Global outsourcing, explorative innovation and firm financial performance: A knowledge-exchange based perspective

Global outsourcing can be an effective strategy to reduce costs and gain access to worldwide knowledge, however, research reports conflicting results regarding its performance effects. Building on knowledge and relational capital literatures, I submit that firms experience higher cognitive and normative barriers in knowledge exchange in global outsourcing, and this causes explorative innovation to negatively mediate the relationship between global outsourcing and firm financial performance. However, this negative mediation effect can be positively moderated by building relational capital with foreign suppliers. I test the theory using data from 223 manufacturing firms in the Netherlands, and find support for the hypotheses.