Cannot Make Do Without You - Outsourcing by Knowledge-Intensive New Firms in Supplier Networks

How do new firms operating in dynamic environments organise their operations? Building on transaction cost theory and the resource based view and using case study data from ten biotechnology start-ups and twenty of their suppliers, this research reveals that new firms outsourcing to highly-embedded suppliers are likely to secure access to a wider supplier network, attain best-in-class operational knowledge, and avoid supplier opportunism while facing low levels of relationship-specific investments.

Key points

• The research explores how new firms use outsourcing to access valuable resources and capabilities residing in supplier networks, and what capabilities do new firms need to successfully outsource in supplier networks;
• A total of fifteen managers of the ten biotechnology start-ups and twenty-five managers among twenty supplier firms were interviewed;
• the research finds that new firms operating in knowledge intensive environments face tough choices between benefits and risks of outsourcing to suppliers embedded within network and those operating at the periphery;
• Outsourcing to suppliers embedded within networks is desirable as it enables new firms to overcome liabilities of newness and acquire legitimacy in the network which in-turn opens doors to resource-acquisition and best-in-class operational capabilities. However this requires managing the costs emerging from low relationship-specific investments in initial stages;
• We propose that realising benefits from outsourcing requires new firms to develop technical, evaluation, relational, entrepreneurial, and integration competencies.

This research is at draft stage and is forthcoming in Industrial Marketing Management. The full research article can be accessed via the link below.