Production Outsourcing and Firm Performance: An Empirical Analysis of Japanese Manufacturers

The purpose of this article is to illustrate the best form of governance for optimizing firm performance. Developed on the basis of transaction cost economics and capability theory, I test hypotheses using a dataset comprised of 1,421 Japanese manufacturing firms between 2007 and 2011. Results of these analyses demonstrate that the relationship between the degree to which a firm engages in outsourcing and its performance is parabolic in shape. This relationship has not been extensively found in past research. Ultimately, this article suggests that there exists a U-shape relationship between a firm’s outsourcing rate and its performance