Outsourcing and its implications for market success: negative curvilinearity, firm resources, and competition

Abstract

Over the past few decades, outsourcing has become a widely discussed and researched means for firms to change their performance. In this article, we attempt to link outsourcing to the market success of firms, specifically their market share. We argue that although firms may be able to increase their market share through outsourcing, this is only true up to a point, beyond which market share actually decreases as a consequence of further outsourcing. There is, in other words, a negatively curvilinear (inverted U) relationship between outsourcing and market share. We also hypothesize that the outsourcing-market share relationship is moderated negatively by both the strength of firm resources and the extent of competition in a firm's market. We empirically confirm these arguments through a panel data analysis containing over 19,000 observations on manufacturing firms, and offer some case examples to illustrate the mechanisms driving these results. We discuss implications for marketing research and practice.

A focus on international competitiveness

“…Furthermore, offshoring of advanced manufacturing tasks seems to be more widespread and experience based than the offshoring of advanced service tasks. Kotabe et al (2012) continue the series of offshoring and outsourcing articles in the issue. Their focus is on outsourcing specifically.…”

“…In the spirit of JAMS' breadth of coverage as a journal, the articles broadly cover issues related to the scope of the field of international marketing (Cavusgil and Cavusgil 2012;Samiee and Chabowski 2012), multinational firms (Rugman et al 2012), small-medium enterprises (Kamakura et al 2012), culture (Steenkamp and Geyskens 2012), exporting , foreign market subsidiaries (Homburg et al 2012), and offshoring and outsourcing (Jensen and Pedersen 2012;Kotabe et al 2012;Kalaignanam and Varadarajan 2012). Naturally, some of the articles span multiple areas as well and, as such, make unique advances to the topic of international competitiveness and international marketing.…”

“…Clearly, outsourcing has become a widely used and researched means for firms to change their performance. In their article, Kotabe et al (2012) link outsourcing to the market success of firms, specifically their market share. They argue that although firms may be able to increase their market share through outsourcing, this is only true up to a point, beyond which market share actually decreases as a consequence of further outsourcing.…”

“…There is, in other words, a negatively curvilinear (inverted U-shape) relationship between outsourcing and market share. Kotabe et al (2012) also hypothesize that the outsourcing-market share relationship is moderated negatively by both the strength of firm resources and the extent of competition in a firm's market. They empirically confirm these arguments through a panel data analysis containing over 19,000 observations on manufacturing firms and offer some case examples to illustrate the mechanisms driving these results.…”

Modes of inbound knowledge flows: are cooperation and outsourcing really complementary?

“…However, this dimension has been unexplored in outsourcing empirical literature. Various scholars have pointed to the existence of a curvilinear relationship (inverted-U shape) between outsourcing intensity and firm performance (Berchicci 2013;Grimpe and Kaiser 2010;Kotabe and Mol 2009;Kotabe et al 2012;Leachman, Carl Pegels, and Shin 2005;Rothaermel, Hitt, and Jobe 2006). Focusing on innovation literature, Grimpe and Kaiser (2010) studied the benefits and challenges of R&D outsourcing, discovering an inverse U-shaped relationship between R&D outsourcing and innovation performance.…”