Cannot make do without you: Outsourcing by knowledge-intensive new firms in supplier networks

How do new firms operating in dynamic environments organize their operations? Building on the transaction cost theory and the resource based view and using case study data from ten biotechnology start-ups and twenty of their suppliers, this research reveals that new firms outsourcing to highly-embedded suppliers are likely to secure access to a wider supplier network, attain best-in-class operational knowledge, and avoid supplier opportunism while facing low levels of relationship-specific investments. New firms outsourcing to suppliers at the network periphery are more likely to realize cost efficiencies, expose themselves to opportunism, uncertainty, and higher levels of relationship-specific investments but low levels of operational knowledge. We propose that new firms build five outsourcing competencies to realize benefits.

► We explore how new firms use outsourcing to access resources and the capabilities they need. ► Outsourcing to network-embedded suppliers enables new firms overcome liabilities of newness. ► Network-embedded suppliers open doors to best-in-class capabilities. ► New firms must manage costs associated with outsourcing to network-embedded suppliers. ► New firms must develop evaluation, relational, entrepreneurial, and integration competencies.