers and benefit- ting from their unique assets, clients are able to focus more on core competencies and enhance competi- tiveness. From a transaction cost economics stand- point, outsourcing certain activities in favor of ex- ternal providers (i.e. buy) rather than internalizing those activities within the firm hierarchy (make) al- lows firms to lower transaction costs related to pro- duction (Ang and Straub 1998). Tenets of institu- tional theory suggest that outsourcing inflow and outflow depend on a country’s privacy laws, rule of law, national culture, union and public pressures, and the existence of trade or professional associations (Kshetri 2007).
Viewing through the lens of agency theory, out- sourcing is an arrangement where clients (princi- pals) employ providers (agents) to perform certain functions or processes on their behalf. The risks of opportunism and moral hazard that remain in such governance mechanisms can lower the expected returns. Other theoretical lenses suggest that out- sourcing is not merely a buy vs make decision. The disintegration–location–externalization (DLE) framework (Kedia and Mukherjee 2009) suggests that outsourcing by clients needs to take into account
C© 2015 British Academy of Management and John Wiley & Sons Ltd.
466 S. Lahiri
Table 1. Observation of outsourcing scholars (studies listed chronologically)
No Study Observation
1 Gilley and Rasheed (2000, p. 763)
Despite the dramatic rise in outsourcing in recent years, few empirical investigations of the subject have been conducted.
2 Görg and Hanley (2004, p. 268)
To the best of our knowledge, there is only a very limited number of more rigorous statistical or econometric studies looking at this issue.
3 Lee et al. (2004, p. 110) . . . there is currently little insight into how individual elements of outsourcing strategies interplay with each other.
4 Mol et al. (2005, p. 607) There is a lack of empirical studies linking international outsourcing and performance. 5 Yoon and Im (2008,
p. 165) However, there is no study on the association between the customer satisfaction for IT outsourcing and
the firm performance. 6 Di Gregorio et al. (2009,
p. 971) Notwithstanding significant . . . research on offshore outsourcing . . . a dearth of empirical research . . .
has yielded limited findings . . . and theory. 7 Hätönen and Eriksson
(2009, p. 150) . . . the question of how success in outsourcing should be evaluated has not been examined thoroughly.
8 Weigelt (2009, p. 595) Prior research is equivocal about the performance implications of outsourcing. 9 Weimer and Seuring
(2009, p. 288) While there is a rapidly growing body of literature on outsourcing, there is hardly any account on
performance measurement for outsourcing decisions. 10 Bertrand (2011, p. 335) We lack empirical microeconomic evidence on offshore outsourcing. 11 Brewer et al. (2013,
p. 181) . . . there appears to be some ambiguity concerning the connection between outsourcing implementation
and the expected performance improvements.
three advantages that can result from partnering with external providers. These advantages are (a) disinte- gration advantages, i.e. those arising from unbundling of value chain activities, (b) location-specific advan- tages, i.e. those arising from attributes of value creat- ing destinations around the world, and (c) externaliza- tion advantages, i.e. those stemming from engaging external providers to execute functions as opposed to conducting them internally within the firm’s bound- ary. Such advantages can lead to improved firm per- formance. However, to be successful in outsourcing, managers need to focus on developing dynamic capa- bilities within the firm that will allow them to acquire and synthesize the internal and external competencies needed to remain viable in fast-changing business en- vironments (Doh 2005). Interestingly, prior research has suggested that outsourcing is an important gover- nance choice involving vertical boundaries of the firm that needs to be understood using multiple theoretical lenses (e.g. Leiblein and Miller 2003).
The next section describes the study’s research methodology.
Methodology
Numerous publications exist that discuss outsourc- ing and firm performance. This study includes all full-text, peer-reviewed and scholarly published arti- cles that investigated the influence of outsourcing on firm performance. Using the Advanced Search option
in ABI/INFORM Global (Proquest) online database and using ‘outsourcing’ and ‘performance’ as search words under Document Title, an initial list of ar- ticles was prepared. The process was repeated us- ing (a) ‘offshore outsourcing’ and ‘performance’, (b) ‘international outsourcing’ and ‘performance’, and (c) ‘offshoring’ and ‘performance’ as search words. A similar search was conducted using the above search words under the Abstract category of the ad- vanced search. To ensure that no relevant articles were missed, the entire above search process was repeated using another online database: Business Source Com- plete. After deleting articles that were (a) common, (b) non-quantitative in nature, and (c) devoted to ser- vice providers or vendors, a list of 57 articles cov- ering 47 different journals across diverse disciplines was selected as the study sample. The sample cov- ered a time-frame of 20 years (1996–May 2015). The selected articles were downloaded, saved and thor- oughly scrutinized to determine how the practice of outsourcing affected firm performance.
Research findings
Careful analyses of the sampled articles and the em- pirical findings therein revealed four broad types of outsourcing–performance relationships: positive re- lationship, negative relationship, mixed relationship, moderated relationship and no statistically significant relationship. The findings of each study are discussed below in detail.
C© 2015 British Academy of Management and John Wiley & Sons Ltd.
Does Outsourcing Improve Firm Performance? 467
Positive effect of outsourcing on the firm
There were 18 studies belonging to this category. The salient features of each study are highlighted in Table 2.
These studies involved firms from the manufactur- ing sector (Bardhan et al. 2006; Kroes and Ghosh 2010), services sector (Bolat and Yilmaz 2009; Espino-Rodrı ́guez and Padrón-Robaina 2005) or both the sectors (Grover et al. 1996). The national context of the studies varied widely: China (Li et al. 2008), Ireland (Görg and Hanley 2005), the USA (Bardhan et al. 2006), Spain (Nieto and Rodrı́guez 2011), India (Singh 2009), France (Bertrand 2011), Iran (Kamyabi and Devi 2011), Greece and Switzerland (Arvanitis and Loukis 2012). Data collection involved question- naire survey of top executives or engineers and staff (Grover et al. 1996; Li et al. 2008) and use of archival data (Görg and Hanley 2005; Bertrand 2011).
Scholars measured firm performance in various ways. This included hard or direct measures such as return on assets (ROA), return on investment (ROI), return on equity (ROE), profit margin, sales (Bertrand 2011; Kroes and Ghosh 2010; Thouin et al. 2009), labor productivity (Görg and Han- ley 2005), extent of sales and internationalization (Di Gregorio et al. 2009), innovation and innovation performance (Arvanitis and Loukis 2012) and mar- ket share, sales growth and pretax profitability (Singh 2009). Some scholars used soft or indirect measures of performance such as satisfaction of service re- ceivers (Grover et al. 1996), incremental and radical innovation (Li et al. 2008), product and process inno- vation (Nieto and Rodrı́guez 2011) and performance rating by customers (Novak and Stern 2008).
Several scholars used a mix of direct and indirect measures such as organizational quality, financial per- formance, employee welfare (Espino-Rodrı́guez and Padrón-Robaina 2005), plant cost and quality change of finished products (Bardhan et al. 2006), financial performance (profitability, sales growth, ROA, cash flow) and non-financial performance (lifestyle, inde- pendence and job security) (Kamyabi and Devi 2011).
Positive effect: direct measure of performance
Nine studies used direct measure of performance: three in the manufacturing sector, one in the services sector, and five in the combined (manufacturing and services) sector. The findings are discussed below.
Positive effect: direct measure of performance (manufacturing)
In the manufacturing sector, Kroes and Ghosh (2010) set out to investigate how fit or congruence between firms’ outsourcing drivers and competitive priorities affect supply chain performance and business perfor- mance. Their study involving US manufacturing busi- ness units in nine different industry groups indicated that outsourcing congruence positively affects supply chain performance. The authors also found that level of supply chain performance in a firm is positively associated with its business performance. The arti- cle did not specify what activities were outsourced by the business units. In another study, Bertrand (2011) examined a sample of French manufactur- ing multinational enterprises (MNEs) and found that offshore outsourcing increases firms’ export perfor- mance. However, such influence is stronger when firms import intermediate goods from those export countries. The author defined offshore outsourcing as intermediate goods supplied by foreign-based inde- pendent suppliers. His research also found that the impact of offshore outsourcing is moderated by three factors: firm size; organization of intra-firm imports; and firm export experience. Finally, Görg and Hanley (2005) focused on the effect of international outsourc- ing of intermediate inputs on plant-level productivity of firms in the Irish electronic sector. Intermediate inputs consisted of both manufacturing (raw materi- als and components) and service inputs covering 12 sub-sectors of electronics. Their analysis concluded that outsourcing of materials results in productivity gains, but this happens only with firms that possess low export intensities.
Positive effect: direct measure of performance (services)
In the only article in this category, Thouin et al. (2009) investigated the role of information tech- nology (IT) outsourcing on the performance of US firms. Specifically, they focused on the level of net- work and telecommunications services outsourcing on firms’ financial performance. The outsourcing in- volved 27 IT services such as benefits realization, help desk support and hardware maintenance and support. The study found that higher levels of network and telecommunications services outsourcing is associ- ated with superior financial performance. The authors concluded that ‘low asset specificity’ IT activities, i.e.
C© 2015 British Academy of Management and John Wiley & Sons Ltd.
468 S. Lahiri
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C© 2015 British Academy of Management and John Wiley & Sons Ltd.
Does Outsourcing Improve Firm Performance? 469
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ec t:
Im p ro
ve m
en t
(a cr
o ss
fo u r
q u ar
te rs
) in
co st
ef fi
ci en
cy ,
p ro
d u ct
iv it
y, p ro
fi ta
b il
it y,
g ro
w th
, ca
sh m
an ag
em en
t, m
ar ke
t ra
ti o
an d
m ar
ke t
va lu
e
O u ts
o u rc
ed IT
im p ro
ve d
p er
fo rm
an ce
in co
st ef
fi ci
en cy
, p ro
d u ct
iv it
y, p ro
fi ta
b il
it y,
g ro
w th
, ca
sh m
an ag
em en
t, m
ar ke
t ra
ti o
an d
m ar
ke t
va lu
e. N
o n -o
u ts
o u rc
in g
fi rm
s d id
n o t
im p ro
ve th
ei r
p er
fo rm
an ce
H an
an d
M it
h as
(2 0 1 3 )
2 8 1
U S
fi rm
s M
an u fa
ct u ri
n g
an d
se rv
ic es
D o m
es ti
c In
fo rm
a ti
o n
W ee
k, an
d C
o m
p u st
at (1
9 9 9 – 2 0 0 3 )
F ir
m ’s
sp en
d in
g in
IT o u ts
o u rc
in g
as a
p er
ce n ta
g e
o f
it s
re ve
n u e
D ir
ec t:
N o n -I
T o p er
at in
g ex
p en
se =
to ta
l o p er
at in
g ex
p en
se s
m in
u s
IT ex
p en
d it
u re
s as
a% o f
re ve
n u e
IT o u ts
o u rc
in g
is n eg
at iv
el y
as so
ci at
ed w
it h
n o n -I
T o p er
at in
g co
st s.
T h is
is b et
te r
ac h ie
ve d
w h en
fi rm
s al
so in
ve st
in in
te rn
al IT
sy st
em s,
in p ar
ti cu
la r
IT la
b o r
N ov
ak an
d S
te rn
(2 0 0 8 )
A u to
m o b il
e in
d u st
ry (E
u ro
p ea
n ,
U S
an d
Ja p an
es e
co m
p an
ie s)
M an
u fa
ct u ri
n g
In te
rn at
io n al
P ro
p ri
et ar
y d at
a in
th e
g lo
b al
au to
in d u st
ry P
er ce
n ta
g e
o f
sy st
em co
m p o n en
ts n o t
p ro
d u ce
d in
-h o u se
In d ir
ec t:
P er
fo rm
an ce
ra ti
n g ,
i. e.
co n su
m er
re p o rt
s’ ra
ti n g
af te
r a
m aj
o r
m o d el
ch an
g e
O u ts
o u rc
in g
is as
so ci
at ed
w it
h h ig
h p er
fo rm
an ce
in th
e in
it ia
l st
ag es
o f
th e
P L
C w
h er
ea s
ve rt
ic al
in te
g ra
ti o n
in fl
u en
ce s
p er
fo rm
an ce
im p ro
ve m
en t
ov er
th e
P L
C
C© 2015 British Academy of Management and John Wiley & Sons Ltd.
470 S. Lahiri
Ta bl
e 2
. C
o n
ti n
u ed
A rt
ic le
R es
ea rc
h sa
m p le
S ec
to r
Ty p e
o f
o u ts
o u rc
in g
D at
a co
ll ec
ti o n
O u ts
o u rc
in g
m ea
su re
P er
fo rm
an ce
m ea
su re
M ai
n fi
n d in
g
G ro
ve r
et a l.
(1 9 9 6 )
V ar
ie ty
o f
in d u st
ri es
M an
u fa
ct u ri
n g
an d
se rv
ic es
D o m
es ti
c Q
u es
ti o n n ai
re su
rv ey
o f
to p
IS ex
ec u ti
ve s
(N =
1 8 8 )
D if
fe re
n ce
b et
w ee
n cu
rr en
t o u ts
o u rc
in g
b u d g et
an d
th at
o f
th re
e ye
ar s
ag o
In d ir
ec t:
S u cc
es s
fr o m
o u ts
o u rc
in g
o f
IS fu
n ct
io n s:
T h e
ex te
n t
to w
h ic
h se
rv ic
e re
ce iv
er s
ar e
sa ti
sfi ed
w it
h ec
o n o m
ic ,
st ra
te g ic
an d
te ch
n o lo
g ic
al b en
efi ts
(n in
e su
rv ey
it em
s)
P ro
v id
er ’s
se rv
ic e
q u al
it y
an d
d if
fe re
n t
d im
en si
o n s
o f
p ar
tn er
sh ip
su ch
as tr
u st
, co
o p er
at io
n an
d co
m m
u n ic
at io
n p o si
ti ve
ly af
fe ct
s o u ts
o u rc
in g
su cc
es s
N ie
to an
d R
o d rı́
g u ez
(2 0 1 1 )
D if
fe re
n t
S p an
is h
se ct
o rs
M an
u fa
ct u ri
n g
an d
se rv
ic es
In te
rn at
io n al
T ec
h n o lo
g ic
al In
n ov
at io
n P
an el
(T IP
) co
m p il
ed by
va ri
o u s
in st
it u ti
o n s
in S
p ai
n (2
0 0 4 – 2 0 0 7 )
W h et
h er
th e
fi rm
b u y s
R &
D se
rv ic
es fr
o m
(a )
an af
fi li
at e,
o r
(b )
o th
er fi
rm s,
o rg
an iz
at io
n s
o r
u n iv
er si
ti es
(d ic
h o to
m o u s
va ri
ab le
s)
In d ir
ec t:
P ro
d u ct
in n ov
at io
n an
d p ro
ce ss
in n ov
at io
n (d
ic h o to
m o u s
va ri
ab le
s) ,
ta ke
s va
lu e
1 w
h en
fi rm
in tr
o d u ce
s n ew
o r
im p ro
ve d
p ro
d u ct
o r
p ro
ce ss
in th
e m
ar ke
t
O ff
sh o re
o u ts
o u rc
in g
is p o si
ti ve
ly re
la te
d to
p ro
d u ct
an d
p ro
ce ss
in n ov
at io
n .
T h e
ef fe
ct is
m o re
o n
p ro
d u ct
in n ov
at io
n th
an p ro
ce ss
in n ov
at io
n
L i
et a l.
(2 0 0 8 )
M ed
iu m
an d
la rg
e C
h in
es e
fi rm
s in
vo lv
ed in
1 9 8
S in
o -f
o re
ig n
an d
3 5 1
d o m
es ti
c o u ts
o u rc
in g
al li
an ce
s
M an
u fa
ct u ri
n g
an d
se rv
ic es
In te
rn at
io n al
Q u es
ti o n n ai
re su
rv ey
o f
to p
ex ec
u ti
ve s
(2 0 0 2 )
A ve
ra g e
o f
fo u r
it em
s re
la te
d to
ac q u ir
in g
ta ci
t k n ow
le d g e
th ro
u g h
o ff
sh o re
o u ts
o u rc
in g
In d ir
ec t:
-I n cr
em en
ta l
in n ov
at io
n :
3 su
rv ey
it em
s (e
.g . d ev
el o p in
g n ew
fa sh
io n s
o f
p ro
d u ct
) R
ad ic
al in
n ov
at io
n :
4 su
rv ey
it em
s (e
.g . cr
ea ti
n g
ra d ic
al ly
n ew
p ro
d u ct
s)
F ir
m s’
m o ti
ve fo
r k n ow
le d g e
ac q u is
it io
n in
in te
rn at
io n al
co ll
ab o ra
ti o n
an d
co n tr
o l
m ec
h an
is m
s si
g n ifi
ca n tl
y im
p ac
t fi
rm s’
in cr
em en
ta l
an d
ra d ic
al in
n ov
at io
n o u tc
o m
es
O ke
an d
O n w
u eg
b u zi
e (2
0 1 3 )
5 7 9
fi rm
s in
1 0
m aj
o r
in d u st
ri al
se ct
o rs
M an
u fa
ct u ri
n g
an d
se rv
ic es
D o m
es ti
c S
u rv
ey d at
a fr
o m
th e
C o u n ci
l o f
E u ro
p ea
n S
o ci
al S
ci en
ce D
at a
A rc
h iv
es (C
E S
S D
A )
(2 0 0 0 – 2 0 0 2 )
O u ts
o u rc
in g
E x te
n t:
W o rk
u n d er
ta ke
n by
o th
er fi
rm s
fo r
th e
fo ca
l fi
rm o n
a su
b co
n tr
ac t
b as
is as
a p er
ce n ta
g e
o f
to ta
l sa
le s
In d ir
ec t:
C o u n t
d at
a o f
th e
n u m
b er
o f
p at
en t
ap p li
ca ti
o n s
w it
h re
sp ec
t to
ra d ic
al p ro
d u ct
s, se
rv ic
es an
d p ro
ce ss
es d ev
el o p ed
by th
e fi
rm
O u ts
o u rc
in g
is p o si
ti ve
ly as
so ci
at ed
w it
h ra
d ic
al in
n ov
at iv
en es
s an
d fi
rm s’
m an
u fa
ct u ri
n g
st ra
te g y
p o si
ti ve
ly m
o d er
at es
th e
re la
ti o n sh
ip
C© 2015 British Academy of Management and John Wiley & Sons Ltd.
Does Outsourcing Improve Firm Performance? 471
Ta bl
e 2
. C
o n
ti n
u ed
A rt
ic le
R es
ea rc
h sa
m p le
S ec
to r
Ty p e
o f
o u ts
o u rc
in g
D at
a co
ll ec
ti o n
O u ts
o u rc
in g
m ea
su re
P er
fo rm
an ce
m ea
su re
M ai
n fi
n d in
g
B ar
d h an
et a l.
(2 0 0 6 )
2 6 6
U S
p la
n ts
M an
u fa
ct u ri
n g
D o m
es ti
c IW
/M P
I ce
n su
s o f
m an
u fa
ct u re
rs 2 0 0 4
S u rv
ey o f
U S
m an
u fa
ct u ri
n g
p la
n ts
(o n li
n e
su rv
ey )
E x te
n t
o f
o u ts
o u rc
in g
fo r
p ro
d u ct
io n
p ro
ce ss
es at
th e
p la
n t
le ve
l (t
h re
e it
em in
d ex
)
C o m
b in
ed :
P la
n t
co st
(c o st
o f
g o o d s
so ld
as %
o f
re ve
n u e)
Q u al
it y
ch an
g e
(c h an
g e
in fi
rs t-
p as
s q u al
it y
y ie
ld %
o f
fi n is
h ed
p ro
d u ct
s ov
er th
e p as
t 3
ye ar
s)
IT in
ve st
m en
ts an
d p ro
d u ct
io n
o u ts
o u rc
in g
re la
te s
to lo
w er
co st
s o f
g o o d s
so ld
an d
h ig
h er
im p ro
ve m
en t
in p ro
d u ct
q u al
it y
K am
y ab
i an
d D
ev i
(2 0 1 1 )
Ir an
ia n
S M
E s
M an
u fa
ct u ri
n g
D o m
es ti
c M
ai l
su rv
ey o f
S M
E ow
n er
s/ m
an ag
er s
L ev
el o f
o u ts
o u rc
in g
o f
ac co
u n ti
n g
ta sk
s o n
a 7 -p
o in
t L
ik er
t ty
p e
sc al
e
C o m
b in
ed :
P er
fo rm
an ce
g o al
s: 4
F in
an ci
al (p
ro fi
ta b il
it y,
sa le
s g
ro w
th ,
R O
A ,
ca sh
fl ow
) an
d 3
n o n -fi
n an
ci al
(l if
es ty
le ,
in d ep
en d en
ce an
d jo
b se
cu ri
ty )
O u ts
o u rc
in g
h as
a p o si
ti ve
in fl
u en
ce o n
S M
E p er
fo rm
an ce
B o la
t an
d Y
il m
az (2
0 0 9 )
8 0
T u rk
is h
h o te
ls S
er v ic
es D
o m
es ti
c E
le ct
ro n ic
q u es
ti o n n ai
re su
rv ey
o f
h o te
l m
an ag
er s
A ss
es sm
en t
o f
th e
ef fe
ct iv
en es
s o f
o u ts
o u rc
in g
p ro
ce ss
u si
n g
te n
q u es
ti o n s
C o m
b in
ed :
7 p er
fo rm
an ce
m et
ri cs
(e .g
. p ro
d u ct
iv it
y, q u al
it y )
b ef
o re
an d
af te
r o u ts
o u rc
in g
O u ts
o u rc
in g
p o si
ti ve
ly ef
fe ct
s fi
rm p er
fo rm
an ce
E sp
in o -
R o d rı́
g u ez
an d
P ad
ró n -
R o b ai
n a
(2 0 0 5 )
5 0
S p an
is h
h o te
ls S
er v ic
es D
o m
es ti
c Q
u es
ti o n n ai
re su
rv ey
o f
h o te
l m
an ag
er s
T h e
ex te
n t
to w
h ic
h ac
ti v it
ie s
ar e
cu rr
en tl
y o u ts
o u rc
ed an
d p la
n n ed
to b e
o u ts
o u rc
ed in
th e
fu tu
re o n
a 7 -p
o in
t L
ik er
t- ty
p e
sc al
e
C o m
b in
ed :
O rg
an iz
at io
n al
q u al
it y,
fi n an
ci al
p er
fo rm
an ce
, em
p lo
ye e
w el
fa re
, h o te
l ac
ti v it
y ra
te
O u ts
o u rc
in g
h as
a p o si
ti ve
in fl
u en
ce o n
o rg
an iz
at io
n al
p er
fo rm
an ce
C© 2015 British Academy of Management and John Wiley & Sons Ltd.
472 S. Lahiri
those that are commodities, should be outsourced in order to improve firm performance.
Positive effect: direct measure of performance (manufacturing and services)
The first study in this category by Di Gregorio et al. (2009) examined how offshore outsourcing of business processes enhances international com- petitiveness of small and medium-sized enterprises (SMEs). Their sample included US-based SMEs from various industries: manufacturing; services; whole- sale/retail; and primary goods. The authors found that offshore outsourcing of administrative and technical services positively affects the international compet- itiveness of SMEs by reducing costs, expanding re- lational ties with partners, serving customers more effectively, freeing up scarce resources and lever- aging capabilities of foreign partners. The authors also found that offshore outsourcing of services re- sults in a greater impact on international competi- tiveness of SMEs than offshore manufacturing out- sourcing or captive outsourcing does. Analyzing a sample of Indian and foreign firms, Singh (2009) con- cluded that the practice of outsourcing positively in- fluences building firm-level capability which, in turn, contributes to business performance. In addition, the author found that outsourcing directly influences firm performance. His research also found that market ori- entation complements firms’ outsourcing. The author suggested that firms need to be both market-oriented and effective outsourcers. This article did not spec- ify the manufacturing or service activities that were outsourced by the firms.
In the third article in this category, Arvanitis and Loukis (2012) concentrated on the impact of out- sourcing on innovation performance and labor pro- ductivity. Outsourcing in this study involved produc- tion of intermediate and final products, and R&D and ICT (information and communication technologies) activities. The authors investigated Greek and Swiss firms and concluded that outsourcing enhances inno- vation performance – particularly process innovation – but has a weak positive effect on labor produc- tivity. The study findings were true for firms from both countries. Agrawal and Haleem (2013) exam- ined the effect of IT outsourcing on firm performance. Their study found that firms that outsourced IT im- proved performance in cost efficiency, productivity, profitability, growth, cash management, market ratio and market value. Firms that did not outsource were not able to improve their performance. The authors
measured performance in the four quarters following IT outsourcing announcements by the firms.
In the final article, Han and Mithas (2013) in- vestigated the impact of IT outsourcing on non-IT operating costs and found that the former is nega- tively associated with the latter. Their focus was on a large sample of US firms. The authors also found that non-IT cost reductions are better achieved through outsourcing when firms also invest in internal IT sys- tems, in particular IT labor.
Positive effect: indirect measure of performance
There were five studies that used indirect measure of performance: one in the manufacturing sector (Novak and Stern 2008) and four involving both manufactur- ing and service sectors (Grover et al. 1996; Li et al. 2008; Nieto and Rodrı́guez 2011; Oke and Onwueg- buzie 2013).
Positive effect: indirect measure of performance (manufacturing)
Product development life cycle in the luxury auto- mobile segment was investigated by Novak and Stern (2008). The authors’ analysis involving European, US and Japanese companies found that outsourcing is as- sociated with high performance in the initial stages of the product life cycle (PLC), whereas vertical in- tegration influences performance improvement over the PLC.
Positive effect: indirect measure of performance (manufacturing and services)
In this category, Grover et al. (1996) studied out- sourcing of IS (information systems) functions and investigated how (a) service quality of outsourcing provider and (b) client–provider partnership affects outsourcing success. Outsourcing involved five IS functions: applications development; systems oper- ations; telecommunications; end-user support; and systems planning and management. The authors de- fined success as the overall organizational advantage that results from firms’ outsourcing strategy. Their empirical analysis suggested that service quality and different dimensions of partnership such as trust, co- operation and communication positively affect out- sourcing success. In the second study, Nieto and Rodrı́guez (2011) investigated the impact of R&D offshoring on firms’ innovation capabilities. The au- thors considered two types of offshoring: captive
C© 2015 British Academy of Management and John Wiley & Sons Ltd.
Does Outsourcing Improve Firm Performance? 473
offshoring (acquiring R&D services from an affili- ate) and offshore outsourcing (buying R&D services from external providers), and two types of innova- tion outcomes: product and process innovation. Their analysis of Spanish manufacturing and service firms suggests that offshoring has positive influence on in- novation performance. The positive effect was more pronounced on product innovation than process inno- vation. Further, captive offshoring was found to have greater impact on innovation compared with offshore outsourcing.
Li and colleagues (2008) examined outsourcing al- liances executed by Chinese firms with foreign and local partners. They analyzed, over a five-year pe- riod, the impact of (a) firms’ motive to acquire tacit knowledge from outsourcing partners, and (b) differ- ent control mechanisms (social and formal) on firms’ innovation outcomes. The authors found that firms’ motive for knowledge acquisition and control mecha- nisms significantly affect incremental and radical in- novation outcomes. The authors also found evidence that social control positively affects radical innova- tion, whereas formal control positively affects incre- mental innovation. In the last study in this category, Oke and Onwuegbuzie (2013) examined the effect of outsourcing and subcontracting-in on radical in- novativeness of firms. Focusing on a large sample of small high-tech firms in Europe, they found that out- sourcing is positively associated with radical innova- tiveness. They also found that firms’ manufacturing strategy positively moderates the above relationship.
Positive effect: combined (direct and indirect) measure of performance
Four studies used combined measure of performance: two in the manufacturing sector (Bardhan et al. 2006; Kamyabi and Devi 2011) and two in the services sec- tor (Bolat and Yilmaz 2009; Espino-Rodrı ́guez and Padrón-Robaina 2005).
Positive effect: combined measure of performance (manufacturing)
Concentrating on IT, production process outsourcing and performance of manufacturing plants, Bardhan et al. (2006) found that IT investments and produc- tion outsourcing relate to lower costs of goods sold and higher improvement in product quality. That is, IT-enabled production outsourcing enables firms to achieve both cost reduction and quality improvement. Outsourcing in this study was measured for three
core production processes: fabrication or process- ing, assembly and staging or packaging. The study concluded that plant managers need to maintain a high degree of integration with suppliers to achieve the benefits of outsourcing. The study of Iranian manufacturing SMEs by Kamyabi and Devi (2011) found that outsourcing has a positive influence on SME performance. Here outsourcing involved a va- riety of accounting functions such as preparation of financial statements, payroll accounting, tax consul- tancy and product costing. The scholars also found that outsourcing partially mediates the impact of owner/manager knowledge on firm performance, but does not mediate the impact of firm size on SME performance.
Positive effect: combined measure of performance (services)
There were two articles in this category. Bolat and Yilmaz (2009) considered hotels as their research context. Investigating a sample of Turkish hotels, the authors found that outsourcing positively affects hotel performance. Outsourcing involved a variety of functions within seven major hotel departments: front-office; housekeeping; food and beverage; main- tenance; administration; leisure activities; and hotel security. The authors measured performance using seven metrics. The greatest improvement as a result of outsourcing happened in the area of ‘continuous improvement’, and the least happened in the ‘quality of work life’ dimension. The authors concluded that improvements happen as a result of cooperation with vendors that do business with the hotels. Like Bolat and Yilmaz (2009), Espino-Rodrı́guez and Padrón- Robaina (2005) studied hotels. Their study of Span- ish hotels found that outsourcing has a positive influ- ence on organizational performance. The functions involved in outsourcing were essentially the same as in the previous study (Bolat and Yilmaz 2009). Specifically, they found that outsourcing of non-core activities has a positive influence on financial per- formance and hotel activity rate and outsourcing of core or strategic activities improves financial perfor- mance, but not really other performance dimensions. Interestingly, the authors found that outsourcing of core or highly strategic activities does not necessarily lead to reduced performance.
The above review suggests significant diversity in scope, context, level of analysis, data sources and industry sector. Diversity is also observed in the measurement of outsourcing and firm performance.
C© 2015 British Academy of Management and John Wiley & Sons Ltd.
474 S. Lahiri
Despite these differences, one aspect is common in all these studies. They provide evidence that outsourcing can positively influence firm performance.
Negative effect of outsourcing on the firm
Four studies belonged to this category. The salient features of each study are highlighted in Table 3.
Of these four studies, one involved firms in the manufacturing sector and three involved firms (banks) in the services sector. The national contexts of the studies varied widely, e.g. the USA (Weigelt 2009) and Germany (Broedner et al. 2009). Two studies involved data collection through questionnaire survey of firms’ top executives (Cho et al. 2008; Weigelt 2009), and two involved use of secondary/archival data (Broedner et al. 2009; Pentina and Hasty 2009). Two studies used direct measures of performance, such as labor productivity (Broedner et al. 2009) and annual online sales in millions (Pentina and Hasty 2009), and two used combined (direct and indirect) measures such as profitability, sales growth, overall performance, customer satisfaction (Cho et al. 2008) and market performance and integrative capabilities (Weigelt 2009).
Negative effect: direct measure of performance (manufacturing)
Broedner et al. (2009) investigated the productivity effects of German manufacturing firms in investment goods industries and found that outsourcing has a strong negative impact on firms’ labor productivity. Firms that were engaged in outsourcing involved pro- ducers of machinery, finished metal products, electri- cal engineering products and precision instruments. The authors also found that outsourcing increases ex- penses or decreases revenues for firms and, as a re- sult, outsourcing firms exhibit lower productivity than non-outsourcing or vertically integrated firms.
Negative effect: direct measure of performance (services)
In a study of online retailers, Pentina and Hasty (2009) found evidence that companies that outsource e-commerce functions such as website hosting and site design do not achieve higher online sales per- formance compared with firms that do not outsource similar functions, but develop in-house. The authors concluded that outsourcing to third-party providers
may be a useful strategy in the initial stages of multi- channel retailing, but developing e-commerce-related capabilities in-house is better in the latter (advanced) stages of interchannel coordination.
Negative effect: combined measure of performance (services)
There were two articles in this category. The purpose of Cho et al. (2008) was to examine the influence of logistics capability and logistics outsourcing on firm performance in an e-commerce market environment. They measured logistics outsourcing using a single question: ‘Do you use 3PL service providers for the logistics functions of your firm’ (no = 0; yes = 1)? Their study found that logistics outsourcing has a sig- nificant negative association with firm performance, profitability, customer satisfaction and overall per- formance. Further, they found no mediating effect of logistics outsourcing on the relationship between logistics capability and firm performance. The au- thors reasoned that outsourcing companies perceive that they perform poorly compared with firms that do not outsource. In the second article in this category, Weigelt (2009) examined the influence of internet outsourcing activities on US banks’ subsequent mar- ket performance and integrative capabilities. Degree of outsourcing in this study related to eight online service areas: account balance inquiry; bill payment; bill presentment; credit/loan/mortgage; investment; insurance; non-traditional services; and customer re- lationship management (CRM). The author observed that a bank’s greater outsourcing of business process- enhancing technologies can lower its integrative capa- bilities and performance in the market. This is prob- ably due to decreased learning by doing and lower investments in firms’ internal processes. This study also found that the negative effect of outsourcing is lower for banks that have prior experience with the related technology.
The above review suggests diversity in scope, con- text, level of analysis, data sources and industry sec- tor. Diversity is also observed in the measurement of outsourcing and firm performance. Despite these dif- ferences, one aspect is common in all these studies: they provide evidence that outsourcing can negatively influence firm performance.
Mixed effect of outsourcing on the firm
Twenty-two studies belonged to this category. The salient features of each study are highlighted in Table 4.
C© 2015 British Academy of Management and John Wiley & Sons Ltd.
Does Outsourcing Improve Firm Performance? 475
Ta bl
e 3
. N
eg a
ti ve
ef fe
ct o
f o
u ts
o u
rc in
g o
n th
e fi
rm
A rt
ic le
R es
ea rc
h sa
m p le
S ec
to r
Ty p e
o f
o u ts
o u rc
in g
D at
a co
ll ec
ti o n
O u ts
o u rc
in g
m ea
su re
P er
fo rm
an ce
m ea
su re
M ai
n fi
n d in
g
B ro
ed n er
et a l.
(2 0 0 9 )
4 9 2
G er
m an
fi rm
s M
an u fa
ct u ri
n g
D o m
es ti
c G
er m
an d at
a se
t o f
th e
E u ro
p ea
n M
an u fa
ct u ri
n g
su rv
ey (2
0 0 3 )
(N =
4 9 2 )
S co
p e
o f
ve rt
ic al
in te
g ra
ti o n
= 1 0 0 %
m in
u s
o u ts
o u rc
in g
q u o ta
(O Q
), w
h er
e O
Q =
ra ti
o o f
to ta
l in
p u ts
to to
ta l
tu rn
ov er
D ir
ec t:
L ab
o r
p ro
d u ct
iv it
y =
va lu
e ad
d ed
(t o ta
l tu
rn ov
er le
ss to
ta l
in p u ts
) p er
em p lo
ye e
(p le
as e
se e
n o te
1 o n
p ag
e. 1 4 6
o f
th e
ar ti
cl e)
O u ts
o u rc
in g
h as
st ro
n g
n eg
at iv
e im
p ac
t o n
fi rm
s’ la
b o r
p ro
d u ct
iv it
y
P en
ti n a
an d
H as
ty (2
0 0 9 )
5 0
p u bl
ic ly
tr ad
ed m
u lt
ic h an
n el
re ta
il co
m p an
ie s
S er
v ic
es D
o m
es ti
c C
o m
p u st
at ,
an n u al
re p o rt
s an
d o th
er p u bl
ic ly
av ai
la bl
e d at
a so
u rc
es
C o u n t
o f
e- b
u si
n es
s ca
p ab
il it
ie s
n o t
d ev
el o p ed
in -h
o u se
D ir
ec t:
A n n u al
o n li
n e
sa le
s in
m il
li o n s
fo r
2 0 0 6
C o m
p an
ie s
th at
o u ts
o u rc
e e-
co m
m er
ce fu
n ct
io n s
su ch
as si
te d es
ig n ,
co n te
n t
d ev
el o p m
en t
et c.
d o
n o t
ac h ie
ve h ig
h er
o n li
n e
sa le
s p er
fo rm
an ce
co m
p ar
ed w
it h
fi rm
s th
at d o
n o t
o u ts
o u rc
e si
m il
ar fu
n ct
io n s
b u t
d ev
el o p
th em
in -h
o u se
C h o
et a l.
(2 0 0 8 )
1 2 3 2
fi rm
s in
C o m
p u te
r an
d co
n su
m er
re ta
il in
g in
d u st
ry
S er
v ic
es D
o m
es ti
c Q
u es
ti o n n ai
re su
rv ey
o f
p re
si d en
t o r
lo g is
ti cs
m an
ag er
(N =
1 1 7 )
U se
o f
lo g is
ti cs
th ir
d -p
ar ti
es o r
n o t
(d ic
h o to
m o u s
va ri
ab le
)
C o m
b in
ed :
P ro
fi ta
b il
it y,
sa le
s g
ro w
th ,
ov er
al l
p er
fo rm
an ce
, cu
st o m
er sa
ti sf
ac ti
o n
L og
is ti
cs o u ts
o u rc
in g
is n eg
at iv
el y
as so
ci at
ed w
it h
fi rm
p er
fo rm
an ce
, p ro
fi ta
b il
it y,
cu st
o m
er sa
ti sf
ac ti
o n
an d
ov er
al l
p er
fo rm
an ce
W ei
g el
t (2
0 0 9 )
9 4
U S
B an
k s
S er
v ic
es D
o m
es ti
c S
en io
r ex
ec u ti
ve su
rv ey
(2 ro
u n d s:
2 0 0 1 – 2 0 0 2
an d
2 0 0 3 )
an d
ar ch
iv al
d at
a (R
ep o rt
s o n
C o n d it
io n
a n d
In co
m e)
S u m
o f
p er
ce n ta
g es
o f
o u ts
o u rc
in g
ac ro
ss al
l se
rv ic
e ar
ea s
o ff
er ed
d iv
id ed
by to
ta l
n u m
b er
o f
o n li
n e
se rv
ic e
ar ea
s o ff
er ed
C o m
b in
ed :
In te
g ra
ti ve
ca p ab
il it
ie s
(3 it
em s)
an d
m ar
ke t
p er
fo rm
an ce
(% o f
b an
k ’s
to ta
l cu
st o m
er b as
e th
at re
g u la
rl y
ch ec
k s
b al
an ce
s o n li
n e)
N eg
at iv
e as
so ci
at io
n b et
w ee
n o u ts
o u rc
in g
an d
p er
fo rm
an ce
su g g es
ti n g
th at
fi rm
s’ g
re at
er o u ts
o u rc
in g
o f
te ch
n o lo
g ie
s th
at en
h an
ce s
b u si
n es
s p ro
ce ss
es ca
n lo
w er
fi rm
s’ in
te g
ra ti
ve ca
p ab
il it
ie s
an d
p er
fo rm
an ce
in th
e m
ar ke
t
C© 2015 British Academy of Management and John Wiley & Sons Ltd.
476 S. Lahiri
Ta bl
e 4
. M
ix ed
ef fe
ct s
o f
o u
ts o
u rc
in g
o n
th e
fi rm
A rt
ic le
R es
ea rc
h sa
m p le
S ec
to r
Ty p e
o f
o u ts
o u rc
in g
D at
a co
ll ec
ti o n
O u ts
o u rc
in g
m ea
su re
P er
fo rm
an ce
m ea
su re
M ai
n fi
n d in
g
C al
ab re
se an
d E
rb et
ta (2
0 0 5 )
4 5 6
It al
ia n
A u to
m o ti
ve su
p p li
er s
M an
u fa
ct u ri
n g
D o m
es ti
c F
ir m
s’ fi
n an
ci al
st at
em en
ts (1
9 9 8 – 2 0 0 1 )
M ak
e v s
b u y
d ec
is io
n .
B u y
= P
u rc
h as
e o f
ra w
co n su
m ab
le g o o d s
an d
se rv
ic es
D ir
ec t:
G ro
w th
, p ro
d u ct
iv it
y, p ro
fi ta
b il
it y
an d
fi n an
ci al
d ep
en d en
ce
R el
at io
n sh
ip b et
w ee
n o u ts
o u rc
in g
an d
fi rm
p er
fo rm
an ce
is n o t
li n ea
r.
G ö rg
et a l.
(2 0 0 8 )
Ir is
h m
an u fa
ct u ri
n g
fi rm
s M
an u fa
ct u ri
n g
In te
rn at
io n al
Ir is
h E
co n o m
y E
xp en
d it
u re
S u rv
ey (g
ov er
n m
en t
su rv
ey )
(1 9 9 0 – 1 9 9 8 )
Im p o rt
ed m
at er
ia l
an d
se rv
ic e
in p u ts
ov er
to ta
l w
ag e
b il
l
D ir
ec t:
L ab
o r
p ro
d u ct
iv it
y, i.
e. va
lu e
ad d ed
p er
em p lo
ye e
O u ts
o u rc
in g
o f
se rv
ic e
in p u ts
h as
a p o si
ti ve
ef fe
ct o n
th e
p ro
d u ct
iv it
y o f
ex p o rt
er s.
In te
rn at
io n al
o u ts
o u rc
in g
o f
se rv
ic es
d o es
n o t
h av
e an
y si
g n ifi
ca n t
ef fe
ct o n
th e
p ro
d u ct
iv it
y o f
n o n -e
x p o rt
er s.
B ar
d h an
et a l.
(2 0 0 7 )
9 6 4
U S
p la
n ts
M an
u fa
ct u ri
n g
D o m
es ti
c C
en su
s (s
u rv
ey )
d at
a o f
U S
m an
u fa
ct u ri
n g
p la
n ts
(2 0 0 3 )
D eg
re e
o f
o u ts
o u rc
in g
= su
p p o rt
an d
p ro
d u ct
io n
p ro
ce ss
es o u ts
o u rc
ed v s
n o t
o u ts
o u rc
ed (b
in ar
y )
D ir
ec t:
G ro
ss M
ar g in
(a n n u al
p la
n t
re ve
n u e
le ss
co st
o f
g o o d s
so ld
as a
p er
ce n ta
g e
o f
p la
n t
re ve
n u e)
O n -t
im e
d el
iv er
y ra
te (%
o f
d el
iv er
ie s
d o n e
to cu
st o m
er s
w it
h in
th e
sc h ed
u le
d d el
iv er
y w
in d ow
)
B o th
p ro
d u ct
io n
an d
su p p o rt
-p ro
ce ss
o u ts
o u rc
in g
re su
lt s
in p o si
ti ve
im p ac
t o n
fi rm
s’ g
ro ss
m ar
g in
s. H
ow ev
er ,
th er
e is
n o
as so
ci at
io n
b et
w ee
n p la
n t
o u ts
o u rc
in g
an d
o n -t
im e
d el
iv er
y ra
te s.
B en
g ts
so n
et a l.
(2 0 0 9 )
2 6 7
S w
ed is
h p la
n ts
o f
en g in
ee ri
n g
fi rm
s
M an
u fa
ct u ri
n g
D o m
es ti
c Q
u es
ti o n n ai
re su
rv ey
O u ts
o u rc
in g
fo r
co st
re as
o n s
(3 it
em s)
an d
o u ts
o u rc
in g
fo r
in n ov
at io
n an
d ac
ce ss
in g
n ew
k n ow
le d g e
D ir
ec t:
C o st
re d u ct
io n
(2 it
em s)
, ti
m e-
to -m
ar ke
t (3
it em
s) an
d fu
n ct
io n al
it y
(3 it
em s)
O u ts
o u rc
in g
in vo
lv es
tr ad
e- o ff
b et
w ee
n co
st lo
w er
in g
an d
en h an
ci n g
in n ov
at io
n ca
p ab
il it
ie s.
K o ta
b e
an d
M o l
(2 0 0 9 )
F ir
m s
in T
h e
N et
h er
la n d s
M an
u fa
ct u ri
n g
D o m
es ti
c C
en su
s d at
a fr
o m
S ta
ti st
ic s
N et
h er
la n d s
(1 9 9 5
an d
1 9 9 8 )
R at
io o f
in d u st
ri al
p u rc
h as
in g
to to
ta l
sa le
s fo
r 1 9 9 5
an d
1 9 9 8
D ir
ec t:
R et
u rn
o n
va lu
e ad
d ed
(R O
V A
) =
to ta
l p ro
fi ta
b il
it y
d iv
id ed
by fi
rm s’
va lu
e ad
d ed
) fo
r 1 9 9 5
an d
1 9 9 8
O u ts
o u rc
in g
b ey
o n d
an o p ti
m al
d eg
re e
o f
o u ts
o u rc
in g
lo w
er s
fi rm
p er
fo rm
an ce
in a
cu rv
il in
ea r
m an
n er
an d
th e
st ee
p n es
s o f
th e
cu rv
e in
cr ea
se s
u n d er
co n d it
io n s
o f
h ig
h u n ce
rt ai
n ty
. H
ij ze
n et
a l.
(2 0 1 0 )
Ja p an
es e
m an
u fa
ct u ri
n g
in d u st
ri es
M an
u fa
ct u ri
n g
O ff
sh o ri
n g
an d
o ff
sh o re
o u ts
o u rc
in g
S u rv
ey d at
a fr
o m
M in
is tr
y o f
E co
n o m
y, T
ra d e
an d
In d u st
ry (1
9 9 4 – 2 0 0 0 )
R at
io o f
re al
p u rc
h as
es o f
p ro
d u ct
s, p ar
ts ,
co m
p o n en
ts to
fo re
ig n /d
o m
es ti
c p ro
v id
er s
o r
af fi
li at
es to
re al
va lu
e ad
d ed
to fi
rm
D ir
ec t:
T o ta
l F ac
to r
P ro
d u ct
iv it
y m
ea su
re d
in 2
w ay
s
O ff
sh o re
o u ts
o u rc
in g
d o es
n o t
h av
e a
p o si
ti ve
im p ac
t o n
to ta
l fa
ct o r
p ro
d u ct
iv it
y. H
ow ev
er , o ff
sh o ri
n g
to u n af
fi li
at ed
, fo
re ig
n af
fi li
at es
af fe
ct s
p ro
d u ct
iv it
y p o si
ti ve
ly .
C© 2015 British Academy of Management and John Wiley & Sons Ltd.
Does Outsourcing Improve Firm Performance? 477
Ta bl
e 4
. C
o n
ti n
u ed
A rt
ic le
R es
ea rc
h sa
m p le
S ec
to r
Ty p e
o f
o u ts
o u rc
in g
D at
a co
ll ec
ti o n
O u ts
o u rc
in g
m ea
su re
P er
fo rm
an ce
m ea
su re
M ai
n fi
n d in
g
O ke
an d
K ac
h (2
0 1 2 )
F ir
m s
in U
.K .
an d
Ja p an
(4 7 6 )
M an
u fa
ct u ri
n g
D o m
es ti
c S
ec o n d ar
y ar
ch iv
al d at
a co
ll ec
te d
in Ja
p an
an d
U K
(2 0 0 2 )
an d
su p p li
ed by
C E
S S
D A
P er
ce n ta
g e
o f
p re
v io
u s
ye ar
’s re
ve n u e
u n d er
ta ke
n by
o th
er fi
rm s
o n
su b co
n tr
ac t
b as
is (r
an g e:
u n d er
1 0 %
– 7 5 %
o r
m o re
)
D ir
ec t:
P re
v io
u s
fi n an
ci al
ye ar
’s p re
-t ax
p ro
fi t
(o r
lo ss
) p er
em p lo
ye e
O u ts
o u rc
in g
to n o n -s
u p p ly
ch ai
n p ar
tn er
s is
p o si
ti ve
ly as
so ci
at ed
w it
h fi
n an
ci al
p er
fo rm
an ce
an d
o p er
at io
n al
in n ov
at io
n p ar
ti al
ly m
ed ia
te s
th e
re la
ti o n sh
ip b et
w ee
n o u ts
o u rc
in g
an d
fi n an
ci al
p er
fo rm
an ce
. M
au ri
an d
d e
F ig
u ei
re d o
(2 0 1 2 )
U S
fi rm
s (p
ar en
ts an
d th
ei r
fo re
ig n
su b si
d ia
ri es
) fr
o m
3 0
m an
u fa
ct u ri
n g
in d u st
ri es
M an
u fa
ct u ri
n g
D o m
es ti
c B
u re
au o f
E co
n o m
ic A
n al
y si
s (B
E A
) an
n u al
su rv
ey s
o f
U S
co m
p an
ie s
(1 9 9 9 – 2 0 0 6 )
T o ta
l sa
le s
m in
u s
va lu
e- ad
d ed
d iv
id ed
by to
ta l
sa le
s
D ir
ec t:
A b so
lu te
va lu
e [R
O S
fo r
th e
in d u st
ry (p
ar en
ts an
d af
fi li
at es
) fo
r a
g iv
en ye
ar m
in u s
in d u st
ry ’s
av er
ag e
R O
S fo
r th
e 8
ye ar
s ex
am in
ed ]
O u ts
o u rc
in g
re su
lt s
in d ec
re as
e o f
M N
E ’s
p er
fo rm
an ce
va ri
ab il
it y
b u t
co m
b in
ed in
fl u en
ce o f
st ra
te g ic
p at
te rn
s re
su lt
s in
in cr
ea se
in p er
fo rm
an ce
va ri
ab il
it y.
M ei
xe ll
et a l.
(2 0 1 3 )
U S
m an
u fa
ct u ri
n g
p la
n ts
M an
u fa
ct u ri
n g
D o m
es ti
c IW
/M P
I ce
n su
s o f
m an
u fa
ct u re
rs S
u rv
ey o f
U S
m an
u fa
ct u ri
n g
p la
n ts
(2 0 0 4 – 2 0 0 7 )
P ro
d u ct
io n
o u ts
o u rc
in g
= 3
it em
s m
ea su
ri n g
in te
n si
ty o f
ac ti
v it
y o u ts
o u rc
in g
(r an
g e:
0 – 3 )
D ir
ec t:
F ac
to ry
’s co
st o f
g o o d s
so ld
(p er
ce n ta
g e
o f
re ve
n u es
)
P ro
d u ct
io n
o u ts
o u rc
in g
d o es
n o t
re su
lt in
th e
ov er
al l
re d u ct
io n
in C
O G
S b
u t
te n d s
to sh
if t
co st
s am
o n g
C O
G S
ca te
g o ri
es .
S p ec
ifi ca
ll y,
th ey
fo u n d
th at
o u ts
o u rc
in g
d ec
re as
es la
b o r
co st
s b u t
in cr
ea se
s m
at er
ia l
co st
s. H
si ao
et a l.
(2 0 1 0 )
F o o d
p ro
ce ss
in g
in d u st
ry in
N et
h er
la n d s
an d
T ai
w an
S er
v ic
es In
te rn
at io
n al
Q u es
ti o n n ai
re su
rv ey
o f
m em
b er
s o f
D u tc
h C
h am
b er
o f
C o m
m er
ce an
d T
ai w
an es
e In
d u st
ry an
d T
ec h n o lo
g y
In te
ll ig
en ce
S er
v ic
e (N
= 1 1 5 )
O u ts
o u rc
in g
st at
u s
o f
fo u r
lo g is
ti cs
ac ti
v it
ie s
as ‘a
lr ea
d y
o u ts
o u rc
ed ’,
‘i n te
n d
to o u ts
o u rc
e’ an
d ‘d
o n ’t
in te
n d
to o u ts
o u rc
e’
D ir
ec t:
D el
iv er
y re
li ab
il it
y, le
ad ti
m e
an d
fl ex
ib il
it y
N o
d ir
ec t
ef fe
ct o f
o u ts
o u rc
in g
o n
se rv
ic e
p er
fo rm
an ce
. C
o m
p le
x re
la ti
o n sh
ip s
ex is
t b et
w ee
n o u ts
o u rc
in g
le ve
ls ,
se rv
ic e
p er
fo rm
an ce
an d
su p p ly
ch ai
n at
tr ib
u te
s.
G ö rg
an d
H an
le y
(2 0 0 4 )
2 1 5
p ro
d u ct
io n
p la
n ts
in th
e el
ec tr
o n ic
s se
ct o r
in th
e R
ep u bl
ic o f
Ir el
an d
M an
u fa
ct u ri
n g
an d
se rv
ic es
D o m
es ti
c Ir
is h
E co
n o m
y E
xp en
d it
u re
S u rv
ey (g
ov er
n m
en t
su rv
ey )
(1 9 9 0 – 1 9 9 5 )
R at
io o f
ex te
rn al
ly so
u rc
ed in
p u ts
to va
lu e
ad d ed
in th
e p la
n t
D ir
ec t:
P la
n t
p ro
fi ta
b il
it y
= N
et p ro
fi ts
d iv
id ed
by to
ta l
o u tp
u t
P la
n ts
th at
h av
e m
o re
-t h an
-m ea
n em
p lo
y m
en t
si ze
b en
efi t
fr o m
o u ts
o u rc
in g
m at
er ia
ls .
R es
u lt
s fr
o m
se rv
ic es
o u ts
o u rc
in g
n o t
as cl
ea r-
cu t.
Ji an
g et
a l.
(2 0 0 6 )
5 1
p u bl
ic ly
tr ad
ed fi
rm s
fr o
m m
u lt
ip le
in d u st
ri es
(1 9 9 0 – 2 0 0 2 )
M an
u fa
ct u ri
n g
an d
se rv
ic es
D o m
es ti
c P
u bl
ic ly
av ai
la bl
e ac
co u n ti
n g
d at
a F
ir m
s’ an
n o u n ce
m en
t o f
o u ts
o u rc
in g
p ar
ts o f
th ei
r o p er
at io
n s
(N =
5 1 )
D ir
ec t:
C o st
ef fi
ci en
cy ,
p ro
d u ct
iv it
y, p ro
fi ta
b il
it y
O u ts
o u rc
in g
im p ro
ve s
fi rm
s’ co
st -e
ffi ci
en cy
b u t
n o t
p ro
d u ct
iv it
y an
d p ro
fi ta
b il
it y.
W an
g et
a l.
(2 0 0 8 )
1 2 0
IT o u ts
o u rc
in g
fi rm
s fr
o m
a w
id e
va ri
et y
o f
in d u st
ri es
M an
u fa
ct u ri
n g
an d
se rv
ic es
D o m
es ti
c N
ew s
an n o u n ce
m en
ts o f
IT o u ts
o u rc
in g
in it
ia ti
ve s
in L
ex is
N ex
is an
d C
o m
p u st
at d at
ab as
es (1
9 9 3 – 2 0 0 3 )
IT o u ts
o u rc
in g
an n o u n ce
m en
ts by
fi rm
s D
ir ec
t: R
O A
, R
O I
an d
R O
E P
o si
ti ve
im p ac
t o f
IT o u ts
o u rc
in g
h ap
p en
s at
th e
p ro
ce ss
-l ev
el m
o st
ly an
d n o t
at th
e fi
rm le
ve l.
C© 2015 British Academy of Management and John Wiley & Sons Ltd.
478 S. Lahiri
Ta bl
e 4
. C
o n
ti n
u ed
A rt
ic le
R es
ea rc
h sa
m p le
S ec
to r
Ty p e
o f
o u ts
o u rc
in g
D at
a co
ll ec
ti o n
O u ts
o u rc
in g
m ea
su re
P er
fo rm
an ce
m ea
su re
M ai
n fi
n d in
g
G ri
m p e
an d
K ai
se r
(2 0 1 0 )
In n ov
at in
g fi
rm s
in G
er m
an y
(1 9 9 8 – 2 0 0 8 )
M an
u fa
ct u ri
n g
an d
se rv
ic es
D o m
es ti
c L
o n g it
u d in
al C
o m
m u n it
y In
n ov
at io
n su
rv ey
d at
a in
G er
m an
y
E x te
rn al
R &
D ex
p en
d it
u re
d iv
id ed
by fi
rm s’
sa le
s D
ir ec
t: In
n ov
at io
n p er
fo rm
an ce
= S
h ar
e o f
sa le
s w
it h
p ro
d u ct
s n ew
to th
e m
ar ke
t
A n
in ve
rt ed
U -s
h ap
ed re
la ti
o n sh
ip ex
is ts
b et
w ee
n R
& D
o u ts
o u rc
in g
an d
in n ov
at io
n p er
fo rm
an ce
.
M as
si n i
et a l.
(2 0 1 0 )
2 2 6
U S
an d
E u ro
p ea
n o ff
sh o ri
n g
co m
p an
ie s
M an
u fa
ct u ri
n g
an d
se rv
ic es
O ff
sh o ri
n g
O ff
sh o ri
n g
R es
ea rc
h N
et w
o rk
(O R
N )
su rv
ey d at
ab as
e o f
C IB
E R
, D
u ke
U n iv
er si
ty
N u m
b er
o f
o ff
sh o ri
n g
p ro
je ct
s im
p le
m en
te d
by th
e fi
rm
D ir
ec t:
P er
ce n ta
g e
o f
sa v in
g s
ac h ie
ve d
p er
o ff
sh o re
im p le
m en
ta ti
o n
(r an
g e:
– 4 0 %
to 9 5 %
)
W it
h in
cr ea
se in
o ff
sh o re
o p er
at io
n s,
av er
ag e
co st
sa v in
g s
te n d
to d ec
li n e.
B u t
as fi
rm s
ac cu
m u la
te ex
p er
ie n ce
w it
h o ff
sh o ri
n g
ef fi
ci en
cy an
d co
st sa
v in
g s
b eg
in s
to im
p ro
ve (U
-s h ap
ed re
la ti
o n sh
ip )
C ec
i an
d M
as ci
ar el
li (2
0 1 0 )
It al
ia n
fi rm
s in
th e
IT an
d au
to m
o ti
ve se
ct o rs
M an
u fa
ct u ri
n g
an d
se rv
ic es
O ff
sh o ri
n g
P u bl
ic d at
a se
t (A
ID A
) an
d su
rv ey
d at
a (t
el ep
h o n e
in te
rv ie
w fo
ll ow
ed by
o n li
n e
q u es
ti o n n ai
re su
rv ey
in 2 0 0 8
an d
2 0 0 9
(N =
6 7 )
W h et
h er
th e
fi rm
o ff
sh o re
d in
ta n g ib
le s
in 2 0 0 4 – 2 0 0 6
p er
io d
o r
n o t
(1 ,0
d u m
m y
va ri
ab le
)
D ir
ec t:
F ac
to r
an al
y si
s o f
R O
E an
d R
O S
va lu
es fo
r 2 0 0 8
F ir
m s
th at
en g ag
e in
o ff
sh o re
o u ts
o u rc
in g
o f
in ta
n g ib
le ac
ti v it
ie s
b en
efi t
fr o m
h ig
h er
p er
fo rm
an ce
. T
h e
p o si
ti ve
re la
ti o n sh
ip is
st re
n g th
en ed
if th
e fi
rm is
al so
a p ro
v id
er o f
in ta
n g ib
le s
A g
ra w
al an
d H
al l
(2 0 1 4 )
7 9
p u bl
ic ly
tr ad
ed fi
rm s
M an
u fa
ct u ri
n g
an d
se rv
ic es
D o m
es ti
c F ac
ti va
an d
C o m
p u st
at d at
ab as
e IT
o u ts
o u rc
in g
an n o u n ce
m en
ts $ 5
m il
li o n
an d
m o re
(1 9 8 6 – 2 0 0 9 )
D ir
ec t:
Im p ro
ve m
en t
(a cr
o ss
fo u r
q u ar
te rs
) in
co st
ef fi
ci en
cy ,
p ro
d u ct
iv it
y, p ro
fi ta
b il
it y,
g ro
w th
, ca
sh m
an ag
em en
t, an
d m
ar ke
t ra
ti o
IT o u ts
o u rc
in g
fa vo
ra bl
y im
p ac
te d
sh o rt
-t er
m p er
fo rm
an ce
o f
m an
u fa
ct u ri
n g
fi rm
s’ co
st ef
fi ci
en cy
, p ro
d u ct
iv it
y an
d ca
sh m
an ag
em en
t. H
ow ev
er ,
o u ts
o u rc
in g
d id
n o t
h av
e si
m il
ar im
p ac
t fo
r se
rv ic
e fi
rm s.
B u tl
er an
d C
al la
h an
(2 0 1 4 )
F ir
m s
th at
o u ts
o u rc
e ad
m in
is tr
at iv
e H
R fu
n ct
io n s
M an
u fa
ct u ri
n g
an d
se rv
ic es
D o m
es ti
c C
o m
p u st
at an
d C
R S
P H
R o u ts
o u rc
in g
an n o u n ce
m en
ts b et
w ee
n 1 9 8 4
an d
2 0 0 5
(n >
1 0 0 )
D ir
ec t:
C u m
u la
ti ve
ab n o rm
al re
tu rn
s; R
O A
an d
o p er
at in
g R
O A
P o si
ti ve
as so
ci at
io n
b et
w ee
n ad
m in
is tr
at iv
e H
R O
an n o u n ce
m en
ts an
d re
sp o n se
o f
eq u it
y ca
p it
al m
ar ke
t. A
ls o
th er
e is
a n eg
at iv
e re
la ti
o n sh
ip b et
w ee
n su
b o p ti
m al
o u ts
o u rc
in g
an d
lo n g
ru n
o p er
at in
g p er
fo rm
an ce
. P
es la
k (2
0 1 2 )
1 8 1
to p
fi n an
ci al
ex ec
u ti
ve s
o f
m aj
o r
co rp
o ra
ti o n s
p ri
m ar
il y
fr o m
U S
an d
C an
ad a
M an
u fa
ct u ri
n g
an d
se rv
ic es
In te
rn at
io n al
Q u es
ti o n n ai
re su
rv ey
o f
to p
ex ec
u ti
ve s
(N =
1 8 1 )
S u rv
ey it
em o n
ac ti
v it
ie s
o r
p ro
ce ss
es o u ts
o u rc
ed o r
p la
n n ed
/n o t
p la
n n ed
to b e
o u ts
o u rc
ed w
it h in
th e
n ex
t ye
ar
In d ir
ec t:
Q u es
ti o n n ai
re it
em s
to ex
am in
e su
cc es
s w
it h
o u ts
o u rc
in g
an d
o ff
sh o re
o u ts
o u rc
in g
(p le
as e
se e
it em
8 b
an d
9 d
o n
p ag
e 3 0 ,
3 1
o f
th e
ar ti
cl e)
G en
er al
sa ti
sf ac
ti o n
o f
ex ec
u ti
ve s
w it
h o u ts
o u rc
in g
as it
le ad
s to
h ig
h er
in cr
ea se
d IT
re tu
rn s.
B u t
o ff
sh o re
o u ts
o u rc
in g
is n o t
p er
ce iv
ed to
co rr
el at
e w
it h
h ig
h er
re tu
rn s.
C© 2015 British Academy of Management and John Wiley & Sons Ltd.
Does Outsourcing Improve Firm Performance? 479
Ta bl
e 4
. C
o n
ti n
u ed
A rt
ic le
R es
ea rc
h sa
m p le
S ec
to r
Ty p e
o f
o u ts
o u rc
in g
D at
a co
ll ec
ti o n
O u ts
o u rc
in g
m ea
su re
P er
fo rm
an ce
m ea
su re
M ai
n fi
n d in
g
G il
le y
et a l.
(2 0 0 4 )
U S
fi rm
s fr
o m
1 6
in d u st
ri es
M an
u fa
ct u ri
n g
D o m
es ti
c M
ai l
su rv
ey o f
C E
O s
o f
fi rm
s (n
= 9 4 )
T h e
ex te
n t
to w
h ic
h fi
rm s’
m ac
h in
in g
an d
as se
m bl
y o p er
at io
n s
w er
e p ro
v id
ed by
o u ts
id e
su p p li
er s
(s ca
le :
0 – 1 0 0 )
C o m
b in
ed :
F in
an ci
al :
3 m
ea su
re s
(R O
A ,
R O
S an
d ov
er al
l fi
n an
ci al
p er
fo rm
an ce
); N
o n -fi
n an
ci al
: 7
m ea
su re
s (e
.g .
R &
D o u tl
ay s,
su p p li
er re
la ti
o n s)
.
T ra
in in
g an
d p ay
ro ll
o u ts
o u rc
in g
p o si
ti ve
ly af
fe ct
s fi
rm s’
in n ov
at io
n p er
fo rm
an ce
b u t
n o t
fi n an
ci al
p er
fo rm
an ce
.
B en
g ts
so n
an d
D ab
h il
k ar
(2 0 0 9 )
2 6 7
p la
n ts
o f
S w
ed is
h en
g in
ee ri
n g
fi rm
s
M an
u fa
ct u ri
n g
D o m
es ti
c P
o st
al Q
u es
ti o n n ai
re su
rv ey
(2 0 0 4 )
T h re
e va
ri ab
le s
(e x te
n t
o f
o u ts
o u rc
in g ,
p u rc
h as
in g
st at
u s
an d
o u ts
o u rc
in g
in te
n si
ty )
C o m
b in
ed :
P er
ce iv
ed d ir
ec t
ef fe
ct s
o f
o u ts
o u rc
in g
(1 6
ef fe
ct s)
O ve
ra ll
p la
n t
o p er
at in
g p er
fo rm
an ce
(6 m
ea su
re s)
C h an
g es
in in
n ov
at io
n ca
p ab
il it
y (1
9 -p
o in
t sc
al e)
N o
si g n ifi
ca n t
ef fe
ct o f
m an
u fa
ct u ri
n g
o u ts
o u rc
in g
o n
p la
n t
o p er
at in
g p er
fo rm
an ce
o r
in n ov
at io
n ca
p ab
il it
y. B
u t
p la
n t’s
in ve
st m
en ts
in te
ch n o lo
g ic
al an
d o rg
an iz
at io
n al
ca p ab
il it
ie s
ex p la
in p er
fo rm
an ce
at th
e p la
n t
le ve
l m
o re
th an
w h at
o u ts
o u rc
in g
d o es
.
W ei
g el
t an
d S
ar k ar
(2 0 1 2 )
1 0 0
U S
b an
k s
S er
v ic
es D
o m
es ti
c S
en io
r ex
ec u ti
ve su
rv ey
(2 ro
u n d s:
2 0 0 1 – 2 0 0 2
an d
2 0 0 3 )
an d
ar ch
iv al
d at
a (R
ep o rt
s o n
C o n d it
io n
a n d
In co
m e)
S u m
o f
p er
ce n ta
g es
o f
se rv
ic es
o ff
er ed
ac ro
ss al
l se
rv ic
es ar
ea s
d iv
id ed
by to
ta l
n u m
b er
o f
o n li
n e
se rv
ic es
o ff
er ed
by th
e b an
k (S
ca le
: 0 – 1 0 0 )
C o m
b in
ed :
E ffi
ci en
cy m
ea su
ri n g
co st
re d u ct
io n
th ro
u g h
o n li
n e
b an
k in
g (c
o m
p o si
te o f
3 su
rv ey
it em
s) .
A d ap
ta b il
it y
m ea
su ri
n g
fi rm
s’ ab
il it
y to
re sp
o n d
sw if
tl y
to cu
st o m
er s’
ch an
g in
g n ee
d s
(c o m
p o si
te o f
4 su
rv ey
it em
s)
O u ts
o u rc
in g
re su
lt s
in ef
fi ci
en cy
g ai
n s
u p
to a
ce rt
ai n
p o in
t, b
u t
it n eg
at iv
el y
af fe
ct s
ad ap
ta b il
it y.
C© 2015 British Academy of Management and John Wiley & Sons Ltd.
480 S. Lahiri
As in the previous categories, these studies in- volved firms from the manufacturing sector (Bardhan et al. 2007; Bengtsson and Dabhilkar 2009; Gilley et al. 2004; Meixell et al. 2013; Oke and Kach 2012), services sector (Weigelt and Sarkar 2012) or both the sectors (Agrawal and Hall 2014; Grimpe and Kaiser 2010; Massini et al. 2010). The national contexts of the studies varied widely: Italy (Calabrese and Erbetta 2005), Ireland (Görg and Hanley 2004; Görg et al. 2008), the USA and Canada (Bardhan et al. 2007; Peslak 2012), Sweden (Bengtsson and Dabhilkar 2009; Bengtsson et al. 2009), Germany (Grimpe and Kaiser 2010), Netherlands and Taiwan (Hsiao et al. 2010) and Japan (Hijzen et al. 2010). Data collection involved questionnaire survey of top executives or of- ficials (Gilley et al. 2004; Bengtsson and Dabhilkar 2009), use of archival data (Calabrese and Erbetta 2005; Görg and Hanley 2004; Meixell et al. 2013) and use of executive survey data and archival data (Weigelt and Sarkar 2012),
Scholars measured firm performance in a variety of ways. These included direct measures such as ab- solute value (return on sales (ROS) for the indus- try (parents and affiliates) for a given year minus industry’s average ROS for the 8 years examined) (Mauri and de Figueiredo 2012), growth, productiv- ity, profitability, financial dependence (Calabrese and Erbetta 2005; Jiang et al. 2006; Hijzen et al. 2010), labor productivity (Görg and Hanley 2004; Görg et al. 2008), gross margin and on-time delivery rate (Bardhan et al. 2007), cost reduction and time to mar- ket (Bengtsson et al. 2009), innovation and innovation performance (Grimpe and Kaiser 2010), delivery re- liability, lead time and flexibility (Hsiao et al. 2010). One study (Peslak 2012) used an indirect measure of performance (perceived success with outsourcing and offshore outsourcing) to measure performance. Three studies used combined measures such as pure financial metrics (e.g. ROA, ROS) and non-financial metrics (e.g. R&D outlays, supplier relations) (Gilley et al. 2004), perceived direct effects of outsourcing, changes in innovation capability and overall plant op- erating performance (Bengtsson and Dabhilkar 2009) and efficiency and adaptability (Weigelt and Sarkar 2012).
Mixed effect: direct measure of performance (manufacturing)
There were nine articles in this category. Calabrese and Erbetta (2005) investigated Italian automotive suppliers and observed that the relationship between outsourcing and firm performance is not linear. Their
outsourcing related to purchasing of raw and consum- able goods, services, leases and rentals. They found that the outsourcing–performance relationship is con- tingent on firms’ level of integration and whether the firm follows integration or deverticalization process over time. In the second study, the productivity ef- fects of international outsourcing at the plant-level were examined by Görg et al. (2008). Their study in- volving Irish manufacturing firms demonstrated that outsourcing of service inputs (in consultancy, main- tenance, security, cleaning and catering) has a posi- tive effect on the total factor productivity (TFP) of domestic or foreign-owned exporters. However, in- ternational outsourcing of services did not have a sig- nificant effect on the productivity of non-exporters.
In a study of Japanese manufacturing firms, Hijzen et al. (2010) demonstrated that offshore outsourcing of intermediate inputs (which they refer to as arm’s- length offshoring) does not have a positive impact on firms’ total factor productivity. However, offshoring to unaffiliated, foreign affiliates (which they refer to as intra-firm offshoring) affects productivity positively. This study also provided evidence that the impact of arm’s-length offshoring is non-negative for MNEs and non-exporters. Bardhan et al. (2007) examined the impact of outsourcing strategies, IT application infrastructure and business process outsourcing on the overall performance of US manufacturing plants. Specifically, they focused on outsourcing of produc- tion and support business processes. Production pro- cesses included fabrication or processing, assembly and staging or packaging, while support processes in- cluded warehousing and distribution, IT, transporta- tion and R&D. Their study found that both production and support–process outsourcing resulted in a posi- tive impact on gross margins. However, the authors did not find any association with plant outsourcing and on-time delivery rates.
In the fifth article in this category, Bengtsson et al. (2009) examined two different outsourcing manufac- turing strategies: capability increasing and cost low- ering. They found that the two strategies have differ- ent effects on outsourcing, in particular, on costs and innovation capability for Swedish plants of engineer- ing firms. The firms were from different sectors, e.g. metal goods, machinery, office equipment and com- puters and automotive. Low-cost outsourcing firms were found to experience lower effects on time-to- market and product functionality compared with in- novation outsourcing firms. The study also found that these strategies give rise to different effects on perfor- mance, depending on how firms choose to integrate design and manufacturing. Kotabe and Mol (2009)
C© 2015 British Academy of Management and John Wiley & Sons Ltd.
Does Outsourcing Improve Firm Performance? 481
studied outsourcing and financial performance of a sample of manufacturing firms in the Netherlands. The major lines of business for the sampled firms be- longed to the assembly industry, which includes elec- tronics, vehicle and machinery. Their comparison of data for 1995 and 1998 revealed that outsourcing be- yond an optimal degree lowers firm performance in a curvilinear manner, and the steepness of the curve in- creases under conditions of high market uncertainty.
Examining a sample of small manufacturing firms, Oke and Kach (2012) found that outsourcing to non- supply chain partners is positively associated with financial performance. But more importantly, opera- tional innovation was found to partially mediate the relationship between outsourcing and financial per- formance. The study sample included firms in com- puters, instrumentation, communication technology, pharmaceuticals and medical instrumentation sectors. Mauri and de Figueiredo (2012) examined how the performance variability of an MNE is affected by the strategic pattern of internationalization it has adopted. For this study, the authors considered three patterns of internationalization: cross-border integration; cross- border geographic dispersion; and outsourcing. Their analysis of US firms across 30 manufacturing indus- tries suggested that outsourcing results in a decrease in MNEs’ performance variability. Their results also suggested that the combined influence of strategic patterns results in an increase in performance vari- ability. The outsourcing variable in this study was ‘a proxy for the portion of value added that is conducted outside the boundaries of the firm’ (Mauri and de Figueiredo 2012, p. 45).
Finally, Meixell and colleagues (2014) focused on outsourcing of core manufacturing processes and its impact on factory cost. Their study, involving US plants from a variety of industries, found that pro- duction outsourcing does not result in the overall re- duction in cost of goods sold (COGS), but tends to shift costs among COGS categories. Specifically, the authors found that outsourcing decreases labor costs, but increases material costs. In addition, they found that high supplier integration, but not process strate- gies, has a significant moderating effect on overall COGS.
Mixed effect: direct measure of performance (services)
Hsiao et al. (2010) set out to investigate the im- pact of logistics activities outsourcing on logistics service performance. The four logistics activities
examined in this study included transportation (level 1), packaging (level 2), transportation management (level 3) and distribution network management (level 4). Their research focusing on the food industry in the Netherlands and Taiwan showed no direct effect of outsourcing on service performance measured by delivery reliability, lead time and flexibility. However, outsourcing distribution network management activ- ities resulted in increased service performance with increased degree of demand complexity. The authors concluded that complex relationships exist between outsourcing levels, service performance and supply chain attributes.
Mixed effect: direct measure of performance (manufacturing and services)
There were eight articles in this category. Focusing on production plants in the electronics sector in the Republic of Ireland, Görg and Hanley (2004) found that plants that had more-than-mean employment size benefit from outsourcing materials. However, this was not the case for smaller firms. Outsourcing, in this study, involved intermediate inputs consisting of (a) tangible raw materials and components, and (b) services inputs including consultancy, maintenance, cleaning and security. The authors also found that the empirical findings from outsourcing services were not very clear-cut. They concluded that outsourcing– profitability relationships depend on plant char- acteristics, particularly size. Jiang et al. (2006) investigated how outsourcing implementation affects firms’ operational performance. Their study involv- ing publicly traded firms from multiple industries (agricultural/manufacturing and service) provided evidence that a firm’s cost-efficiency improves as a result of outsourcing, but productivity and profitabil- ity may not increase in the short term. The authors measured outsourcing using firms’ announcements of outsourcing parts of their operations. The study findings also revealed that firms that do not outsource may not achieve the same cost reduction advantage as their outsourcing counterparts.
The third study in this category, by Wang et al. (2008) found that the positive impact of IT outsourc- ing is evident at the process level, but not at the firm level. The authors considered both operational and managerial processes in their analysis. The authors measured outsourcing using news announcements of IT outsourcing initiatives by firms in manufacturing and service industries. Their process-level metrics in- cluded sales, sales per employee, expenses (selling,
C© 2015 British Academy of Management and John Wiley & Sons Ltd.
482 S. Lahiri
general, administrative, depreciation) and operating income before depreciation. The authors also found that IT outsourcing and IT capability are mutually re- inforcing. That is, firms’ outsourcing capability can enhance the outcomes of outsourcing initiatives. The authors strongly suggested that the impact of out- sourcing needs to be understood at the process level and also the firm level.
Grimpe and Kaiser (2010) examined the gains and pains (downsides) of R&D outsourcing. Their study involved a wide number of manufacturing and service industries in Germany, and they measured the extent of R&D outsourcing as external R&D expenditure divided by firms’ sales. Their study concluded that an inverted U-shaped relationship exists between R&D outsourcing and innovation performance. This essen- tially means that over-outsourcing can have a nega- tive influence on innovation performance, owing to excess reliance on external knowledge. The authors also found that there are two factors that enhance the effectiveness of R&D outsourcing: the extent to which a firm engages in internal R&D; and its breadth of formal R&D collaborations. The study of US and European firms by Massini et al. (2010) concluded that, with an increase in offshore operations, average cost savings tend to decline. But as firms accumulate experience in offshoring, efficiency and cost savings begin to improve, giving rise to a U-shaped relation- ship. The scholars measured offshoring as the number of offshoring projects implemented by the firm, and their sample represented a large number of indus- tries, including aerospace, construction, media and travel. The scholars argued that firms possessing off- shoring strategy perceive and understand offshoring differently from firms that do not possess offshoring strategy.
Focusing on the effects of offshoring of intangibles on firm performance, Ceci and Masciarelli (2010) found that firms that engage in offshore outsourc- ing of intangible activities gain higher performance. Intangible activities include investments in technol- ogy, training, labor relations and marketing. In ad- dition, they found that coherence between offshored activities and firms’ output positively moderates the above relationship. That is, the positive relationship is strengthened if the firm is also a provider of intangi- bles. The authors measured offshoring of intangibles as a dummy variable (whether the firm offshored in- tangibles in 2004–2006 period or not). Agrawal and Hall (2014) examined the effect of IT outsourcing on the performance of both manufacturing and service firms. They measured performance using accounting
metrics and a two-year period: one year before and one year after the outsourcing decision. Their study found that IT outsourcing favorably affects the short- term performance of manufacturing firms’ cost effi- ciency, productivity and cash management. However, IT outsourcing does not have a similar impact for ser- vice firms. The study also found that firms that do not outsource are not able to improve their performance.
In the last study in this category, Butler and Callahan (2014) examined the effect of administrative human resource outsourcing (HRO) announcements on short-term capital market response and long-run operating performance. They found a positive asso- ciation between administrative HRO announcements and equity capital market response. This positive re- sponse was more prominent for service firms and firms that outsource transactional HR tasks. The study also found that there is a negative relationship be- tween suboptimal outsourcing and long-run operating performance.
Mixed effect: indirect measure of performance (manufacturing and services)
How do top managers perceive outsourcing and its effects? Peslak’s (2012) study was to assess the per- ceptions of top corporate financial executives on the success of outsourcing and offshore outsourcing of IT systems. To tap outsourcing/offshoring, the au- thors relied on a question: How much of the total IT resource/support (in percentage terms) is provided by third-party, offshore providers? The study found that executives were generally satisfied with their out- sourcing initiatives. Specifically, the executives per- ceived that outsourcing had led to increased IT re- turns. Interestingly, in the same study, offshore out- sourcing was not perceived to correlate with higher returns. Peslak (2012) concluded that, when IT was viewed as a core competence, there was a lack of executive tendency to offshore outsource.
Mixed effect: combined measure of performance (manufacturing)
In a study of manufacturing firms Gilley et al. (2004) examined outsourcing of payroll and training activi- ties, and firm performance. The results helped them to conclude that training and payroll outsourcing posi- tively affects firms’ innovation performance. The au- thors also found that training outsourcing may in- crease stakeholder performance and add value for the stakeholders. However, the authors found that HRO
C© 2015 British Academy of Management and John Wiley & Sons Ltd.
Does Outsourcing Improve Firm Performance? 483
had no effect on firms’ financial performance. Bengts- son and Dabhilkar (2009) focused on the effect of outsourcing manufacturing and design work at the plant level. Analyzing a sample of Swedish engi- neering firms, these authors obtained evidence that outsourcing does not affect operating performance. The firms were from different industrial sectors, e.g. metal goods, machinery, office equipment and com- puter, and automotive. They also found that a plant’s investments in technological and organizational ca- pabilities explain performance at the plant level more than outsourcing does. Further, their results revealed that plants that engaged in total outsourcing (manu- facturing plus design activities) showed better perfor- mance improvements than firms that followed partial outsourcing (only manufacturing).
Mixed effect: combined measure of performance (services)
In a study of US banks, Weigelt and Sarkar (2012) examined banks’ outsourcing for the adoption of in- ternet services (emerging technology) and analyzed the trade-off between efficiency gains (cost reduction) and loss of adaptability (responsiveness). The scope of outsourcing in this study related to eight online service areas: account balance inquiry; bill payment; bill presentment; credit/loan/mortgage; investment; insurance; non-traditional services and CRM. Their analysis found that outsourcing results in efficiency gains in service delivery up to a certain point, but it also negatively affects adaptability. Specifically, out- sourcing up to 64.3% was found to be associated with efficiency gains. However, outsourcing beyond this level resulted in tapering of gains. The authors also found that firms’ market-related absorptive capacity mitigates this trade-off.
The above review of 19 studies suggests consid- erable diversity in scope, context, level of analysis, data sources and industry sector. Diversity is also ob- served in the measurement of outsourcing and firm performance. Despite these differences, one aspect is common in all these studies: they provide evidence that outsourcing can result in mixed influence on firm performance.
Moderated effect of outsourcing on the firm
There were six articles in this category. The salient features of each study are highlighted in Table 5.
As in the previous categories, these studies involved firms from the manufacturing sector (Gilley and Rasheed 2000; Leiblein et al. 2002); Rothaermel et al. 2006), services sector (Lee et al. 2004) or both the sectors (Klaas et al. 1999). Data collection involved a questionnaire survey of top executives or officials (Gilley and Rasheed 2000; Klaas et al. 1999; Lee et al. 2004) or use of archival data (Leiblein et al. 2002; Raassens et al. 2014; Rothaermel et al. 2006).
Scholars measured firm performance in three ways. This included direct measures such as technology per- formance (Leiblein et al. 2002), stock market reaction (Raassens et al. 2014) and overall firm performance (Rothaermel et al. 2006). Two studies used indirect measures: perceived benefits of HR outsourcing on the firm (Klaas et al. 1999); and outsourcing success (Lee et al. 2004). One study (Gilley and Rasheed 2000) used a mix of direct and indirect measure: pure financial measures (e.g. ROA; overall financial per- formance); and non-financial measures (e.g. firms’ R&D outlays, employee compensation).
Moderated effect: direct measure of performance (manufacturing)
Leiblein et al. (2002) studied how a firm’s decision to outsource or internalize production affects its tech- nological performance. Outsourcing involved global integrated circuit manufacturers’ use of external con- tractual transactions in producing semiconductor de- vices. The study found that firms’ superior technology performance is the result of fit between governance decisions and degree of contractual hazards, and nei- ther outsourcing nor internalization solely result in superior technology performance. Rothaermel et al. (2006) focused on how balancing vertical integration and strategic outsourcing by a firm engaged in taper integration affects its product portfolio, product suc- cess and firm performance. Investigating over 3500 product introductions in the global microcomputer industry, the authors found that, when firms simulta- neously pursue vertical integration and strategic out- sourcing, they achieve better development of related products for their product portfolio, success of new products in the market and higher firm performance.
Moderated effect: direct measure of performance (manufacturing and services)
Raassens et al. (2014) examined the influence of customer support outsourcing on firm perfor- mance. Their study involving firms from established
C© 2015 British Academy of Management and John Wiley & Sons Ltd.
484 S. Lahiri
Ta bl
e 5
. M
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C© 2015 British Academy of Management and John Wiley & Sons Ltd.
Does Outsourcing Improve Firm Performance? 485
Ta bl
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o n m
en ta
l d y n am
is m
o n
th e
re la
ti o n sh
ip b et
w ee
n o u ts
o u rc
in g
in te
n si
ty an
d fi
rm p er
fo rm
an ce
.
L ee
et a l.
(2 0 0 4 )
S o u th
K o re
an IS
o u ts
o u rc
in g
o rg
an iz
at io
n s
M an
u fa
ct u ri
n g
an d
se rv
ic es
D o m
es ti
c Q
u es
ti o n n ai
re su
rv ey
o f
C IO
s (N
= 3 1 1 )
A m
o u n t
o f
IT o u ts
o u rc
in g
ex p en
d it
u re
as a
p er
ce n ta
g e
o f
th e
to ta
l IT
b u d g et
C o m
b in
ed :
T h re
e- d im
en si
o n s
o f
o u ts
o u rc
in g
su cc
es s
(s tr
at eg
ic co
m p et
en ce
, co
st ef
fi ci
en cy
an d
te ch
n o lo
g y
ca ta
ly si
s) m
ea su
re d
by 7 -p
o in
t L
ik er
t ty
p e
sc al
e (s
ee A
p p en
d ix
A ,
p .
1 2 8 )
L o n g
te rm
re la
ti o n sh
ip s
ar e
m o re
su cc
es sf
u l
th an
sh o rt
-t er
m re
la ti
o n sh
ip s,
an d
ar m
’s le
n g th
ap p ro
ac h
y ie
ld s
h ig
h es
t co
st ef
fi ci
en cy
.
C© 2015 British Academy of Management and John Wiley & Sons Ltd.
486 S. Lahiri
economies found that, on average stock markets react more favorably when customer support is outsourced to providers in emerging markets than when it is out- sourced to those in established economies. They also found that, in about half their sample, the experi- enced abnormal returns were negative. In addition, the authors found that market returns of outsourcing to emerging vs developed economies depend on the nature of the (a) customer support outsourced, and (b) the firm.
Moderated effect: indirect measure of performance (manufacturing and services)
Klaas et al. (1999) investigated the impact of HR out- sourcing and organizational characteristics on the per- ceived benefits of outsourcing. Their analysis found that the relationship between the level of HR out- sourcing and the perceived benefits of outsourcing was moderated by organizational variables such as id- iosyncratic HR practices, uncertainty facing the firm, firm size and cost pressures. The authors found no support for the moderating influence of pay level, overall outsourcing emphasis and HR’s strategic in- volvement.
Moderated effect: combined measure of performance (manufacturing)
In one of the earliest sophisticated empirical studies on outsourcing, Gilley and Rasheed (2000) examined the influence of peripheral and near-core task out- sourcing on firms’ financial and non-financial per- formance. Outsourcing in this study involved both manufacturing-related activities such as assembly and machining operations, and service-related activities such as accounting, payroll and customer service. Their investigation of independent, non-diversified manufacturing firms showed no direct impact of out- sourcing intensity on firm performance (financial, innovation and stakeholder performance). However, the authors found that firms’ strategy (cost lead- ership/innovative differentiation) and environmental dynamism (stable/dynamic) moderated the influence of outsourcing on firm performance. The authors ob- served that the benefits of outsourcing at the firm-level may have been overstated in the past.
Moderated effect: combined measure of performance (manufacturing and services)
Lee et al. (2004) focused on the effects of IT out- sourcing strategies on the success of IT outsourcing.
Outsourcing involved activities such as system plan- ning, application development, facilities management and end-user support (e.g. training). Their study of South Korean firms focused on three perspectives to explain the relationship between strategies and suc- cess: universalistic; contingency; and configurational. The authors found that configurational perspective possessed superior explanatory power over the first two perspectives. They also found that the three con- gruent patterns of outsourcing (independent, arm’s length and embedded) have varying effects on the three dimensions of outsourcing success (strategic competence, cost efficiency and technology cataly- sis). The authors, in addition, found that long-term relationships are more successful than short-term re- lationships, and that an arm’s-length approach yields the highest cost efficiency.
The above review suggests diversity in data sources, industry sector and operationalization of firm performance. Despite these differences, one aspect is common in the study findings: outsourcing can result in moderated effect on firm performance.
No significant effect of outsourcing on the firm
Seven studies belonged to this category. The salient features of each study are highlighted in Table 6.
As in the previous four categories, these studies involved firms from the manufacturing sector (Bengtsson 2008; Mol et al. 2005), services sector (Chatzoglou and Sarigiannidis 2009; Menachemi et al. 2007) or both the sectors (Benson and Littler 2002; Bhalla et al. 2008). Data collection involved a questionnaire survey of top executives or officials (Bengtsson 2008; Benson and Littler 2002; Chat- zoglou and Sarigiannidis 2009; Mol et al. 2005), use of archival data (Bhalla et al. 2008) or use of survey and archival data (Menachemi et al. 2007; Solakivi et al. 2011).
Scholars measured firm performance in two ways. Some used direct measures such as financial perfor- mance and market performance (Mol et al. 2005), op- erational performance (e.g. net patient and inpatient revenue) and hospital-wide performance (e.g. ROA, operating margin) (Menachemi et al. 2007), annual sales, return on pre-tax sales, profit per employee per year and sales per employee per year (Bhalla et al. 2008); the degree to which expectations for 13 aspects of organizational performance (e.g. finan- cial performance, hotel activity index) were fulfilled
C© 2015 British Academy of Management and John Wiley & Sons Ltd.
Does Outsourcing Improve Firm Performance? 487
Ta bl
e 6
. N
o si
g n
ifi ca
n t
ef fe
ct o
f o
u ts
o u
rc in
g o
n th
e fi
rm
A rt
ic le
R es
ea rc
h sa
m p le
S ec
to r
Ty p e
o f
o u ts
o u rc
in g
D at
a co
ll ec
ti o n
O u ts
o u rc
in g
m ea
su re
P er
fo rm
an ce
m ea
su re
M ai
n fi
n d in
g
M o l
et a l.
(2 0 0 5 )
2 0 0
D u tc
h fi
rm s
(2 0 0 0 – 2 0 0 1 )
M an
u fa
ct u ri
n g
In te
rn at
io n al
an d
g lo
b al
Q u es
ti o n n ai
re su
rv ey
o f
co m
p an
y m
an ag
er s
(N =
2 0 0 )
V o lu
m e
(i n
m o n et
ar y
te rm
s) o f
ex te
rn al
so u rc
in g
by th
e fi
rm :
d o m
es ti
ca ll
y, re
g io
n al
ly ,
in te
rn at
io n al
ly an
d g lo
b al
ly
D ir
ec t:
F in
an ci
al p er
fo rm
an ce
(R O
S an
d R
O I)
an d
m ar
ke t
p er
fo rm
an ce
(m ar
ke t
sh ar
e an
d sa
le s
g ro
w th
) co
m p ar
is o n
w it
h 3
la rg
es t
co m
p et
it o rs
N o n -s
ig n ifi
ca n t
ef fe
ct o f
in te
rn at
io n al
o r
g lo
b al
o u ts
o u rc
in g
o n
ec o n o m
ic an
d fi
n an
ci al
p er
fo rm
an ce
.
M en
ac h em
i et
a l.
(2 0 0 7 )
8 3
F lo
ri d a
h o sp
it al
s S
er v ic
es D
o m
es ti
c P
ri m
ar y
m ai
l su
rv ey
d at
a o n
IT u ti
li za
ti o n
an d
o u ts
o u rc
in g
b eh
av io
r, an
d se
co n d ar
y d at
a o n
fi n an
ci al
p er
fo rm
an ce
T o ta
l n u m
b er
o f
o u ts
o u rc
ed h o sp
it al
fu n ct
io n s
(‘ lo
w ’
o r
‘h ig
h ’
o u ts
o u rc
in g )
D ir
ec t:
O p er
at io
n al
p er
fo rm
an ce
: n et
p at
ie n t-
an d
in p at
ie n t
re ve
n u e,
h o sp
it al
- an
d to
ta l
ex p en
se s.
H o sp
it al
-w id
e p er
fo rm
an ce
: R
O A
, ca
sh fl
ow ra
ti o ,
o p er
at in
g -
an d
to ta
l m
ar g in
O u ts
o u rc
in g
is n o t
co rr
el at
ed w
it h
n et
p at
ie n t
an d
in p at
ie n t
re ve
n u e,
h o sp
it al
an d
to ta
l ex
p en
se s,
ca sh
fl ow
ra ti
o ,
o p er
at in
g o r
to ta
l m
ar g in
.
C h at
zo g lo
u an
d S
ar ig
ia n n id
is (2
0 0 9 )
H o te
ls in
G re
ec e
(4 o r
5 st
ar s)
S er
v ic
es D
o m
es ti
c Q
u es
ti o n n ai
re su
rv ey
o f
h o te
l m
an ag
er s
(N =
1 0 6 )
7 p o in
t L
ik er
t sc
al e
w h er
e 1
= n o
p ar
t o f
th e
o p er
at io
n is
(s h o u ld
b e)
o u ts
o u rc
ed an
d 7
= o p er
at io
n is
(s h o u ld
b e)
to ta
ll y
o u ts
o u rc
ed
D ir
ec t:
T h e
d eg
re e
to w
h ic
h ex
p ec
ta ti
o n s
fo r
1 3
as p ec
ts o f
o rg
an iz
at io
n al
p er
fo rm
an ce
(o rg
an iz
at io
n q u al
it y,
fi n an
ci al
p er
fo rm
an ce
an d
h o te
l ac
ti v it
y in
d ex
) ar
e fu
lfi ll
ed (7
-p o in
t sc
al e)
N o
d ir
ec t
in fl
u en
ce o f
o u ts
o u rc
in g
o n
h o te
l p er
fo rm
an ce
.
B h al
la et
a l.
(2 0 0 8 )
1 4 4
la rg
e w
es te
rn co
m p an
ie s
ac ro
ss d if
fe re
n t
in d u st
ri al
se ct
o rs
M an
u fa
ct u ri
n g
an d
se rv
ic es
In te
rn at
io n al
2 0 0 4
F o rt
u n e
G lo
b al
5 0 0
li st
, ke
y w
o rd
se ar
ch in
va ri
o u s
d at
ab as
es ,
co m
p an
y w
eb si
te s
an d
va ri
o u s
p u bl
ic at
io n s,
an d
D at
as tr
ea m
d at
ab as
e
T h e
ex te
n t
(b re
ad th
) o f
fi rm
s’ o ff
sh o ri
n g
o f
so ft
w ar
e an
d IT
d ev
el o p m
en t,
b u si
n es
s p ro
ce ss
an d
ca ll
ce n te
rs
D ir
ec t:
A n n u al
sa le
s, re
tu rn
o n
p re
-t ax
sa le
s, p ro
fi t
p er
em p lo
ye e
p er
ye ar
an d
sa le
s p er
em p lo
ye e
p er
ye ar
av er
ag ed
ov er
1 9 9 9 – 2 0 0 4
N o
cl ea
r li
n k
b et
w ee
n ex
te n t
o f
o ff
sh o ri
n g
an d
fi rm
p er
fo rm
an ce
.
C© 2015 British Academy of Management and John Wiley & Sons Ltd.
488 S. Lahiri
Ta bl
e 6
. C
o n
ti n
u ed
A rt
ic le
R es
ea rc
h sa
m p le
S ec
to r
Ty p e
o f
o u ts
o u rc
in g
D at
a co
ll ec
ti o n
O u ts
o u rc
in g
m ea
su re
P er
fo rm
an ce
m ea
su re
M ai
n fi
n d in
g
S o la
k iv
i et
a l.
(2 0 1 1 )
2 2 3
F in
n is
h m
an u fa
ct u ri
n g
an d
tr ad
in g
S M
E s
M an
u fa
ct u ri
n g
an d
se rv
ic es
In te
rn at
io n al
O n li
n e
q u es
ti o n n ai
re S
u rv
ey al
o n g
w it
h fi
n an
ci al
d at
a o b ta
in ed
fr o m
O rb
is d at
ab as
e (2
0 0 8 )
M ag
n it
u d e
o f
o u ts
o u rc
in g
o f
va ri
o u s
lo g is
ti cs
o p er
at io
n s
o n
a 5 -p
o in
t sc
al e
D ir
ec t:
A b so
lu te
lo g is
ti cs
p er
fo rm
an ce
(6 d im
en si
o n s
(e .g
. o rd
er d el
iv er
y ti
m e
in d ay
s) ;
lo g is
ti cs
co st
s, an
d fi
n an
ci al
p er
fo rm
an ce
(R O
A ,
R O
C E
, E
B IT
)
O u ts
o u rc
in g
d o es
n o t
re su
lt in
lo ss
o r
g ai
n in
lo g is
ti cs
p er
fo rm
an ce
.
B en
g ts
so n
(2 0 0 8 )
P la
n ts
o f
S w
ed is
h en
g in
ee ri
n g
fi rm
s M
an u fa
ct u ri
n g
In te
rn at
io n al
P o st
al Q
u es
ti o n n ai
re su
rv ey
(2 0 0 4 )
(N =
2 6 7 )
O u ts
o u rc
in g
in te
n si
ty =
O u ts
o u rc
in g
ex te
n t
(p u rc
h as
in g
st at
u s)
d iv
id ed
by p la
n ’s
va lu
e ad
d ed
b ef
o re
o u ts
o u rc
in g
C o m
b in
ed :
P er
ce iv
ed d ir
ec t
ef fe
ct s
o f
o u ts
o u rc
in g ,
ov er
al l
p la
n t
o p er
at in
g p er
fo rm
an ce
, fi
n an
ci al
re su
lt s
an d
in n ov
at io
n ca
p ab
il it
y
N o
si g n ifi
ca n t
ef fe
ct o f
m an
u fa
ct u ri
n g
o u ts
o u rc
in g
o n
p la
n t
o p er
at in
g p er
fo rm
an ce
o r
in n ov
at io
n ca
p ab
il it
y.
B en
so n
an d
L it
tl er
(2 0 0 2 )
F ir
m s
in cl
u d ed
in A
u st
ra li
an H
R In
st it
u te
re co
rd s
an d
th e
IB IS
O rg
an iz
at io
n d at
ab as
e
M an
u fa
ct u ri
n g
an d
se rv
ic es
D o m
es ti
c Q
u es
ti o n n ai
re su
rv ey
o f
se n io
r m
an ag
er s
(1 9 9 8 )
O ve
ra ll
ch an
g e
in th
e am
o u n t
o f
co n tr
ac ti
n g
o u t
o f
co n tr
ac ti
n g
o u t
o f
fu n ct
io n s
an d
o p er
at io
n s
ov er
th e
la st
tw o
ye ar
s
C o m
b in
ed :
7 o b je
ct iv
es (e
.g . la
b o r
co st
re d u ct
io n ,
im p ro
ve d
cu st
o m
er se
rv ic
e) an
d 9
ef fe
ct s
o n
em p lo
ye es
(e .g
. em
p lo
ye e
m o ra
le ,
em p lo
ye e
co m
m it
m en
t)
O u ts
o u rc
in g
d o es
n o t
y ie
ld fi
rm s
an y
ad d it
io n al
b en
efi ts
, co
m p ar
ed w
it h
o th
er fo
rm s
o f
re st
ru ct
u ri
n g
th at
re q u ir
es w
o rk
fo rc
e re
d u ct
io n .
C© 2015 British Academy of Management and John Wiley & Sons Ltd.
Does Outsourcing Improve Firm Performance? 489
(Chatzoglou and Sarigiannidis 2009), and absolute logistics performance, logistics costs and financial performance (Solakivi et al. 2011). Two studies used a mix of direct and indirect measures such as objective measures (e.g. labor cost reduction) and non-financial measures (e.g. employee morale) (Benson and Littler 2002), and perceived direct effects of outsourcing, overall plant operating performance, financial results and innovation capability (Bengtsson 2008).
No significant effect: direct measure of performance (manufacturing)
The role of international outsourcing of intermediate products (components) on firm performance was ex- amined by Mol et al. (2005). Their study of 200 Dutch manufacturing firms indicated that international and global outsourcing does not affect firm performance. In particular, their hypotheses concerning a positive relationship between firm performance and interna- tionalization and globalization of supply base were not supported. The authors concluded that interna- tional outsourcing needs to be understood as a balanc- ing act between minimized international production costs and decreased local transaction costs.
No significant effect: direct measure of performance (services)
In a study of hospitals in Florida, Menachemi and col- leagues (2007) analyzed the impact of IT functions outsourcing on financial performance. They consid- ered 18 outsourced functions, including asset man- agement, help desk, transcription and system instal- lation. Their study found that outsourcing was not correlated with net patient and inpatient revenue, hos- pital and total expenses, cash flow ratio, and operating and total margins. The study also found that hospitals that outsourced more IT functions did not perform better or worse than other hospitals. The scholars reasoned that outsourcing is not necessarily a cost- lowering strategy. In another study, Chatzoglou and Sarigiannidis (2009) found that outsourcing in Greek hotels did not have a direct effect on hotel perfor- mance. The authors concluded that outsourcing can help improve mainly non-financial performance tar- gets. In this study, outsourcing was related to 20 com- mon hotel activities that belonged to various hotel de- partments, such as reception, housekeeping, food and beverage, and hotel security.
No significant effect: direct measure of performance (manufacturing and services)
The impact of the extent of offshoring of IT-enabled services on company performance was examined by Bhalla et al. (2008). IT-enabled services included IT- related development and maintenance such as soft- ware development, business processes (e.g. payroll and claims processing) and call centers. Focusing on a sample of western firms offshoring to South East Asia, the authors found no clear link between the extent of offshoring and firm performance. They also found no clear-cut pattern across industries or clusters. They reasoned that ‘hidden costs’ in out- sourcing could be the reason for not finding a clear association between offshoring and performance. In another study in this category, Solakivi et al. (2011) investigated the role of logistics outsourcing on the performance of Finnish SMEs. Logistic outsourcing involved activities such as transportation services, information processing, and materials management and value-added services. Their findings revealed that outsourcing does not result in loss or gain in logis- tics performance. The authors reasoned that logistics outsourcing may not result in automatic gains for the company.
No significant effect: combined measure of performance (manufacturing)
Bengtsson (2008) investigated how outsourcing of manufacturing products or components by Swedish engineering firms relates to plant-level performance and innovation. The firms in this study were sampled from different industrial sectors: metal goods, ma- chinery, office equipment and computer, other elec- tronics, telecommunications, instrumentation and au- tomotive. The study found no significant effect of manufacturing outsourcing on plant operating perfor- mance or innovation capability. His study, however, concluded that a plant’s investments in technological and organizational capabilities explain performance at the plant level more than what outsourcing does.
No significant effect: combined measure of performance (manufacturing and services)
Benson and Littler (2002) examined the influence of outsourcing resulting from workforce reduction on Australian firms. The authors perceived outsourc- ing as a form of organizational restructuring and a ‘long-term’ and ‘more strategically oriented form of
C© 2015 British Academy of Management and John Wiley & Sons Ltd.
490 S. Lahiri
flexibility’. Their analysis found that, compared with other forms of restructuring that require workforce reduction, outsourcing does not yield firms any addi- tional benefits. Their research also showed that out- sourcing results in negative influence on employees that remain in the firm.
The above review of seven studies suggests con- siderable diversity in scope, context, level of analy- sis, data sources and industry sector. Diversity is also observed in the measurement of outsourcing and firm performance. Despite these differences, one aspect is common in all these studies. They provide evidence that outsourcing does not significantly affect firm per- formance.
The framework encapsulating the above findings is shown in Figure 1.
Discussion
Outsourcing has seen unprecedented growth as a busi- ness strategy in recent decades. Outsourcing allows firms to do more with less (Gilley and Rasheed 2000) and has been referred to as ‘an extant phenomenon of contemporary international business’ (Maskell et al. 2007, p. 239), ‘one of the most sustained trends of concurrent business’ (Hätönen and Eriksson 2009, p. 142) and a business issue ‘that has constantly mer- ited the attention of practitioners, academicians, con- sultants, policy-makers, politicians and common pub- lic’ (Kedia and Lahiri 2007, p. 23). Scholars from a wide variety of academic disciplines have conducted empirical studies to understand the phenomenon and enlighten the academic and managerial community. However, there have been no attempts to conduct a comprehensive review of the published literature in a manner that addresses a simple yet vital question: Does outsourcing really enhance firm performance? This review of 57 studies published in 47 different journals over a span of 17 years suggests that the answer to this question is ‘yes, but not always’.
As the above review, and in particular Tables 2–6 suggest, prior research in outsourcing exhibits a wide variety in scope (national, international, global), con- text (IT, IS, HR), level of analysis (firm, plant, pro- cess level), data sources (primary, secondary), time- span (single or multiyear) and sector (manufacturing, services or others). In addition, scholars tend to use widely different measures of extent of outsourcing and firm performance in their research. These at- tributes make it very difficult to conclude whether outsourcing really augments firm performance.
However, one aspect is clear from the above review: outsourcing can produce positive, negative, mixed, moderated or no impact on the firm. The review find- ings further suggest that performance implications depend to a large extent on how outsourcing is per- ceived, planned and executed by management, and how outsourcing and performance are operationalized for the purpose of establishing statistical association.
The inconclusive nature of the review makes it dif- ficult to suggest implications for the existing theories in international business (IB) (Doh 2005).2 From the findings relating to domestic outsourcing (30 articles in total), it cannot be concluded that disintegration or unbundling of value chain functions is necessar- ily better or worse than vertical integration. Arriv- ing at such a conclusion is not straightforward, as is evident in the specific findings, e.g. greater verti- cal integration is better than outsourcing of technolo- gies that augment firms’ business processes (Weigelt 2009). Similarly, the evidence from offshore or in- ternational outsourcing studies (20 articles) does not suggest that internalizing various functions, i.e. per- forming them in-house, is necessarily better or worse than externalization (Buckley and Casson 2009; Ke- dia and Mukherjee 2009) or, for that matter, that mov- ing functions to overseas locations/providers repre- sents a better strategy than handling them internally in domestic locations or with the help of domestic providers. Again, arriving at such generalizations be- comes complicated, owing to apparently contradic- tory findings, e.g. offshore outsourcing is beneficial to firms, and such benefits differ across firms (Bertrand 2011) vs offshore outsourcing does not correlate with higher returns (Peslak 2012).
One could argue that firms that gained in perfor- mance through offshore outsourcing possess owner- ship advantages relating to inter-firm relationships and transactions or are capable of tapping location advantages in foreign countries, or both (Dunning 1979). For example, Grover et al. (1996) concluded in their study that firms venturing overseas can benefit from location-specific and specialization advantages for improving innovation performance. But somewhat opposite findings e.g. offshore outsourcing is not cor- related with higher returns (Peslak 2012) or offshore outsourcing of intermediate inputs does not have a positive impact on firms’ total factor productivity (Hijzen et al. 2010), raise questions about the effi- cacy of ownership advantages or location advantages,
2The suggestion of a reviewer to highlight this aspect is grate- fully acknowledged
C© 2015 British Academy of Management and John Wiley & Sons Ltd.
Does Outsourcing Improve Firm Performance? 491
Figure 1. Framework capturing the impact of outsourcing on firm performance (M = Manufacturing; S = Services; C = Combined)
or both. Overall, additional research is warranted to understand what implications outsourcing has for in- ternalization theory, OLI paradigm and DLE frame- work. However, scholars need to exercise caution in doing so by recognizing that IB theories are meant pri- marily for MNEs. An MNE is a firm ‘that owns and controls activities in two or more different countries’ (Buckley and Casson 2009, p. 1564). An outsourcing (buy vs make) relationship with foreign provider(s) may not represent MNE behavior.
Business research suggests that managerial mind- sets differ. Even within the same industry, managers think differently about their firms’ strategies. There- fore, how managers contemplate and implement out- sourcing strategies for their firms is bound to differ. Such differences in overall planning and practice of outsourcing are likely to generate different results for the performance of their firms. Similarly, scholars across disciplines have different ways of understand- ing and explaining a business phenomenon. When it comes to conducting empirical research, scholars
use their own training, preferences and judgments in sampling, collecting data, running appropriate statis- tical techniques and interpreting the research findings. These differences in research approach in investigat- ing a particular business phenomenon can result in a wide variety of findings about the phenomenon. In the present review, this aspect is clearly evident. Figure 2 highlights the factors that determine outsourcing– firm performance research.
Future research
Where do we go from here? To begin with, three gen- eral suggestions can be offered for future research. First, scholars can conduct studies in research cate- gories for which this review found no existing studies. Examples include using (a) a direct measure of per- formance in services in the moderated influence on outsourcing category, and (b) an indirect measure of performance in manufacturing in the same category.
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Figure 2. Factors determining outsourcing–firm performance research
Second, scholars whose study findings have been dis- cussed above can replicate their investigations using the same measure of outsourcing and performance, but different time-horizons and industry and national settings. Such investigations will allow for evaluating whether the extant findings are generalizable across different research settings. Third, in future research, scholars can build on the studies sampled in this re- view and conduct research across various contexts, time-spans and levels of analysis by using different data collection techniques, and measures of outsourc- ing and performance that suit their research needs and scope. Such studies will collectively add to broad un- derstanding of the impact of outsourcing on the firm.
Perhaps the most important criterion to consider in future research relates to devising appropriate mea- sures of outsourcing and firm performance. As found in this review, researchers use a wide variety of mea- sures to operationalize these two variables. Scholars in future research need to devise robust measures that tap the extent of value chain function(s) given out for execution by third-party provider(s) who may be located in the same country or overseas. In devising their measures, scholars may combine/adapt the mea- sure(s) of outsourcing intensity (Gilley and Rasheed 2000), outsourcing propensity (Gilley et al. 2004),
international outsourcing intensity (Görg and Hanley 2005), level of outsourcing (Cho et al. 2008), extent of R&D outsourcing (Grimpe and Kaiser 2010) or depth and scope of international outsourcing (Mol et al. 2004). A very useful recommendation for fu- ture scholars is ‘to collect information on the prod- uct level, and then to aggregate the firm’s various product-level outsourcing initiatives into a firm-level measure’ (Gilley and Rasheed 2000, p. 787). Accord- ing to the scholars, this will allow the generation of a more objective measure of firms’ dependability on outsourcing. While capturing firms’ use of external providers through survey response is perceptual in nature, product-level data are objective and, there- fore, more reliable in determining the performance implications of outsourcing strategies.
This review has also shown how various measures of performance can be used in examining the im- pact of outsourcing. Depending on the level of anal- ysis (plant/factory, business unit, firm) future studies can use, adapt or combine the existing measures of performance. But it is important to remember that firm performance is a multidimensional construct and includes financial as well as non-financial di- mensions (Fitoussi and Gurbaxani 2012; Venkatra- man and Ramanujam 1986). Therefore, scholars in
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future research need to use both financial and non- financial measures, as Gilley et al. (2004) do, to as- sess firm performance. Since cost saving is arguably the most important advantage that firms seek through outsourcing, future research needs to take into ac- count the implications of transaction costs, produc- tion costs and financial slack in the analysis (Ang and Straub 1998).
In the future, scholars may also follow Cho et al. (2008, p. 358) and enquire how the focal firm per- forms vis-à-vis its closest competitors in the areas of profitability, sales growth, customer satisfaction and overall performance. In addition, future research needs to investigate whether outsourcing really allows focusing on core competencies and increasing firms’ flexibility to respond to market changes (Farrell 2005; Hätönen and Eriksson 2009). These two aspects that are widely argued in the literature as potential ben- efits of outsourcing have not been adequately exam- ined in the extant research. To develop better metrics of performance, scholars in the future need to adhere to the prescription offered by Bhalla et al. (2008, p. 333) that performance measures ‘could be more fine grained and applied to the division level data rather than the company as a whole’.
It has been theorized in the outsourcing literature that the transacting partners need to initiate and sus- tain strong partnership (Kedia and Lahiri 2007; Lahiri and Kedia 2009) and also coevolve for mutual bene- fits (Lahiri and Kedia 2011). The work of Koh et al. (2004) suggests that partners’ obligations and their fulfillment predict outsourcing success in a significant way. Barring this research and a few other works, how outsourcing affects client–provider partnership has not been adequately examined. Similarly, how out- sourcing facilitates client–provider coevolution has not been empirically tested. Future scholarship can examine these two relatively unexplored aspects as dependent variables in their analysis. Scholars need to remember that the impact of outsourcing on per- formance depends on the extent of outsourcing. As shown by Kotabe and Mol (2009), results could be positive when the extent of outsourcing is below the optimal level, and negative when the extent is beyond the optimal point. No relationship may be evident when outsourcing is close to the optimum level. This aspect of optimal level needs to be carefully consid- ered in future research designs.
Several articles discussed in this review (e.g. Görg and Hanley 2004; Hsiao et al. 2010; Klaas et al. 1999) suggested that outsourcing–performance relationship can be moderated by important factors. But barring
very few works (e.g. Kamyabi and Devi 2011; Oke and Kach 2012), not many studies examined the me- diating influence of important variables on this rela- tionship. Scholars in the future need to rationalize and show in their analysis how important aspects of out- sourcing, e.g. partnership quality, prior outsourcing experience, home or host country factors, can medi- ate outsourcing’s impact on performance.
Finally, it is essential for future researchers to de- termine the appropriate scope of study and time- line very carefully. To enhance scope, future re- search can focus on multiple organizational functions (Grover et al. 1996), compare (a) outsourcers and non-outsourcers (Jiang et al. 2006), (b) domestic out- sourcers and offshore outsourcers (Hijzen et al. 2010; Peslak 2012), (c) offshore and captive offshoring (Nieto and Rodrı́guez 2011), (d) outsourcing and ver- tical integration (Novak and Stern 2008), or (d) ma- terials and services outsourcing (Görg et al. 2008). Moreover, future research can include both manufac- turing and service firms in the analysis (Di Gregorio et al. 2009) or compare different countries and differ- ent types of outsourcing (Arvanitis and Loukis 2012). With regard to the research timeline, future research can compare long-term relationships vs short-term relationships and arm’s length approach (Lee et al. 2004). A proper timeline is important to consider, since Bardhan et al. (2007) cautioned in their study that managers need to assess whether outsourcing aids short-term profitability, but compromises longer-term customer value. To improve the validity of empirical findings, future researchers need to engage in robust research design (Kroes and Ghosh 2010) and rig- orous data collection (Bhalla et al. 2008) including collecting data twice (Gilley et al. 2004) or using a longitudinal database (Li et al. 2008, Rothaermel et al. 2006). The above suggestions for future research are highlighted in Table 7.
Will following the above future research directions enable the basic question (Does outsourcing improve firm performance?) to be answered better? Hopefully, yes. Managers obviously like outsourcing to produce a positive influence on firm performance. Yet, de- pending on how outsourcing is planned and executed by firms, results are going to vary, and not all out- sourcing efforts can be expected to produce similar positive results. Moreover, results are also likely to vary, depending on how the extent of outsourcing and firm performance are operationalized. That is, re- searchers’ biases that might affect the firm-level find- ings can come into play. Two aspects become very important here. First, replication studies involving
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Table 7. Directions for future research
No. Rationale What future researchers need to do
1 Generating new findings Conduct studies in research categories for which this review found no existing studies (e.g. using direct measure of performance in services in the moderated influence on outsourcing category).
2 Assessing generalizability of current findings
Replicate current investigations using same measure of outsourcing and performance, but using different time-horizons and industry and national settings.
3 Collectively adding to broad understanding
Build on current studies and conduct research across various contexts, time-spans, and levels of analysis by using different data collection techniques, and measures of outsourcing and performance.
4 Devising robust measure of outsourcing
Combine/adapt the measure(s) of outsourcing intensity (Gilley and Rasheed 2000), outsourcing propensity (Gilley et al. 2004), international outsourcing intensity (Görg and Hanley 2005), level of outsourcing (Cho et al. 2008), extent of R&D outsourcing (Grimpe and Kaiser 2010) and depth and scope of international outsourcing (Mol et al. 2004).
5 Devising robust measure of firm performance
Combine/adapt the existing measures of performance, use both financial and non-financial measures (Gilley et al. 2004), assess firm performance vis-à-vis those of closest competitors (Cho et al. 2008); examine whether outsourcing really allows focusing on core competencies and increasing firms’ flexibility to respond to market changes.
6 Examining relatively unexplored dimensions of performance
Measure and use client–provider partnership and client–provider co-evolution as dependent variables.
7 Examining mediating influence of important variables
Theorize and examine how important aspects of outsourcing can mediate outsourcing’s impact on performance.
8 Devise robust research scope and timeline
Employ multiple organizational functions (Grover et al. 1996), compare (a) outsourcers and non-outsourcers (Jiang et al. 2006), (b) outsourcers and offshore outsourcers (Hijzen et al. 2010; Peslak 2012), (c) offshore and captive offshoring (Nieto and Rodrı́guez 2011), (d) outsourcing and vertical integration (Novak and Stern 2008), or (e) materials and services outsourcing (Görg et al. 2008), (f) manufacturing and service firms (Di Gregorio et al. 2009), (g) different countries and different types of outsourcing (Arvanitis and Loukis 2012).
Use robust research design (Kroes and Ghosh 2010) and rigorous data collection (Bhalla et al. 2008) including collecting data twice (Gilley et al. 2004) or using longitudinal database (Li et al. 2008, Rothaermel et al. 2006).
similar scope, context, level of analysis, data sources and industry sector but different timelines are needed. Second, industry–researcher interaction needs to be encouraged so as to allow merging of managerial and scholarly thinking right from the planning stage of outsourcing.
Concluding thoughts
To conclude, this study has reviewed quantitative ar- ticles that examined the effect of outsourcing on the firm. The findings suggest that outsourcing does im- prove firm performance, but not always. Specifically, outsourcing can produce positive, negative, mixed, moderated or no impact on the firm. These findings are timely, interesting and relevant for academicians, practitioners and policy-makers. We hope this study will inspire additional empirical research in the fu- ture to shed more light on how outsourcing influences the firm. In addition, we hope this study will benefit business executives in devising appropriate outsourc- ing strategies for their firms, and policy-makers in
creating conducive business environment and regu- lations that facilitate the practice of domestic or off- shore outsourcing.
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