Performance of Industrial Services Outsourcing: A Field Study of Services Coordination in a Brazilian Steel Company

22 Pages Posted: 17 Nov 2009

See all articles by Andre C. B. Aquino

Andre C. B. Aquino

School of Arts, Sciences and Humanities - University of Sao Paulo; School of Arts, Sciences and Humanities - University of Sao Paulo

Alexsandro Broedel Lopes

Universidade de São Paulo; Manchester Business School

Date Written: July 15, 2009

Abstract

This research analyzes if the measurement costs of a traded good’s attributes reduce control sharing in contracts for the provision of industrial services, as forecasted by the contract theories of measurement and transaction costs. Theoretically, when an industry outsources an activity it used to perform internally, it yields partial or full control on the execution of the service and maintains service quality monitoring rights. The choice of the control level the contracting industry exerts on the service provider would affect that activity’s economic income. In a field study, 80 non-spot transactions at an iron and steel mill were analyzed, representing 81% of the mill’s annual service budget. In a quantitative approach, the contract documents were subject to content analysis. The evidences observed in the contracts were triangulated with interviews held with supervisors and operators, in addition to critical observation of the services involved in the mill’s production process. Through the contract design, the results confirm that the measurement costs of the contracted services, directly related to the complexity of the activities involved, encourage control maintenance by the contractor, deriving from lower expectations of using legal enforcement of the contracts and additional use of extra-contractual enforcement mechanisms. In addition, the misalignment between the enforcement mix expected by theory and what is found in practice influences service performance.

Keywords: Transaction cost, Incomplete contracts, Controllership, Industrial services, Outsourcing

JEL Classification: G31

Suggested Citation

Aquino, Andre C. B. and Broedel Lopes, Alexsandro, Performance of Industrial Services Outsourcing: A Field Study of Services Coordination in a Brazilian Steel Company (July 15, 2009). Available at SSRN: https://ssrn.com/abstract=1507815 or http://dx.doi.org/10.2139/ssrn.1507815

Andre C. B. Aquino (Contact Author)

School of Arts, Sciences and Humanities - University of Sao Paulo ( email )

São Paulo
Brazil
55 16 992770889 (Phone)

HOME PAGE: http://www.usp.br

School of Arts, Sciences and Humanities - University of Sao Paulo ( email )

Alexsandro Broedel Lopes

Universidade de São Paulo ( email )

Av. Prof. Luciano Gualberto 908
São Paulo, 05508-900
Brazil
+55 11 3091 5820 (Phone)
+55 11 3813 0120 (Fax)

Manchester Business School

Booth Street West
Manchester, M15 6PB
United Kingdom

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