The aim of the paper is to investigate how far transaction cost based explanations of outsourcing interact with other less stylized explanations related to the firm’s embeddedness in time and space. The theoretical background is the idea that firm’s transactions, in general, and outsourcing, in particular, are crucially affected by the contractual and technological relationships the firm has developed over its history being embedded in a specific territorial context. At first, a set of theoretical correlations are identified between outsourcing decisions, on the one hand, and outsourcing variables related to transaction costs and to other less standard determinants, on the other hand. These correlations are then tested with respect to a representative cross-sectional sample of firms of a local production system in Emilia-Romagna (Reggio Emilia, Italy). The main result of the paper is that outsourcing decisions can be accounted in terms of transactions costs only marginally, while they appear affected by the organizational and industrial relations typical of the context firms are embedded in.
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