How intra-firm and inter-firm expertise affect the sourcing decisions of technologically interdependent components
Theories of the firm generally posit that firms determine their boundaries through sourcing choices of individual components. However, this framework neglects the possibility for technological interdependence between components that can affect these choices and lead firms to make joint decisions for multiple components. Using resource-based theories, we explore this overlooked area by investigating how firms source technologically interdependent components and test our predictions by exploiting a rich dataset that includes sourcing choices several components, including pairs that are interdependent and those that are unrelated. We expand the range of choices from a make/buy dichotomy to a trichotomy that includes concurrent sourcing, which arises when firm simultaneously make and buy a given component. We find that firms tend to source technologically interdependent components via the same mode and that firm, intrafirm, and interfirm expertise tend to influence the choice of mode. Most strikingly, firms concurrently source technologically interdependent components when there is the opportunity to leverage the combined expertise of the firm and its suppliers. By contrast, expertise has little influence on common sourcing decisions of technologically unrelated components.
Parmigiani, A; Mitchell, W
Academy of Management 2007 Annual Meeting: Doing Well by Doing Good, Aom 2007