×

zbMATH — the first resource for mathematics

Outsourcing suppliers as downstream competitors: biting the hand that feeds. (English) Zbl 1177.90271
Summary: We highlight an aspect of supplier opportunism in the outsourcing paradox that has largely been ignored by extant research - the supplier as a direct competitor of the buyer firm. In light of this paradox, we offer a game-theoretic framework in which we identify conditions under which firms could alleviate or mitigate this outsourcing problem. Our results show that apart from transaction costs, firm-level capabilities (both ordinary and dynamic) play important roles in determining the make only, buy only, or make-and-buy options a firm could exercise in countering the threat of the supplier as a potential competitor in the downstream marketplace.

MSC:
90B90 Case-oriented studies in operations research
91A80 Applications of game theory
90B10 Deterministic network models in operations research
PDF BibTeX XML Cite
Full Text: DOI
References:
[1] Aaker, D.A., Managing brand equity, (1991), The Free Press New York
[2] Aaker, D.A.; Keller, K.L., Consumer evaluations of brand extensions, Journal of marketing, 54, 1, 27-41, (1990)
[3] Agrawal, D., Effect of brand loyalty on advertising and trade promotions: A game theoretic analysis with empirical evidence, Marketing science, 15, 1, 86-108, (1996)
[4] Anderson, E.; Weitz, B.A., Make-or-buy decisions: vertical integration and marketing productivity, Sloan management review, 27, 3, 3-19, (1986)
[5] Anderson, E.; Weitz, B.A., The use of pledges to build and sustain commitment in distribution channels, Journal of marketing research, 29, 1, 18-34, (1992)
[6] Bayus, B.L.; Putsis, W.P., Product proliferation: an empirical analysis of product line determinants and market outcomes, Marketing science, 18, 2, 137-153, (1999)
[7] Buday, T., Capitalizing on brand extensions, The journal of consumer marketing, 6, 4, 27-30, (1989)
[8] Bendor-Samuel, P., Turning lead into gold: the demystification of outsourcing, Executive Utah, (1999), Excellence Publishing Utah
[9] Broniarczyk, S.M.; Alba, J.W., The importance of the brand in brand extensions, Journal of marketing research, 31, 2, 214-228, (1994)
[10] Chen, A.; Vijay, V., Expanding in China, Harvard business review, 83, 3, 132-139, (2005)
[11] Conner, K.R.; Prahalad, C.K., A resource-based theory of the firm: knowledge versus opportunism, Organization science, 7, 5, 477-501, (1996)
[12] Costa, L.A.; Dierickx, I., The strategic deployment of quality-improving innovations, Journal of business, 78, 3, 1049-1072, (2005)
[13] Davis, S.M., Brand asset management: driving profitable growth through your brands, (2002), Jossey-Bass San Francisco
[14] Dixit, A., A model of duopoly suggesting a theory of entry barriers, The Bell journal of economics, 10, Spring, 20-32, (1979)
[15] Doole, I.; Lowe, R., International marketing strategy: analysis, development and implementation, (2004), Thomson Learning London
[16] Dutta, S.; Bergen, M.; Heidi, J.B.; John, G., Understanding dual distribution: the case of reps and house accounts, Journal of law economics and organization, 11, 1, 189-204, (1995)
[17] Farquhar, P., Managing brand equity, Marketing research, 1, 24-33, (1989)
[18] Farquhar, P., Managing brand equity, Journal of advertising research, 30, August-September, RC7-RC12, (1990)
[19] Feldwick, P., What is brand equity anyway, and how do you measure it?, Journal of the market research society, 38, 85-104, (1996)
[20] Gottfredson, M.; Puryear, R.; Phillips, S., Strategic outsourcing: from periphery to the core, Harvard business review, 83, 3, 132-139, (2005)
[21] Harrington, J.E., Experimentation and learning in a differentiated-products duopoly, Journal of economic theory, 66, 1, 275-288, (1995) · Zbl 0830.90029
[22] Hart, O.; Moore, J., Property rights and the nature of the firm, Journal of political economy, 94, 4, 691-719, (1990)
[23] Heide, J.B.; John, G., The role of dependence balancing in safeguarding transaction-specific assets in conventional channels, Journal of marketing, 52, 1, 20-35, (1998)
[24] Heide, J.B.; John, G., Alliances in industrial purchasing: the determinants of joint action in buyer – supplier relationships, Journal of marketing research, 27, 1, 24-36, (1990)
[25] Irwin, D.A.; Klenow, P.J., Learning-by-doing spillovers in the semiconductor industry, Journal of political economy, 102, 6, 1200-1227, (1994)
[26] Jacobides, M.J.; Winter, S.G., The co-evolution of capabilities and transaction costs: explaining the institutional structure production, Strategic management journal, 26, 5, 395-413, (2005)
[27] Johansson, J.K., Global marketing, (1997), Irwin Chicago
[28] Kekre, S.; Srinivasan, K., Broader product line: A necessity to achieve success?, Management science, 36, 10, 1216-1231, (1990)
[29] Keller, K.L., Conceptualizing, measuring, and managing customer-based brand equity, Journal of marketing, 57, 1, 1-22, (1993)
[30] Keller, K.L., Strategic brand management: building, measuring, and managing brand equity, (2003), Prentice-Hall New Jersey
[31] Klein, B.; Crawford, R.; Alchian, A., Vertical integration: appropriate rents and the competitive contracting process, Journal of law and economics, 1, 2, 279-326, (1978)
[32] Klein, B.; Leffler, K.B., The role of market forces in assuring contractual performance, Journal of political economy, 89, 4, 615-641, (1981)
[33] Kogut, B.; Zander, U., Knowledge of the firm, combinative capabilities, and the replication of technology, Organization science, 3, 3, 383-397, (1992)
[34] Kogut, B.; Zander, U., What firms do? coordination, identity and learning, Organization science, 7, 5, 502-519, (1996)
[35] Koudal, P., Global manufacturers at a crossroads, Harvard business review, 83, 3, 20, (2005)
[36] Leavy, B., Strategic perspectives on the buyer – supplier relationship, Production and inventory management journal, 35, 2, 47-51, (1994)
[37] Lee, K.S., Lim, W.S., 2003. Procurement strategy: Asset specificity and the decision to make, buy or make-and-buy. In: NUS Business School Working Paper, National University of Singapore.
[38] Loken, B.; Roedder-John, D., Diluting brand beliefs: when do brand extensions have a negative impact?, Journal of marketing, 57, 71-84, (1993)
[39] McGuire, T.; Staelin, R., An industry equilibrium analysis of downstream vertical integration, Marketing science, 2, 2, 161-191, (2008), (was re-published in 2008, Marketing Science 2008, 21, pp. 115-130
[40] Monteverde, K., Technical dialog as an incentive for vertical integration in the semiconductor industry, Management science, 41, 10, 1624-1638, (1995)
[41] Monteverde, K.; Teece, D., Supplier switching costs and vertical integration in the automobile industry, Bell journal of economics, 13, 1982a, 206-213, (1982)
[42] Mottram, S., 1994. The Power of the brand. In: Paper presented at the ARF Brand Equity Conference February, pp. 15-16.
[43] Nam, K.; Chaudhury, A.; Rao, H.R., A mixed integer model of bidding strategies for outsourcing, European journal of operational research, 87, 2, 257-273, (1995) · Zbl 0914.90172
[44] Ngwenyama, Ojelanki K.; Bryson, N., Making the information systems outsourcing decision: A transaction cost approach to analyzing outsourcing decision problems, European journal of operational research, 115, 2, 351-367, (1999) · Zbl 0940.90040
[45] Nicholson, L.; Vakharia, A.J.; Erenguc, S.S., Outsourcing inventory management decisions in healthcare: models and application, European journal of operational research, 154, 1, 271-290, (2004) · Zbl 1099.90565
[46] Nitin, N., Feed R&D - or farm it out?, Harvard business review, 83, 3, 17-28, (2005)
[47] Osei-Bryson, K.; Ngwenyama, O., Managing risks in information systems outsourcing: an approach to analyzing outsourcing risks and structuring incentive contracts, European journal of operational research, 174, 1, 1248-1261, (2006) · Zbl 1116.90058
[48] Park, C.W.; Milberg, S.; Lawson, R., Evaluation of brand extensions: the role of product level similarity and brand concept consistency, Journal of consumer research, 18, 2, 185-193, (1991)
[49] Pfeffer, J.; Salancik, G.R., The external control of organizations: A resource dependence perspective, (1978), Harper & Row Publishers, Inc. New York
[50] Pisano, G.P., Using equity participation to support exchange: evidence from the biotechnology industry, Journal of law, economics, and organization, 5, 1, 109-126, (1990)
[51] Pita, D.A.; Katsanis, L.P., Understanding brand equity for successful brand extension, Journal of consumer marketing, 12, 4, 51-64, (1995)
[52] Poppo, L.; Zenger, T.R., Testing alternative theories of the firm: transaction cost, knowledge-based, and measurement explanations for make-buy decisions in information services, Strategic management journal, 19, 9, 853-878, (1998)
[53] Porter, M.E., Competitive strategy: techniques for analyzing industries and competitors, (1980), The Free Press New York
[54] Prahalad, C.K.; Hamel, G., The core competence of the corporation, Harvard business review, 68, 3, 79-93, (1990)
[55] Raju, J.S.; Srinivasan, V.; Lal, R., The effects of brand loyalty on competitive price promotional strategies, Management science, 36, 3, 276-304, (1990) · Zbl 0699.90065
[56] Raju, J.S.; Sethuraman, R.; Dhar, S.K., The introduction and performance of store brands, Management science, 41, 6, 957-978, (1995)
[57] Randall, T.; Ulrich, K.; Reibstein, D., Brand equity and vertical product line extension, Marketing science, 17, 4, 356-379, (1998)
[58] Richmond, W.B.; Seidmann, A.; Whinston, A.B., Incomplete contracting issues in information systems development outsourcing, Decision support systems, 8, 5, 459-477, (1992)
[59] Rindfleisch, A.; Heide, J.B., Transaction cost analysis: past, present, and future applications, Journal of marketing, 61, 4, 30-54, (1997)
[60] Seshadri, S., Bidding for contests, Management science, 41, 4, 561-576, (1995) · Zbl 0836.90061
[61] Seshadri, S.; Chatterjee, K.; Lilien, G.L., Multiple source procurement competitions, Marketing science, 10, 3, 246-263, (1991)
[62] Sharp, B.M., Managing brand extensions, Journal of consumer marketing, 10, 3, 11-17, (1993)
[63] Sharp, J.A., Evaluating the effect of sourcing decisions on e-commerce process operations risk, European journal of operational research, 180, 2, 815-833, (2007) · Zbl 1123.90330
[64] Shelanski, H.; Klein, P., Empirical research in transaction cost economics, Journal of law, economics and organization, 11, 2, 335-361, (1995)
[65] Shubik, M.; Levitan, R., Market structure and behavior, (1980), Harvard University Press Cambridge, MA
[66] Smith, D.C.; Park, C.W., The effects of brand extensions on market share and advertising efficiency, Journal of marketing research, 29, 3, 296-313, (1992)
[67] Spiegel, Y., Horizontal subcontracting, Rand journal of economics, 24, 4, 570-590, (1993)
[68] Stump, R.L.; Heide, J.B., Controlling supplier opportunism in industrial relationships, Journal of marketing research, 33, 4, 431-441, (1996)
[69] Takeishi, A., Knowledge partitioning in the interfirm division of labor: the case of automotive product development, Organization science, 13, 3, 321-338, (2002)
[70] Tarakci, H.; Tang, K.; Teyarachakul, S., Learning effects on maintenance outsourcing, European journal of operational research, 192, 1, 138-150, (2009) · Zbl 1180.90097
[71] Teece, D.J., Capturing value from knowledge assets: the new economy, markets for know-how, and intangible assets, California management review, 40, 3, 55-79, (1998)
[72] Teece, D.J.; Pisano, G.; Shuen, A., Dynamic capabilities and strategic management, Strategic management journal, 18, 7, 509-533, (1997)
[73] The Economist, 1994. Farming out the farm. March 5, 330(7853), 79.
[74] The Economist, 1995. The outing of outsourcing. November 25, 337(7942), 57-58.
[75] The Economist, 2000. Business: Have factory, will travel. February 12, 354(8157), 61.
[76] Walker, G., Strategic sourcing, vertical integration, and transaction costs, Interfaces, 18, 3, 62-73, (1988)
[77] Weidenbaum, M., Outsourcing: pros and cons, Executive speeches, 19, 1, (2004)
[78] Wernerfelt, B., Brand loyalty and market equilibrium, Marketing science, 10, 3, 229-245, (1991)
[79] Williamson, O.E., Transaction economics: the governance of contractual relations, Journal of law and economics, 22, 3-61, (1979)
[80] Williamson, O.E., Credible commitments: using hostages to support exchange, American economic review, 73, 4, 519-540, (1983)
[81] Williamson, O.E., Credible commitments: further remarks, American economic review, 74, 3, 488-490, (1984)
[82] Williamson, O.E., Strategy research: governance and competence perspectives, Strategic management journal, 20, 12, 1087-1108, (1999)
[83] Wilson, E.J., The relative importance of supplier selection criteria: A review and update, International journal of purchasing and materials management, 30, 3, 35-43, (1994)
[84] Winter, S.G., Understanding dynamic capabilities, Strategic management journal, 24, 10, 991-995, (2003)
This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. It attempts to reflect the references listed in the original paper as accurately as possible without claiming the completeness or perfect precision of the matching.