Transaction Costs Lowering as a Motive for Multisourcing in the Information Technology

Barbara Łoboda

Abstract


Multisourcing is a relatively new phenomenon, that begun to grow in 2000’s with large multinational companies starting strategically to split large information technology (IT) service contracts into smaller and shorter ones, between best-of-breed suppliers both locally or offshore, who were supposed to collaborate to provide a seamless service. Multisourcing has been gaining in popularity, therefore it is worth to investigate what motivates firms to multisource. This knowledge can support development of this phenomenon and help firms gain advantage over competitors. Literature concerning interfirm cooperation suggests several motives: external challenges, existence of the shadow of the future, gaining an access to resources, learning, risk limitations, speed to market or current poor performance. However, one theory requires a closer focus due to its ambiguity with reference to multisourcing. It is the transaction cost economies (TCE). On the one hand, the theory suggests that firms choose a form of cooperation that lowers transaction costs. On the other, in case of multisourcing the transactions costs are not lowered but they are multiplied by as many partners as there are. This refers to costs such as: of search for supplier, coordination, contract completeness and setting a proper governance framework. The article proposes that multisourcing is not chosen by firms to lower transaction costs, but firms act to reduce the costs, at the stage of preparation and contract writing, contract execution and monitoring. In defense of the thesis, articles about multisourcing in the IT were analyzed to identify if the transaction costs theory refers to multisourcing. Articles were found in Computerworld, Computer Weekly and eWeek in 2000–2010. This qualitative method is useful for early stages of research on a topic, and research on multisourcing is still in its nascent stage.

Keywords:  

Transaction Cost Economies, Multisourcing

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