Strategic Outsourcing and Firm Performance: A Review of Literature

Abstract

Abstract: Despite the fact that firms collectively contribute to the socio-economic development of the national economy, most firms nowadays are face difficulties in maintaining superior firm performance; occasioned by unmanageable business environment uncertainty and changes. It is for this reason that the idea of strategic outsourcing has evolved in response to changes in the business environment and uncertainty. Despite vast empirical research on the relationship between strategic outsourcing and firm performance, there is limited research on influence of strategic outsourcing on firm performance in developing countries. the majority of studies on the subject have contradictory results, and some have methodological, contextual, and conceptual gaps. Thus, there is currently conflicting evidence from the body of literature regarding the impact of strategic outsourcing and firm performance generally, so this research was necessary. The general objective of this study is to review conceptual, theoretical as well as empirical literature on the relationship between strategic outsourcing and, firm performance as well as the mediating effect of speed of service and moderating effect of competitive intensity on the relationship with the view of highlighting the knowledge gaps suitable to form basis for future research. The review of conceptual framework highlighted the historical development as well as the dimensions and perspectives of both strategic outsourcing and firm performance. It further discussed the speed of service delivery concept and the competitive intensity. The underpinning theories were; Resource Based Theory, Transaction Cost Economics Theory, Social Exchange Theory. The paper further reviewed extant empirical research on the manner in which strategic outsourcing relates to firm performance. It also reviewed focus as mediating variable and competitive intensity as moderator of relationships. Based on findings, the paper; proposed theoretical model to explain firm performance in terms of the indicators of strategic outsourcing and mediated by focus while it moderated by competitive intensity. In accordance with the reviewed literature, this paper concludes that service integration and management, offshore outsourcing, and multi-sourcing as measures of strategic outsourcing affect firm performance which is measured firm efficiency, firm profitability, competitive advantage, customer satisfaction and employee productivity. The relation is mediated by core competencies (measures of speed of service delivery) and moderated by predictability of a competitors’ market activity, hostility of a business’ s key competitors, and breadth of key competitors’ activities (measures of competitive intensity).