What Drives (or Hampers) Outsourcing? Evidence for a Local Production System in Emilia Romagna

The paper investigates the drivers of the outsourcing decisions of firms located in a specific local production system. Different kinds of drivers are considered drawing on different strands of the literature, considering the firm from an organizational point of view, and as a production, industrial and innovation unit of analysis. Theoretical correlations between outsourcing decisions and variables are formulated and tested with respect to a representative cross-section sample of the firms in Reggio Emilia, a local production system in Emilia Romagna. The main result of the paper is that, in the local context investigated, transaction costs do not seem to be a significant driver of outsourcing. The decision to externalize is rather driven by other arguments, strongly based on the resource-competence approach, factors such as the need for tapping into the providers to promote technological innovation. On the other hand, these drivers are contrasted by the industrial relations of the firms, as workers and workers' representatives significantly hamper it, possibly fearing job losses, or at most expect to be involved in the relative decision in order to make it possible or even spur it. These results have important implications, both at the research level—at which they suggest to complement the transaction cost analysis of outsourcing with that of other approaches—and at the management level—at which they support the thesis that external organizational innovations, such as outsourcing, cannot neglect internal organizational aspects, such as human resource management and industrial relations.