Cannot make do without you: Outsourcing by knowledge-intensive new firms in supplier networks

How do new firms operating in dynamic environments organize their operations? Building on the transaction cost theory and the resource based view and using case study data from ten biotechnology start-ups and twenty of their suppliers, this research reveals that new firms outsourcingto highly-embedded suppliers are likely to secure access to a wider supplier network, attain best-in-class operational knowledge, and avoid supplier opportunism while facing low levels of relationship-specific investments. New firms outsourcing to suppliers at the network periphery are more likely to realize cost efficiencies, expose themselves to opportunism, uncertainty, and higher levels of relationship-specific investments but low levels of operational knowledge. We propose that new firms build five outsourcing competencies to realize benefits. (C) 2012 Elsevier Inc. All rights reserved.