The literature review has employed various studies that provide diverse results based on the influence of outsourcing on the performance of a vertically integrated product. Marino et al. (2015) observe that the level of outsourcing among joint component usage market of Formula 1 shifts the level of exploitation of the two firms into enhanced exploration. The study highlights that the outsourcing in the Formula 1 market results in immense challenges that are related to the architectural fit of the products, which can have an impact on the performance of the Formula 1 racers (Marino et al. 2015, p. 1089). Firms that engage in enhanced explorations face difficulties that result from the radical regulatory changes that can lead to the architectural redesign of the products, reliability issues, as well as, modular architecture problems (Marino et al. 2015, p. 1090). These issues have been reported to have an adverse bearing on the performance of high exploration firms in the Formula 1 market. Rothaermel, Hitt & Jobe (2006), highlight that the interaction between a firm’s level of vertical integration and strategic outsourcing results in a positive impact on the number of related products in its portfolio.
The study asserts that the individual impacts of strategic outsourcing are enhanced by the extent of vertical integration of the firms (Rothaermel, Hitt & Jobe, 2006, p. 1045). The situation portrays that in the case of Formula 1, which is vertically integrated, the firms would benefit from improvements in their product portfolio through the strategic outsourcing aspect. The study also finds out that the presence of taper integration in the organization has a positive impact on the new product success, as well as, enhancing the size of the product portfolio (Rothaermel, Hitt & Jobe, 2006, p. 1045). It is, therefore, relevant to state that firms in the Formula 1 can gain from new product success through strategic outsourcing based on the fact that they engage in vertical integration. Li et al. (2006) find out that strategic outsourcing enhances the supply chain management of the organization, which has positive impacts on the performance. The study reveals that the engagement in strategic outsourcing among vertically integrated products would be relevant in promoting the productivity of the firm, as well as, reducing the cycle time and inventory of the firms (Li et al. 2006, p. 111).
The long-term impacts of strategic outsourcing according to the study include increased profits and market share for all the firms in the supply chain. The study also points out that an organization can benefit in enhanced competitive advantage because the change in environment enables exploration, which also leads to the architectural redesign for differentiated products (Li et al. 2006, p. 111). The differentiated products achieved would have a greater competitive advantage on the market. Zirpoli & Becker (2011), outline that the level of engineering and design outsourcing undertaken by organizations in a joint component market would have an impact on the knowledge base of the firm. The study highlights that organizations benefit from increased knowledge base that is significant in improving their core competencies, thus, enhancing their performance on the market (Zirpoli & Becker, 2011, p. 33). The study, however, finds out that the product performance of the organization cannot be affected by outsourcing the engineering and design if the market is not a joint component usage among the firms (Zirpoli & Becker, 2011, p. 33).
In the context of the research, it can be validated that firms can benefit from enhanced product because the research is based on a joint component usage market. Inkpen (2008) found out that engaging in outsourcing or alliances with firms in joint component markets has significance in enhancing the level of knowledge sharing among the firms. The study highlights that both GM and Toyota gained considerable knowledge during the NUMMI joint venture. According to the study, firms can learn on how to improve the efficiency of their organizational processes, as well as, overcoming casual ambiguities that would prevail on the market (Inkpen, 2008, p. 450). As such, the level of product integration and strategic outsourcing would have relevance in enhancing the performance of the organization because of the improved organizational processes, as well as, heightened exploration in architectural designs among the firms. The analysis portrays that outsourcing from a competitor would be relevant because of the knowledge sharing and the level of exploration gained by the firms. The result is that organizations will enjoy increased performance based on this level of outsourcing.
- Inkpen, A.C., 2008. Knowledge transfer and international joint ventures: the case of NUMMI and General Motors. Strategic Management Journal, 29(4), pp.447-453.
- Li, S., Ragu-Nathan, B., Ragu-Nathan, T.S. and Rao, S.S., 2006. The impact of supply chain management practices on competitive advantage and organizational performance. Omega, 34(2), pp.107-124.
- Marino, A., Aversa, P., Mesquita, L. and Anand, J., 2015. Driving performance via exploration in changing environments: evidence from formula one racing. Organization Science, 26(4), pp.1079-1100.
- Rothaermel, F.T., Hitt, M.A. and Jobe, L.A., 2006. Balancing vertical integration and strategic outsourcing: effects on product portfolio, product success, and firm performance. Strategic management journal, 27(11), pp.1033-1056.
- Zirpoli, F. and Becker, M.C., 2011. The limits of design and engineering outsourcing: performance integration and the unfulfilled promises of modularity. R&d Management, 41(1), pp.21-43.