How do plural-sourcing firms make and buy? The impact of supplier portfolio design

Mari Sako, George Chondrakis, Paul M. Vaaler

Research output: Contribution to journalArticlepeer-review

8 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)1161-1182
Number of pages22
JournalOrganization Science
Volume27
Issue number5
DOIs
StatePublished - 2016

Keywords

  • Contracting costs
  • Contracting strategy
  • Legal services
  • Make-and-buy decisions
  • Plural sourcing
  • Supplier portfolio design

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