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

Mari Sako (), George Chondrakis () and Paul Vaaler ()
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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

Organization Science, 2016, vol. 27, issue 5, 1161-1182

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.

Keywords: make-and-buy decisions; plural sourcing; supplier portfolio design; contracting strategy; contracting costs; legal services (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ororsc:v:27:y:2016:i:5:p:1161-1182

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