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The hidden costs of outsourcing: evidence from patent data

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  • Markus Reitzig
  • Stefan Wagner

Abstract

Drawing on patent data for approximately 500 firms over 20 years, we advance recent theory on firm boundaries and test these propositions for the first time. We first provide evidence for the existence of knowledge complementarities between vertically related activities in a firm's value chain by showing that firms face increasing (decreasing) performance in conducting downstream activities (i.e., patent litigation) the less (more) they outsource related upstream activities (i.e., patent filing). We then propose and empirically demonstrate that vertical integration benefits through learning differ from vertical outsourcing costs through forgetting. We show that firms can partly offset these hidden outsourcing costs by sourcing similar upstream products from internal and external suppliers. Copyright © 2010 John Wiley & Sons, Ltd.

Suggested Citation

  • Markus Reitzig & Stefan Wagner, 2010. "The hidden costs of outsourcing: evidence from patent data," Strategic Management Journal, Wiley Blackwell, vol. 31(11), pages 1183-1201, November.
    • Handle: RePEc:bla:stratm:v:31:y:2010:i:11:p:1183-1201
    DOI: 10.1002/smj.852
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    1. Mukherjee, Debmalya & Gaur, Ajai S. & Datta, Avimanyu, 2013. "Creating value through offshore outsourcing: An integrative framework," Journal of International Management, Elsevier, vol. 19(4), pages 377-389.
    2. Patricia Crifo & Marc-Arthur Diaye & Sanja Pekovic, 2016. "CSR related management practices and Firm Performance," Post-Print hal-01278585, HAL.
    3. Afnan Zafar, 2020. "Reasons for outsourcing innovations and its effect on firm performance: Evidence from highly innovative firms from twenty countries," Technium Social Sciences Journal, Technium Science, vol. 13(1), pages 305-319, November.
    4. Peters, Frank, 2018. "The business of video games is a multi-player game : Essays on governance choices and performance in a two-sided market in the cultural industries," Other publications TiSEM 886b3148-4bbb-4ea4-b666-0, Tilburg University, School of Economics and Management.
    5. Lee, Jong-Seon & Kim, Nami & Bae, Zong-Tae, 2019. "The effects of patent litigation involving NPEs on firms’ patent strategies," Technological Forecasting and Social Change, Elsevier, vol. 149(C).
    6. Mihaela Stan & Freek Vermeulen, 2013. "Selection at the Gate: Difficult Cases, Spillovers, and Organizational Learning," Organization Science, INFORMS, vol. 24(3), pages 796-812, June.
    7. Emanuele Breda & Lucia Schiavon, 2017. "L?evoluzione del sistema moda in Veneto," ECONOMIA E SOCIET? REGIONALE, FrancoAngeli Editore, vol. 2017(3), pages 148-169.
    8. Crifo, Patricia & Diaye, Marc-Arthur & Pekovic, Sanja, 2016. "CSR related management practices and firm performance: An empirical analysis of the quantity–quality trade-off on French data," International Journal of Production Economics, Elsevier, vol. 171(P3), pages 405-416.
    9. Heikkilä, Jussi T.S. & Peltoniemi, Mirva, 2023. "The changing work of IPR attorneys: 30 years of institutional transitions," Technological Forecasting and Social Change, Elsevier, vol. 197(C).
    10. Stefano Elia & Rajneesh Narula & Silvia Massini, 2015. "Disentangling the Role of Modularity and Bandwidth in Entry Mode Choice: The Case of Business Services Offshoring," John H Dunning Centre for International Business Discussion Papers jhd-dp2015-06, Henley Business School, University of Reading.
    11. Thomas Gehrig & Rune Stenbacka, 2023. "Dual Sourcing and Resilient Supply Chains: The Case of Essential Resources," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 51(4), pages 223-241, December.
    12. Ho, Hillbun (Dixon) & Lu, Ruichang, 2015. "Performance implications of marketing exploitation and exploration: Moderating role of supplier collaboration," Journal of Business Research, Elsevier, vol. 68(5), pages 1026-1034.
    13. Anne-Madeleine Kranzbühler & Mirella H. P. Kleijnen & Peeter W. J. Verlegh, 2019. "Outsourcing the pain, keeping the pleasure: effects of outsourced touchpoints in the customer journey," Journal of the Academy of Marketing Science, Springer, vol. 47(2), pages 308-327, March.
    14. Ahtamad, Mujthaba & Akhsanov, Medet, 2021. "Barriers to the implementation of 4PL in developing countries," Chapters from the Proceedings of the Hamburg International Conference of Logistics (HICL), in: Jahn, Carlos & Kersten, Wolfgang & Ringle, Christian M. (ed.), Adapting to the Future: Maritime and City Logistics in the Context of Digitalization and Sustainability. Proceedings of the Hamburg International Conf, volume 32, pages 291-315, Hamburg University of Technology (TUHH), Institute of Business Logistics and General Management.
    15. Kyle J. Mayer & Deepak Somaya & Ian O. Williamson, 2012. "Firm-Specific, Industry-Specific, and Occupational Human Capital and the Sourcing of Knowledge Work," Organization Science, INFORMS, vol. 23(5), pages 1311-1329, October.
    16. Molintas, Dominique Trual, 2010. "Globalisation impact on Danish SME: Offshore Outsourcing & local competitiveness," MPRA Paper 96529, University Library of Munich, Germany.
    17. Mukund Chari & H. Kevin Steensma & Charles Connaughton, 2020. "Previous and Prospective Career Mobility, Client Capture, and Compromised Professional Judgment: The Withholding of Known Relevant Prior Art by Patent Lawyers on Behalf of Their Clients," Organization Science, INFORMS, vol. 31(2), pages 489-507, March.
    18. Stefan Wagner & Karin Hoisl & Grid Thoma, 2014. "Overcoming localization of knowledge — the role of professional service firms," Strategic Management Journal, Wiley Blackwell, vol. 35(11), pages 1671-1688, November.
    19. Cécile Ayerbe & Nathalie Lazaric & Michel Callois & Liliana Mitkova, 2014. "The new challenges of organizing intellectual property in complex industries," Post-Print halshs-00974973, HAL.
    20. Pinar Ozcan & Douglas Hannah, 2020. "Social Origins of Great Strategies Advertising Suppliers to Realize Disruptive Social Media Technology," Strategy Science, INFORMS, vol. 5(3), pages 193-217, September.
    21. Freek Vermeulen, 2018. "A basic theory of inheritance: How bad practice prevails," Strategic Management Journal, Wiley Blackwell, vol. 39(6), pages 1603-1629, June.
    22. Elia, Stefano & Massini, Silvia & Narula, Rajneesh, 2019. "Disintegration, modularity and entry mode choice: Mirroring technical and organizational architectures in business functions offshoring," Journal of Business Research, Elsevier, vol. 103(C), pages 417-431.
    23. Jinhyo Joseph Yun & EuiSeob Jeong & YoungKyu Lee & KyungHun Kim, 2018. "The Effect of Open Innovation on Technology Value and Technology Transfer: A Comparative Analysis of the Automotive, Robotics, and Aviation Industries of Korea," Sustainability, MDPI, vol. 10(7), pages 1-16, July.

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