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

Sako, Mari, Chondrakis, George and Vaaler, Paul M. (2016) How Do Plural-Sourcing Firms Make and Buy? The Impact of Supplier Portfolio Design. Organization Science, 27 (5). pp. 1161-1182.

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This paper uses the notion of contracting strategy to advance research in 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.

Item Type: Article
Keywords: make-and-buy decisions; plural sourcing; supplier portfolio design; contracting strategy; contracting costs; legal services; international business
Subject(s): International business
Date Deposited: 11 Jul 2016 15:35
Date of author-version deposit: 28 June 2016
Last Modified: 26 Sep 2017 02:38
Funders: N/A

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