Recent research has shown that it is important for companies to correctly reflect the power and (inter)dependency to vendors so that an appropriate and aligned relationship can be created. Power and dependency, however, can change over time, which means that the vendor strategy necessary for the relationship to remain aligned and appropriate must also change. Through an empirical dyadic investigation of a large multinational corporation and three of its vendors the key-determinants related to changes in outsourcing relationships are investigated. This dyadic study shows that companies need to consider three aspects additional to those mentioned in previous research when selecting a vendor strategy: (1) Vendor expectations, (2) Vendor potential, and (3) Long-term relationship goal.
In recent decades, changes in the political environment (e.g. the fall of the Soviet Union, the expansion of the European Union) and technological advance in telecommunication (e.g. the Internet, e-mail and teleconferences) have enabled a global spread of development and production activities. This is often done through global outsourcing or offshoring of activities and services. Outsourcing refers to the specific practice when a firm entrusts the performance of an erstwhile in-house activity to an external entity, whereas offshoring is when a company moves a task or service to its own facilities abroad ( Belcourt, 2006).
The option to use outsourcing strategy globally is a choice which all companies, be it large or small, increasingly have to consider. The motivation for outsourcing is often cost, market access, or to gain access to specific resources (Ferdows, 1997). When the decision to outsource has been taken, the buyer company needs to decide which relationship to create with the vendor organization (e.g. the level of collaboration and trust between the companies). This decision, however, will influence the assignments given and the level of knowledge shared. Furthermore, over time the relationship can change and evolve. This change is suggested by the literature to depend on alterations in power and dependency (Cox et al., 2000, Cox, 2004, Caniels and Gelderman, 2005, Caniels and Roeleveld, 2009, Maskell et al., 2007 and Vivek et al., 2009). Power can be defined in many ways. Pfeffer defines power as “… the potential ability to influence behavior, to change the course of events, to overcome resistance, and to get people to do things that they would not otherwise do.” ( Pfeffer, 1994, p. 30). The latter definition of power is used in this paper, because it fits very well with the main purpose of the article. Very few empirical studies on outsourcing, have been carried out at the dyadic level including both buyers and vendors perspectives ( Caniels and Roeleveld, 2009, Jane et al., 2005 and Zhao, 2007).
This paper is an empirical dyadic study. By investigating the relationship from both the buyer and the vendor perspective this paper adds three additional key-determinants related to changes in outsourcing relationships, key-determinants that have not previously been suggested in the existing literature about the topic.
This paper presents an empirical dyadic study. By investigating the changes in the relationships between a large Western IT company and three of its Indian vendors this paper shows how seven key-determinants can be used to explain and understand changes in outsourcing relationships.
This study has shown that (1) The relative financial magnitude of the exchanged resources. (2) The criticality of the activities, (3) The availability of alternatives, (4) Switching costs, incurred when replacing the supplier/losing the client, (5) Vendor expectations, (6) Vendor potential and (7) Long term goal of the relationship are important factors when selecting a vendor strategy, and thereby expand the framework developed by Caniels and Roeleveld (2009). A mobility strategy should be made for the buyer–supplier relationship for both the buyer and supplier, detailing how and under which conditions the buyer–supplier relationship will change over time (for example, as the vendor gains more skills and knowledge). Considerations are, for example, current characteristics like knowledge, creditability, market and network access but also future possibilities, such as the ability and willingness to learn, grow and adapt.
This paper has contributed to both the academic field and practitioners by expanding on the work of Cox et al., 2004b and Caniels and Roeleveld, 2009 and has presented ways for practitioners in both buyer and supplier companies to use this research to maintain alignment and appropriateness in their vendor relationships.
