Designing global sourcing strategy for cost savings and innovation: A configurational approach

Despite the well-acknowledged benefits of global sourcing (e.g., location specific advantage) in the international business literature, research driven mainly by the transaction cost economics and resource based view has cautioned about its potential negative effects (e.g., hidden costs, hollowing out effect) which might offset its potential gain, leading to a failure to achieve expected outcome and capture the value created in global sourcing activities. We argue that this issue is primarily explained by the misalignment between a firm's global sourcing strategy and value expected from its global sourcing activities. This study examines the role of global sourcing strategy on financial and innovation performance of global sourcing activities. Using a fuzzy set qualitative comparative analysis on 235 firms engaging in global sourcing of business service activities, we identify configurations of global sourcing strategy—concerning (1) disaggregation, (2) dispersion of activities and (3) governance structure—that lead to high financial and innovation performance. The findings suggest that global sourcing strategy leading to high financial performance differs largely from global sourcing strategy leading to high innovation. While most studies selectively focus on one or two components of global sourcing strategy, our study highlights the need for firms to jointly consider the combined effect of degree of disaggregation, degree of dispersion of business service activities and governance structure as well as taking into account the expected outcome when crafting their global sourcing strategy.