ABSTRACT
The importance of cost economies in outsourcing decisions is largely based on the Transaction Cost Economic Theory, developed first by Coase and updated revised, almost fifty years later, by Williamson. Outsourcing is a growing phenomenon in industries where firms are mainly committed to redefining their operating model and updating competitive advantage through product innovation development involving intense collaborative relationships between buyers and suppliers. However, building and managing supplier relationships can be time-consuming, needing substantial relation-specific investments. It also requires the ability to select suppliers, define the goals of the outsourcing relationship and key performance indicators, and set up a system to measure them and distribute the benefits resulting from the outsourcing relationships. Innovations arising from the early involvement of suppliers vastly reduce time-to-market compared with home-grown efforts.
