Strategies for Intrafirm Transfers and Outside Sourcing

The proposition that firms' policies concerning internal purchases and sales of goods and services vary systematically according to competitive conditions and corporate climate is examined. The Profit Impact of Market Strategies (PIMS) database is used to replicate, in part, results obtained from field interviews. Two hypotheses are tested: 1. Firms are likely to undertake more intrafirm transfers within settings of competitive stability and low demand uncertainty than in other settings. 2. Firms that make numerous internal transfers in other settings do so because they lack bargaining power or because vertical integration suits their parents' corporate strategy needs. The results suggest that vertical integration is not a homogeneous strategy used by all firms in the same way under the same circumstances. Relationships exist among uncertainty, competitive conditions, bargaining power, and the types of internal transfers deemed necessary by firms' corporate strategies.