The importance of contextual factors in the success of outsourcing contracts in the supply chain environment: The role of risk and complementary practices

Purpose: Although outsourcing has emerged as a key business practice in global supply chain management it has not always been successfully adopted. Since the reasons for outsourcing success and failure are underexplored this research aims to investigate the role of contractual completeness and complementary enforcement practices such as cooperation and monitoring and sanctioning practices under varying risk scenarios. Critically, these relationships are examined in the context of two serious risks: legal risk in the guise of rule of law and supplier non-conformance risk. Design/methodology/approach: Cross-country, survey data was collected through the global manufacturing research group and combined with secondary data from the World Bank. The authors carried out a series of regression analysis to explore their research questions. Findings: The results indicate that risk is a critical component of outsourcing success with legal risk reducing outsourcing performance on both cost and quality and supplier risk reducing outsourcing performance on quality. The results also indicate that these outcomes can be mitigated in some settings via complete contracts and complementary practices. These findings are likely to be generalized throughout the supply chain and are of relevance beyond the dyad. Originality/value: In the realm of supply chain practices this study presents a comprehensive attempt to assess the importance of risk and complementary practices for the success of outsourcing contracts. Furthermore, it assesses the role of contextual factors such as risk and the rule of law.