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Capability joint effects, transaction costs, outsourcing decisions, and performance

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  • Jain, Amit

Abstract

Transaction cost economics (TCE) is a prominent theory for predicting outsourcing decisions, yet it has received mixed empirical support. This inconsistency may partly stem from the omission of capabilities associated with a transaction. By integrating capability arguments into the TCE framework, we propose that a firm activity is more likely to be governed hierarchically when a transaction is associated with three capability characteristics: value, rarity, and inimitability. Our study, which analyzes a sample of 180 information systems (IS) sourcing decisions, reveals that a firm’s capabilities in relation to a prospective outsourcing partner may significantly reduce (or increase) the likelihood of outsourcing when these capability characteristics collectively exhibit high (or low) values. Moreover, these capability characteristics have a stronger correlation with insourced performance compared to outsourced performance. This research thus supports the thesis that firms insource those transactions that enhance their competitive advantage, while outsourcing those that do not.

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  • Jain, Amit, 2025. "Capability joint effects, transaction costs, outsourcing decisions, and performance," Journal of Business Research, Elsevier, vol. 200(C).
    • Handle: RePEc:eee:jbrese:v:200:y:2025:i:c:s0148296325004412
    DOI: 10.1016/j.jbusres.2025.115618
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