Outsourcing, Knowledge, and Learning: A Critical Review

Introduction

Outsourcing of manufacturing and service activities is an accelerating trend (Bustinza, Molina & Gutierrez-Guiterrez 2010; Iqbal & Dad, 2013; Kumar, Deivasigamani & Omer, 2010). Outsourcing usually refers to a process of transferring certain activities of a firm to third party providers within a country or offshore location (Iqbal & Dad, 2013). According to the literature, a frequent rationality for outsourcing is cost reduction, such as labour costs, less-restrictive work rules abroad, transport, travel, reduced capital expenditure, cheaper raw materials and other costs. This also refers to indirect costs which might be decreased, for example by reducing staff, simplifying infrastructure, and applying stricter cost control (see Di Gregorio, Musteen & Thomas., 2009; Kremic, Tukel & Rom, 2006; Lacity, Solomon, Yan & Willcocks, 2011; Quinn, 1999). Cost driven outsourcing is relevant to transaction cost economics (Williamson, 1979) which focuses on the costs related to monitoring performance, managing contractual obligations, and supervising staff. As a result of specialization and economy of scale, outsourcing can earn a company sufficient savings to perform business functions more economically than other companies carrying out the same functions.

Another reason for outsourcing is more strategic in nature. Here the focus is on the core competencies of organisations other firms have difficulty in copying. This direction is due to intense competition which forces organisations to reassess and redirect their scarce resources towards their core business functions in order to enable them to expand successfully to worldwide reach. The emphasis on a strategy-driven outsourcing model is linked to the resource-based view of the firm. This examines those resources and capabilities of companies that enable them to generate above-normal rates of return, as well as a sustainable competitive advantage (Barney, 2001). Rare and precious resources, not easily copied, are regarded as core competencies. Such resources should be supported, while others are considered as more suitable for outsourcing (Barney, 1991). Quinn (1999) maintains that these critical resources or capabilities tend to be knowledge-based service activities or systems at which the company excels and which are of particular importance to the customers. Another widely cited rationale for outsourcing is to gain access to unique resources, skills, talents and capabilities possessed by other firms, such as the latest technology and infrastructure. Greater flexibility in managing demand swings, and reducing company risk by sharing it with suppliers are also mentioned as motives for outsourcing (see Kremic et al., 2006; Di Gregorio et al., 2009; Lacity et al., 2008; Quinn, 1999; Tam, Moon, Ng, & Hui 2007; Vietor & Veytsman, 2005).

The decisions behind outsourcing tend to change the value chain, production processes, and organisational design. Alterations in the production process or the organisation of a business, in which other actors take part, can result in both new challenges and novel opportunities. Although the outsourcing process has been extensively studied (see Edvardsson & Durst, 2014; Iqbal & Dad, 2013; Lacity et al., 2011), there is still only a limited body of knowledge on the consequences of outsourcing on corporate knowledge management and organisational learning.