Does Outsourcing Result in the Outsourcing of Technological Competencies? an Empirical Analysis of the Effect of Vertical Specialization on the Technological Competence Base of Firms**

By Stephan, Michael | Management Revue, July 1, 2010 | Go to article overview

Does Outsourcing Result in the Outsourcing of Technological Competencies? an Empirical Analysis of the Effect of Vertical Specialization on the Technological Competence Base of Firms**


Stephan, Michael, Management Revue


Over the past two decades multinational firms from high-technology industries have increasingly relied on outsourcing of production to external suppliers. We present a theoretical framework that stems from the resource-based view of the firm (RBV) and develop hypotheses claiming that outsourcing of production will not result in the outsourcing of technological competencies. In other words, vertical specialization will not result in the reduction of the breadth and depth of the technological competence level of firms, especially in high-technology industries. We test our hypothesis with a sample of 50 firms which we selected from the population of the world's top R&D-performing firms, measured by R&D spending. The period of investigation covers 20 years from 1983-2002. Our results indicate that over this 20 years period the technological knowledge base of the sample firms has not been affected by the ongoing outsourcing activities. The empirical observation gives rise to the 'a priori statement' that the knowledge-boundaries of the firms have been decoupled from production activities: In our sample of firms from high-technology industries outsourcing has not coincided with the outsourcing of technological competencies.

Key words: outsourcing, technological competencies, internationalization, product diversification, resourced-based view of the firm

(ProQuest: ... denotes formulae omitted.)

1. Introduction

Since the Industrial Revolution, firms in almost all industries have increasingly become specialized and only rarely command all the necessary production activities of their products' value chains in-house (Bruisoni et al. 2001). Especially when firms produce complex, technology-intensive products they usually outsource parts of the production and even parts of the development processes to external suppliers. Many firms are doing business in industries in which competition is largely driven by innovation and in which technological competencies are at the heart of any competitive advantage. Over the past two decades, the majority of these firms have outsourced an increasing part of production to external suppliers (Bengtsson/Dabhilkar 2008; Gerybadze/Stephan 2007). Using key-words such as outsourcing vertical specialisation, lean production, refocusingon core skills and competences, or deconstruction of value chains, many theoretical papers and a few empirical studies have investigated the outsourcing phenomenon in the context of strategic management and supply chain management research as well as in industrial economics.

The increasing division of labor between independent firms alongside their product value chains in the course of outsourcing strategies has also been discussed under the term Vertical specialization' (Macher/Mowery 2004: 318-19):

"Vertical specialization is also termed vertical disintegration, and often is associated with the entry of specialist firms into distinctive segments of the vertical value chain. Vertical specialization [...] may be defined as a shift from vertically integrated control of product value chains by the firm to a structure characterized by market-based coordination [...] among separate firms."

According to this definition, vertical specialization depicts the phenomenon which occurs when the various activities within an industry's value chain are under the control of various separate firms that have specialized on a selected range of activities. The process of vertical specialization therefore describes the change from the status of vertical integration in which single firms control and command large parts of the valuechain activities in-house to a less integrated and less hierarchically controlled product value chain. Such a process of vertical specialization is a synonym for the outsourcing of production (and development activities) to external suppliers. From a firm's perspective outsourcing leads to a reduction in the value-add quota (net value added as a percentage of sales). …

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