Investigating strategic sourcing performance in response to an innovation shock : the role of knowledge, experience, and market dynamics

Abstract

Industry evolution starts with a major technological breakthrough also known as innovation shock. Innovation shocks are sometimes so fundamentally different from the previously dominant technology that incumbent firms need new knowledge and capabilities to cope with such innovations. Strategic sourcing decisions of incumbent firms can play an important role in acquiring the required knowledge and capabilities. In the later stage of the industry evolution competition begins to intensify. In order to successfully cope with strong competition, incumbent firms tend to follow a differentiation strategy i.e. offer products in small untargeted niches. The success of differentiation strategy also depends upon strategic sourcing decisions of incumbent firms. In three studies of this dissertation, I attempt to investigate the performance impact of strategic sourcing in different stages of industry evolution. In the first study, I attempt to investigate the role of market dynamics (competition and technological niche width) in the relationship between strategic sourcing and performance in the later stage of industry evolution. Despite there being numerous studies exploring the relationship between competition and vertical integration, the empirical findings regarding the nature of this relationship are still unclear. In first study, I suggest that technological niche width mediates the relationship between competition and vertical integration. In addition, technological niche width and vertical integration play complementary roles in enhancing firm performance. In the second study, I investigate the performance impact of outsourcing strategy in response to an innovation shock. In previous literature examining the performance impact of outsourcing, one stream of scholars has underscored the importance of prior green innovation experience, and another stream of scholars has underscored the importance of the in-house possession of outsourced component knowledge. However, the empirical findings regarding the positive role of both scholarly streams when studied separately are mixed and sometimes contradictory. I bridge these two distinct but related streams and suggest that prior green innovation experience and in-house knowledge regarding outsourced components play a complementary role in enhancing performance. In the third study, I found that the effect of outsourced components knowledge on product quality performance is greater at the later stage of the new product life cycle than of at the early stage. I examined the United States hybrid electric vehicle market from 1999 to 2017 for empirical support for the arguments presented in three studies of this dissertation. Specifically, I investigated firms' strategic sourcing decision regarding six main components of the drivetrain system of a hybrid electric vehicle. I gathered data from multiple proprietary and non - proprietary archival sources. The nature of the data utilized in this dissertation is an unbalanced short panel. I utilized fixed vs random effects for model estimation. I addressed the endogeneity issue by utilizing the two-stage least squares (2SLS) regression method with an instrumental variable approach. The arguments proposed in three studies of this dissertation have found empirical support. This dissertation provides us with an opportunity to better understand the relationship between competition, vertical integration and technological niche width.