Antecedents of Second Order Outsourcing by Manufacturing Suppliers in Low-Cost Countries

Abstract

The objective of this study is to identify and understand the process and factors that influence the 'second-order' outsourcing decision in context of manufacturing firms in low cost developing countries. Usually, big manufacturing suppliers receive more foreign manufacturing orders than they can handle with their existing infrastructure, and then, transfer part of their manufacturing process to other smaller firms due to the lack of internal capabilities and production factors. This study aims to identify factors that influence large manufacturing suppliers to go for second-order subcontracting. A simple questionnaire was developed to collect data and a total of 126 responses were collected from mid-level managers of manufacturing outsourcing suppliers. The findings revealed that access to inter-firm resources, company focus, and internal shortages of certain resources and capabilities have significant effects on second-order outsourcing decisions. Both internal and external factors influence managerial decisions and the managers need to evaluate both internal and external environment for maximizing the benefits before adopting the outsourcing as a business strategy.