The importance of client heterogeneity in predicting make-or-buy decisions

Geoffrey M. Kistruck, Shad S. Morris, Justin W. Webb, Charles E. Stevens

Journal of Operations Management · 2015 · Volume 33 · Issue 1

DOI: 10.1016/j.jom.2014.11.001

Abstract

Scholars have begun to merge the transaction cost economics and capabilities perspectives to examine outsourcing decisions. Further integrating these perspectives with intermediation theory, we assert that a firm's decision to use an intermediary when entering a foreign market is largely a function of the intermediary's relative capabilities and relative transaction costs (i.e., relative advantage). We hypothesize that the intermediary's relative advantage is influenced by three significantly intertwined exchange conditions: client heterogeneity, intermediary risk, and firm learning. Using a sample of 929 new foreign market initiatives by a global consulting firm, our results support our theory.

Keywords

Intermediation, Outsourcing, Client heterogeneity, Professional services, Transaction costs, Capabilities

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