and alliance relationships, in particular the trend towards strategic
outsourcing and supply chain management. It also examines the
critical ingredients for successful alliances and partnerships.
Strategic outsourcing
For many years companies have bought goods and services from
other companies and thus it might seem that there is little new in the
idea of outsourcing. However, in the past the tendency was to sub-
contract rather than to outsource. The difference is more than
semantic. In the conventional model, organizations would seek to
subcontract those activities that could be more cheaply or efficiently
performed by others. There was little strategic thinking underpin-
ning such decisions. Economists have sought to explain this behav-
iour by reference to ‘transaction costs’.1, 2 Under this model,
companies will retain activities in-house if the external price plus
the transaction costs are greater than the internal cost of performing
this activity. Transaction costs reflect any inherent risk, the need for
specific assets and the costs of negotiating and managing the sub-
contract arrangement.
It has been argued^3 that if an external firm can find a way to cover
the transaction costs such that the external price is now less than the
internal cost plus the transaction costs, then the basis for a relation-
ship exists. However, we would suggest that strategic outsourcing
decisions should be made on a broader basis than simple economics
alone.
Porter^4 has suggested that the basis for competitive advantage
comes through focusing upon that part of the value chain where the
firm has either a distinctive cost or value advantage. A cost advan-
tage implies that for one reason or another the firm is able to
perform that activity at less cost than others can. A value advantage
means that the firm can perform the activity in a distinctly different
way and thus create superior value for customers. Hence the argu-
ment has been made that organizations that do not have either a
cost or a value advantage in specific parts of their value chain
should outsource those activities to firms that do have such an
advantage.
Thus, the basis for strategic outsourcing now becomes firmly
rooted in the search for competitive advantage in the marketplace.
The supplier and alliance market domain 165