AIB 2012 Conference Proceedings - Academy of International ...

TUESDAY
Backsourcing: A Conceptual Framework
Pooja Thakur, Virginia Tech
Backsourcing is the full or partial re-internalization of previously outsourced activity. This emerging phenomenon
occurs when the firm terminates its outsourcing contract before completion or does not renew the contract and
chooses to bring the activity back in-house. In this research we propose a framework to understand the
different types of backsourcing and its performance implications. Using the Transaction Cost Economics (TCE)
and Resource Based View (RBV) as theoretical lenses, we posit that there are two dimensions involved in
backsourcing and they are the cost to reinternalize the activity and the internal capabilities of the firm for reinternalization.
Using these two dimensions we created a two-by-two matrix where backsourcing can be
categorized into: failure backsourcing, operational backsourcing, strategic backsourcing and profitability
backsourcing. Prior literature has viewed backsourcing as a failure of the outsourcing strategy however this
paper suggests that it may be advantageous to bring the activity back in-house under certain circumstances.
Our research proposes that backsourcing is the most beneficial when the firm has low costs for reinternalization
and high internal capabilities. (For more information, please contact: Pooja Thakur, Virginia Tech,
USA: pthakur@vt.edu)
A Multilevel Analysis of Strategic Timing and Cost Savings in Offshoring
Oli Mihalache, Free University Amsterdam
Shiko Ben-Menahem, Erasmus University
Despite the prevalence of cost reduction as reasoning behind offshoring, the understanding of the factors
influencing cost savings through offshoring remains limited. To address this gap, we provide a multilevel
contingency perspective proposing that the timing of offshoring activities affects the degree of cost savings and
that the relationship is contingent on activity and firm-level factors. Using data on 639 offshoring activities at
214 firms, we find evidence of an early-mover cost advantage in offshoring. In addition, we find that this
relationship is stronger in the case of labor rather than knowledge-intensive functions. We further propose that
firms‘ breadth and depth of geographical experience (i.e. international and host country experience) are
important firm-level contingencies. Results indicate that the depth dimension of geographical knowledge affects
the influence of timing on cost savings, but not the breadth dimension. Thus, our study highlights that the
multilevel dynamics between activity and firm-level factors influence the cost savings of offshored activities. (For
more information, please contact: Oli Mihalache, Free University Amsterdam, Netherlands:
oli.mihalache@gmail.com)
The Value of Flexibility: Evidence from Outsourcing
Jongmoo Jay Choi, Temple University
Lenos Trigeorgis, University of Cyprus
Xiaotian Tina Zhang, Saint Mary's College of California
Although it is commonly believed that flexibility is valuable, there is little direct empirical evidence on whether
flexibility actually enhances corporate performance. Viewing outsourcing as a switching real option, this paper
presents evidence regarding the value of flexibility for US firms engaged in outsourcing activities. We construct
a corporate flexibility index and examine how flexibility affects market valuation of corporate outsourcing
decisions. The results show that market reaction to outsourcing announcements is positive and significant. After
controlling for switching transaction costs related to outsourcing, flexibility gains are shown to be associated
with a firm's strategic growth options. The likelihood of outsourcing is related to prior growth prospects.. These
results are consistent with flexibility being a motive for outsourcing as suggested by real options theory. The
results also confirm the importance of good internal corporate governance as a requisite for realizing potential
flexibility gains from outsourcing. (For more information, please contact: Jongmoo Jay Choi, Temple University,
USA: jjchoi@temple.edu)
AIB 2012 Conference Proceedings
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