We seek to advance our understanding of outsourcing decisions in knowledge-based activities by examining the relative advantages in three types of knowledge – professional, domain, and firm-specific – between external suppliers and internal functions within the firm. By drawing on mutually reinforcing advantages in the client and labor markets, suppliers may develop systematic advantages in expert professional knowledge relative to clients. Prior outsourcing decisions in turn influence the relative domain and firm-specific knowledge held by supplier versus client firms, leading to path dependent patterns in outsourcing. We leverage a unique dataset on outsourcing in the patent legal industry to test our propositions; however, our work has implications for outsourcing decisions and knowledge-based services more broadly.
Available at: http://works.bepress.com/ian_williamson/4/