Revisiting the Make-or-Buy Decision: Conveying Information by Outsourcing to Rivals

• DOI: 10.2308/accr-50579
• Publication Date: 2013-07-30T17:51:13Z
• Authors: Anil Arya; Brian Mittendorf; Dae-Hee Yoon
• Keywords: Strategic sourcing

ABSTRACT The textbook make-or-buy decision is typically described as choosing the cheaper of two sourcing options. However, research in accounting has consistently demonstrated that strategic and informational considerations often complicate such seemingly straightforward criteria. In a similar vein, this paper shows when firm becomes privy to information pertaining its profitability, choice powerful reverberations. This because input procurement from an outsider serves convey both profitability positioning. Conveying refers fact size order provides supplier credible signal firm's internal and, thus, relative ability compete marketplace. positioning upfront placement also informs about chosen choices We demonstrate sources conveyance together can point preferring buy inputs retail rival even it make them internally at lower cost. penchant for outsourcing more pronounced accurate system.