Outsourcing effects on firms' operational performance: An empirical study

This research aims to empirically investigate the effect of outsourcing on firm level performance metrics, providing evidence about outsourcing influences on a firm's cost-efficiency, productivity and profitability. This study is concerned with empirically examining the impact of outsourcing on a firm's performance. The results are based on a sample of 51 publicly traded firms that outsourced parts of their operations between 1990 and 2002. This research provides evidence that outsourcing can improve a firm's cost-efficiency. The research reveals no evidence that outsourcing will improve a firm's productivity and profitability. This research makes two contributions to both practice and theory. First, this is the first empirical study to examine the link between outsourcing implementation and firm-level performance metrics. Second, empirical evidence is provided of the difference between outsourcing firms' performance and their non-outsourcing competitors'. Outsourcing firms have an obvious significant advantage in cost efficiency over their counterparts which do not outsource any activities at the same time. They also may obtain more available resources from outsourcing to invest in other productive capacities.