Title: Outsourcing and performance in Japanese manufacturing firms

Authors: Hirotoshi Kambara

Addresses: Graduate School of Business Science, University of Tsukuba, 3-29-1 Otsuka, Bunkyo-ku, Tokyo, 112-0012, Japan

Abstract: The purpose of this study is to offer theoretical explanations for the conflicting relationships found between outsourcing and firm performance. Two hypotheses have been developed to show why the relationship between the degree of outsourcing and firm performance could be represented as either an inverted U-shape or a U-shape (when the degree of outsourcing is plotted on the x-axis and firm performance on the y-axis) by linking transaction cost economics (TCE) and the capability theory with product architecture. Data from 2009 to 2013 pertaining to 254 Japanese manufacturing firms in the electronic device industry are used to test these hypotheses. The results suggest that the analysed relationship is represented by an inverted U-shape because a firm can maximise its performance by combining its own core capabilities with those of other companies when a firm's overall activities are studied. However, it is U-shaped at an industry level because a firm can improve its performance by increasing either production outsourcing or own production when production, one of its main activities, is studied.

Keywords: outsourcing; firm performance; transaction cost economics; TCE; capability theory; manufacturing industry; product architecture; interdependent product design; modular product design; U-shape; inverted U-shape; Japan; modular design; electronic devices; electronics manufacturing; core capabilities.

DOI: 10.1504/AJMSA.2016.082966

Asian Journal of Management Science and Applications, 2016 Vol.2 No.4, pp.376 - 393

Available online: 13 Mar 2017 *

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