Outsourcing and its implications for market success : negative curvilinearity, firm resources, and competition

Over the past few decades, outsourcing has become a widely discussed and researched means for firms to change their performance. In this article, we attempt to link outsourcing to the market success of firms, specifically their market share. We argue that although firms may be able to increase their market share through outsourcing, this is only true up to a point, beyond which market share actually decreases as a consequence of further outsourcing. There is, in other words, a negatively curvilinear (inverted U) relationship between outsourcing and market share. We also hypothesize that the outsourcing?market share relationship is moderated negatively by both the strength of firm resources and the extent of competition in a firm?s market. We empirically confirm these arguments through a panel data analysis containing over 19,000 observations on manufacturing firms, and offer some case examples to illustrate the mechanisms driving these results. We discuss implications for marketing research and practice.