Outsourcing manufacturing and its effect on engineering firm performance

Despite the proclaimed advantages and popularity of outsourcing, there are few and contradictory studies of the effects. The main purpose of this paper is to analyse how outsourcing manufacturing relates to performance and innovation at the plant level. A second purpose is to analyse how this outcome relates to investments in manufacturing capability. This paper is based on the results of a large-scale survey of outsourcing and manufacturing practices among a representative sample of Swedish engineering firms. The results show mainly no significant effects from outsourcing manufacturing on plant operating performance or innovation capability. This paper, however, reveals that the firms' investments in technological and organisational capabilities explain the improvements of performance at the plant level to a significantly higher extent than outsourcing does. This paper concludes with a suggestion to further analyse the potential of combined outsourcing and manufacturing strategies.