IDEAS home Printed from https://ideas.repec.org/a/inm/ororsc/v27y2016i5p1161-1182.html
   My bibliography  Save this article

How Do Plural-Sourcing Firms Make and Buy? The Impact of Supplier Portfolio Design

Author

Listed:
  • Mari Sako

    (Saïd Business School, University of Oxford, Oxford OX1 1HP, United Kingdom)

  • George Chondrakis

    (Department of Economics and Business, Universitat Pompeu Fabra, and Barcelona School of Management, 08005 Barcelona, Spain)

  • Paul M. Vaaler

    (Law School, University of Minnesota, Minneapolis, Minnesota 55455; and Department of Strategic Management and Entrepreneurship, Carlson School of Management, Minneapolis, Minnesota 55455)

Abstract

This paper uses the notion of contracting strategy to advance research on plural sourcing. We develop and test a theoretical framework to explain how plural-sourcing firms strike the make-and-buy balance depending on their contracting strategy. The focal firm’s choice of a contracting strategy is associated with a specific supplier portfolio design, with a bargaining-based strategy resulting in many, narrowly capable suppliers with short tenure, and a relationship-based contracting strategy resulting in fewer, broadly capable suppliers with long tenure. Focal firms with the latter strategy incur lower overall contracting costs than those with the former, and therefore outsource more. Focal firms seek to influence contracting costs associated with their supplier portfolio for “nearly the same inputs” and “nearly the same suppliers.” Empirical analysis corresponding to the two levels, namely patent prosecution and legal services at Fortune 500 firms, provide consistent support for our theory.

Suggested Citation

  • Mari Sako & George Chondrakis & Paul M. Vaaler, 2016. "How Do Plural-Sourcing Firms Make and Buy? The Impact of Supplier Portfolio Design," Organization Science, INFORMS, vol. 27(5), pages 1161-1182, October.
    • Handle: RePEc:inm:ororsc:v:27:y:2016:i:5:p:1161-1182
    DOI: 10.1287/orsc.2016.1079
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/orsc.2016.1079
    Download Restriction: no
    File URL: https://libkey.io/10.1287/orsc.2016.1079?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
    2. Alonso-Borrego, Cesar & Arellano, Manuel, 1999. "Symmetrically Normalized Instrumental-Variable Estimation Using Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 36-49, January.
    3. Mahka Moeen & Deepak Somaya & Joseph T. Mahoney, 2013. "Supply Portfolio Concentration in Outsourced Knowledge-Based Services," Organization Science, INFORMS, vol. 24(1), pages 262-279, February.
    4. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    5. Markus Reitzig & Phanish Puranam, 2009. "Value appropriation as an organizational capability: the case of IP protection through patents," Strategic Management Journal, Wiley Blackwell, vol. 30(7), pages 765-789, July.
    6. David Roodman, 2009. "How to do xtabond2: An introduction to difference and system GMM in Stata," Stata Journal, StataCorp LP, vol. 9(1), pages 86-136, March.
    7. Dutta, Shantanu, et al, 1995. "Understanding Dual Distribution: The Case of Reps and House Accounts," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 11(1), pages 189-204, April.
    8. Jaffe, Adam B, 1986. "Technological Opportunity and Spillovers of R&D: Evidence from Firms' Patents, Profits, and Market Value," American Economic Review, American Economic Association, vol. 76(5), pages 984-1001, December.
    9. Michael G. Jacobides & Stephan Billinger, 2006. "Designing the Boundaries of the Firm: From “Make, Buy, or Ally” to the Dynamic Benefits of Vertical Architecture," Organization Science, INFORMS, vol. 17(2), pages 249-261, April.
    10. Vogelsang, Timothy J., 2012. "Heteroskedasticity, autocorrelation, and spatial correlation robust inference in linear panel models with fixed-effects," Journal of Econometrics, Elsevier, vol. 166(2), pages 303-319.
    11. Nicholas S. Argyres & Todd R. Zenger, 2012. "Capabilities, Transaction Costs, and Firm Boundaries," Organization Science, INFORMS, vol. 23(6), pages 1643-1657, December.
    12. Garcia-Vega, Maria, 2006. "Does technological diversification promote innovation?: An empirical analysis for European firms," Research Policy, Elsevier, vol. 35(2), pages 230-246, March.
    13. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    14. Bart S. Vanneste & Phanish Puranam, 2010. "Repeated Interactions and Contractual Detail: Identifying the Learning Effect," Organization Science, INFORMS, vol. 21(1), pages 186-201, February.
    15. Richard R. Nelson, 1991. "Why do firms differ, and how does it matter?," Strategic Management Journal, Wiley Blackwell, vol. 12(S2), pages 61-74, December.
    16. William Greene, 2004. "Fixed Effects and Bias Due to the Incidental Parameters Problem in the Tobit Model," Econometric Reviews, Taylor & Francis Journals, vol. 23(2), pages 125-147.
    17. Michael G. Jacobides & Lorin M. Hitt, 2005. "Losing sight of the forest for the trees? Productive capabilities and gains from trade as drivers of vertical scope," Strategic Management Journal, Wiley Blackwell, vol. 26(13), pages 1209-1227, December.
    18. Thomas Hellmann & Manju Puri, 2002. "Venture Capital and the Professionalization of Start‐Up Firms: Empirical Evidence," Journal of Finance, American Finance Association, vol. 57(1), pages 169-197, February.
    19. Li, Guan-Cheng & Lai, Ronald & D’Amour, Alexander & Doolin, David M. & Sun, Ye & Torvik, Vetle I. & Yu, Amy Z. & Fleming, Lee, 2014. "Disambiguation and co-authorship networks of the U.S. patent inventor database (1975–2010)," Research Policy, Elsevier, vol. 43(6), pages 941-955.
    20. Li, Feng, 2008. "Annual report readability, current earnings, and earnings persistence," Journal of Accounting and Economics, Elsevier, vol. 45(2-3), pages 221-247, August.
    21. Pierre Azoulay, 2004. "Capturing Knowledge within and across Firm Boundaries: Evidence from Clinical Development," American Economic Review, American Economic Association, vol. 94(5), pages 1591-1612, December.
    22. George Baker & Robert Gibbons & Kevin J. Murphy, 2002. "Relational Contracts and the Theory of the Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 39-84.
    23. Jeffrey H. Dyer, 1997. "Effective interim collaboration: how firms minimize transaction costs and maximise transaction value," Strategic Management Journal, Wiley Blackwell, vol. 18(7), pages 535-556, August.
    24. Anne Parmigiani, 2007. "Why do firms both make and buy? An investigation of concurrent sourcing," Strategic Management Journal, Wiley Blackwell, vol. 28(3), pages 285-311, March.
    25. Kyle J. Mayer & Nicholas S. Argyres, 2004. "Learning to Contract: Evidence from the Personal Computer Industry," Organization Science, INFORMS, vol. 15(4), pages 394-410, August.
    26. Olivier Chatain & Peter Zemsky, 2007. "The Horizontal Scope of the Firm: Organizational Tradeoffs vs. Buyer-Supplier Relationships," Management Science, INFORMS, vol. 53(4), pages 550-565, April.
    27. Sako, Mari & Helper, Susan, 1998. "Determinants of trust in supplier relations: Evidence from the automotive industry in Japan and the United States," Journal of Economic Behavior & Organization, Elsevier, vol. 34(3), pages 387-417, March.
    28. Prashant Kale & Harbir Singh & Howard Perlmutter, 2000. "Learning and protection of proprietary assets in strategic alliances: building relational capital," Strategic Management Journal, Wiley Blackwell, vol. 21(3), pages 217-237, March.
    29. Kyle J. Mayer & Deepak Somaya & Ian O. Williamson, 2012. "Firm-Specific, Industry-Specific, and Occupational Human Capital and the Sourcing of Knowledge Work," Organization Science, INFORMS, vol. 23(5), pages 1311-1329, October.
    30. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    31. Deepak Somaya & Ian O. Williamson & Xiaomeng Zhang, 2007. "Combining Patent Law Expertise with R&D for Patenting Performance," Organization Science, INFORMS, vol. 18(6), pages 922-937, December.
    32. Hoetker, Glenn, 2002. "How Much You Know versus How Well I Know You: Selecting a Supplier for a Technically Innovative Component," Working Papers 02-0106, University of Illinois at Urbana-Champaign, College of Business.
    33. Robert Gibbons & Rebecca Henderson, 2012. "Relational Contracts and Organizational Capabilities," Organization Science, INFORMS, vol. 23(5), pages 1350-1364, October.
    34. Bruno Cassiman & Reinhilde Veugelers, 2006. "In Search of Complementarity in Innovation Strategy: Internal R& D and External Knowledge Acquisition," Management Science, INFORMS, vol. 52(1), pages 68-82, January.
    35. Akbar Zaheer & N. Venkatraman, 1995. "Relational governance as an interorganizational strategy: An empirical test of the role of trust in economic exchange," Strategic Management Journal, Wiley Blackwell, vol. 16(5), pages 373-392.
    36. Ranjay Gulati & Jack A. Nickerson, 2008. "Interorganizational Trust, Governance Choice, and Exchange Performance," Organization Science, INFORMS, vol. 19(5), pages 688-708, October.
    37. Steven A. Lippman & Richard P. Rumelt, 2003. "A bargaining perspective on resource advantage," Strategic Management Journal, Wiley Blackwell, vol. 24(11), pages 1069-1086, November.
    38. Laura Poppo & Kevin Zheng Zhou & Sungmin Ryu, 2008. "Alternative Origins to Interorganizational Trust: An Interdependence Perspective on the Shadow of the Past and the Shadow of the Future," Organization Science, INFORMS, vol. 19(1), pages 39-55, February.
    39. Glenn Hoetker, 2005. "How much you know versus how well I know you: selecting a supplier for a technically innovative component," Strategic Management Journal, Wiley Blackwell, vol. 26(1), pages 75-96, January.
    40. Tim Loughran & Bill Mcdonald, 2011. "When Is a Liability Not a Liability? Textual Analysis, Dictionaries, and 10‐Ks," Journal of Finance, American Finance Association, vol. 66(1), pages 35-65, February.
    41. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    42. Bronwyn H. Hall, 2005. "A Note on the Bias in Herfindahl-Type Measures Based on Count Data," Revue d'Économie Industrielle, Programme National Persée, vol. 110(1), pages 149-156.
    43. Carliss Y. Baldwin, 2008. "Where do transactions come from? Modularity, transactions, and the boundaries of firms," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 17(1), pages 155-195, February.
    44. Kathryn Rudie Harrigan, 1986. "Matching vertical integration strategies to competitive conditions," Strategic Management Journal, Wiley Blackwell, vol. 7(6), pages 535-555, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ghozzi, Houda & Platoni, Silvia & Tillie, Pascal & Soregaroli, Claudio, 2018. "TCE determinants and governance forms in the EU “Non-GMO” soybean supply chain," Food Policy, Elsevier, vol. 78(C), pages 68-80.
    2. Alberto Sa Vinhas, 2022. "Plural forms and dual distribution: the “external” party’s perspective and the role of path dependency," Marketing Letters, Springer, vol. 33(3), pages 443-469, September.
    3. George Chondrakis & Mari Sako, 2020. "When suppliers shift my boundaries: Supplier employee mobility and its impact on buyer firms' sourcing strategy," Strategic Management Journal, Wiley Blackwell, vol. 41(9), pages 1682-1711, September.
    4. George Chondrakis & Eduardo Melero & Mari Sako, 2022. "The effect of coordination requirements on sourcing decisions: Evidence from patent prosecution services," Strategic Management Journal, Wiley Blackwell, vol. 43(6), pages 1141-1169, June.
    5. Cagri Gurbuz, Mustafa & Yurt, Oznur & Ozdemir, Sena & Sena, Vania & Yu, Wantao, 2023. "Global supply chains risks and COVID-19: Supply chain structure as a mitigating strategy for small and medium-sized enterprises," Journal of Business Research, Elsevier, vol. 155(PB).
    6. Thakur-Wernz, Pooja & Bruyaka, Olga & Contractor, Farok, 2022. "Sourcing portfolio diversity in new product development: Antecedents and performance implications," Journal of Business Research, Elsevier, vol. 150(C), pages 179-193.
    7. Canan Kocabasoglu‐Hillmer & Sinéad Roden & Evelyne Vanpoucke & Byung‐Gak Son & Marianne W. Lewis, 2023. "Radical innovations as supply chain disruptions? A paradox between change and stability," Journal of Supply Chain Management, Institute for Supply Management, vol. 59(3), pages 3-19, July.
    8. Fernandez, Anne-Sophie & Chiambaretto, Paul & Chauvet, Mathieu & Engsig, Juliane, 2021. "Why do MNEs both make and coopete for innovation?," Technovation, Elsevier, vol. 106(C).
    9. Chan, Jin Hooi & Reiner, David, 2019. "Evolution in inter-firm governance along the transport biofuel value chain in Maritime Silk Road countries," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 122(C), pages 268-282.
    10. Chai Bin Feng & Muhammad Usman Khurram & Raheel Safdar & Sultan Sikandar Mirza & Amjad Iqbal, 2023. "Corporate strategic responses, supplier concentration and sustainable growth of chinese listed firms," Operations Management Research, Springer, vol. 16(3), pages 1413-1427, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. George Chondrakis & Mari Sako, 2020. "When suppliers shift my boundaries: Supplier employee mobility and its impact on buyer firms' sourcing strategy," Strategic Management Journal, Wiley Blackwell, vol. 41(9), pages 1682-1711, September.
    2. Nicholas S. Argyres & Teppo Felin & Nicolai Foss & Todd Zenger, 2012. "Organizational Economics of Capability and Heterogeneity," Organization Science, INFORMS, vol. 23(5), pages 1213-1226, October.
    3. Peters, Frank, 2018. "The business of video games is a multi-player game : Essays on governance choices and performance in a two-sided market in the cultural industries," Other publications TiSEM 886b3148-4bbb-4ea4-b666-0, Tilburg University, School of Economics and Management.
    4. George Chondrakis & Eduardo Melero & Mari Sako, 2022. "The effect of coordination requirements on sourcing decisions: Evidence from patent prosecution services," Strategic Management Journal, Wiley Blackwell, vol. 43(6), pages 1141-1169, June.
    5. Daniel W. Elfenbein & Todd R. Zenger, 2014. "What Is a Relationship Worth? Repeated Exchange and the Development and Deployment of Relational Capital," Organization Science, INFORMS, vol. 25(1), pages 222-244, February.
    6. Mahka Moeen & Deepak Somaya & Joseph T. Mahoney, 2013. "Supply Portfolio Concentration in Outsourced Knowledge-Based Services," Organization Science, INFORMS, vol. 24(1), pages 262-279, February.
    7. Martinez-Noya, Andrea & Narula, Rajneesh, 2018. "What more can we learn from R&D alliances? : A review and research agenda," MERIT Working Papers 2018-022, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    8. Moeen, Mahka & Somaya, Deepak & Mahoney, Joseph T., 2011. "Supply Portfolio Concentration in Outsourced Knowledge-Based Services," Working Papers 11-0106, University of Illinois at Urbana-Champaign, College of Business.
    9. Aseem Kaul, 2013. "Entrepreneurial Action, Unique Assets, and Appropriation Risk: Firms as a Means of Appropriating Profit from Capability Creation," Organization Science, INFORMS, vol. 24(6), pages 1765-1781, December.
    10. Yerrabati, Sridevi, 2022. "Does vulnerable employment alleviate poverty in developing countries?," Economic Modelling, Elsevier, vol. 116(C).
    11. Rahman, Mizanur, 2008. "The Impact of a Common Currency on East Asian Production Networks and China’s Exports Behavior," MPRA Paper 13931, University Library of Munich, Germany.
    12. Sung, Bongsuk & Song, Woo-Yong & Park, Sang-Do, 2018. "How foreign direct investment affects CO2 emission levels in the Chinese manufacturing industry: Evidence from panel data," Economic Systems, Elsevier, vol. 42(2), pages 320-331.
    13. Juan Federico & Joan-Lluis Capelleras, 2015. "The heterogeneous dynamics between growth and profits: the case of young firms," Small Business Economics, Springer, vol. 44(2), pages 231-253, February.
    14. Osvaldo Lagares, 2016. "Capital, Economic Growth and Relative Income Differences in Latin America," Discussion Papers 16/03, Department of Economics, University of York.
    15. Charles Mawusi, 2021. "Economic Uncertainty and Remittances to Developing Economies: A System GMM Approach," Working Papers hal-03147813, HAL.
    16. Michael G. Jacobides & Sidney G. Winter, 2012. "Capabilities: Structure, Agency, and Evolution," Organization Science, INFORMS, vol. 23(5), pages 1365-1381, October.
    17. Canarella, Giorgio & Miller, Stephen M., 2018. "The determinants of growth in the U.S. information and communication technology (ICT) industry: A firm-level analysis," Economic Modelling, Elsevier, vol. 70(C), pages 259-271.
    18. Hans Lööf & Pardis Nabavi, 2015. "Knowledge spillovers, productivity and patent," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 55(1), pages 249-263, October.
    19. Florian Eugster, 2020. "Endogeneity and the Dynamics of Voluntary Disclosure Quality: Is there Really an Effect on the Cost of Equity Capital?," Contemporary Accounting Research, John Wiley & Sons, vol. 37(4), pages 2590-2614, December.
    20. Abdul Karim, Zulkefly & Wan Ngah, Wan Azman Saini & Abdul Karim, Bakri, 2010. "Bank lending channel of monetary policy: dynamic panel data evidence from Malaysia," MPRA Paper 26157, University Library of Munich, Germany.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ororsc:v:27:y:2016:i:5:p:1161-1182. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.