A new study finds that often cited, Nobel Prize-winning work in corporate governance theory is fundamentally flawed.
The implications are immediately apparent, as some of the world’s top companies utilize this award-worthy research to make outsourcing decisions all the time—which includes the generalization that proper outsourcing will improve performance metrics whereas unnecessary outsourcing results in degradation. But according to the work recently published in the Global Strategy Journal , previous outsourcing studies assumed that governance model and outsourcing location were independent from one another when they are inextricably linked.
The paper, “Are Governance Mode and Foreign Location Choices Independent?”—by Michael J. Leiblein, Ohio State University; Marcus M. Larsen, Copenhagen Business School; and Torben Pedersen, Bocconi University—paints a vivid portrait of how its conclusions can have a direct impact. By considering governance and location together, companies looking to outsource will not only produce more accurate data points but, ultimately, save time and encourage a stronger return on investment.
The relationship between governance and location can be observed on a granular level. For example, the study’s authors found that links exist between the number of suppliers in a country and the level of experience its local firms have within the industry, as well as the latter’s relationship to the complexity of the business problem. Similarly, the amount of production experience is correlated to the physical distance between locations. These figures may seem unrelated, but when taken together, they highlight just how many biases could arise if considered separately.
“Overall, our paper suggests new opportunities to bridge the governance and location literature streams by more fully recognizing the correlations and potential feedback loops between governance and location choices,” write the authors, “and by highlighting the importance of interdependent choices.”
The authors suggest that future research in this area focus on determining whether choosing governance first, location first or both simultaneously demonstrates additional variability. They also hope to identify what types of laws and politics have the most impact on the outsourcing decision, saving time and potentially increasing the return on investment.
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The Global Strategy Journal ( GSJ ), founded in 2011, is the leading journal on global strategic management research. The GSJ welcomes theoretical pieces that aim to extend current thinking and introduce new ideas, concepts, frameworks, models or relationships explaining global strategic management. The GSJ welcomes studies that establish links between strategic management and other disciplines (e.g., economics, political economy, history, law, psychology, sociology, geography, international relations, etc.) as long as the focus of the study is on global strategy and impact the general discipline of strategic management.
GSJ is published by the Strategic Management Society (SMS), an association comprised of 3,000 academics, business practitioners, and consultants from 80 countries that focuses on the development and dissemination of insights on the strategic management process, as well as on fostering contacts and interchanges around the world. To find out more about SMS’s scientific and educational programs in strategic management, please visit www.strategicmanagement.net.
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Are governance mode and foreign location choices independent?
28-Sep-2021