Business service outsourcing in manufacturing firms: an event study

Abstract

Purpose Many manufacturing firms entrust partners to provide services on their behalf. However, it is not clear whether and when firms can capture the potential value advantages of outsourcing business services. The purpose of this paper is to investigate the effects of different types of business service outsourcing on firm value. Design/methodology/approach The paper uses event study methodology to estimate the impact of business service outsourcing announcements on abnormal returns of publicly traded manufacturing companies in Europe. Findings External service outsourcing that directly affects the company’s customers leads to more favorable outcomes than internal service outsourcing. This effect is contingent on the strategic outsourcing intention, the service’s reliance on technology, and the choice of the outsourcing partner. Research limitations/implications Findings show that firm value depends critically on the service value it delivers to customers. Future research could explore further contingency variables, and investigate the role of service outsourcing networks and relationships. Practical implications The insights of this study help managers to decide why, how, and to whom they should outsource their business services, as well as how to justify their outsourcing decisions, and how to communicate them toward the financial markets. Originality/value This research sheds light on the value implications of outsourcing decisions. Two types of business service outsourcing are distinguished, namely, internal and external. Furthermore, the study enhances our understanding of a contingency perspective on service outsourcing decisions.

The outsourcing practice among small knowledge-intensive service firms

“…Advances in information and communication technology (ICT) have helped firms of different sizes to pursue the outsourcing of value-creating activities such as software development, engineering and research and development (Hui et al , 2008). Also, ICT service outsourcing tends to bring companies more benefits than other business process outsourcing (Eggert et al , 2017).…”

“…In a similar manner, Baguzova et al (2017) claim that despite its maturity, the outsourcing sector is still understudied, and Eggert et al (2017) argue that it is unclear in which settings manufacturing firms can realize the potential advantages of outsourcing business services while keeping the possible disadvantages at an acceptable level. The present paper responds to this situation by addressing outsourcing in service firms, with a special emphasis on knowledge-intensive firms (KIFs).…”

“…Research on outsourcing in KIFs is rare, in general, and the limited empirical research on business service outsourcing mainly investigates non-financial outcomes (Eggert et al , 2017). To fill the gap, this paper presents findings on outsourcing among service firms in Iceland, where the prime focus is on knowledge-intensive service firms.…”

Process Innovation in Service Sector Matching Industry 4.0 Environment

“…The invested capital reduction comes from the more flexible assets, the reduction of labour costs, the reduction of waiting times and the reduction of waste [5] But in spite of this statement a systematic understanding of the financial consequences of business service outsourcing is missing [17]. According to Gartner Inc. (2005), more than 60 % of business services outsourcing arrangements fail and entail additional risks [11].…”

Recommending blue ocean technologies for subcontractors: A framework based on business reports of prime contractors and patents

“…Subcontracting, also called outsourcing, is an efficient and economical method for prime contractors to access the resources they need [ 1 , 2 ]. Subcontractors are useful partners for prime contractors to diversify their market risks by reducing their operating costs and increasing their competitive advantage [ 3 ].…”