Capabilities as shift parameters for the outsourcing decision

In this paper, we argue that capabilities serve as shift parameters that result in a change in the critical value of asset specificity at which firms switch from in-sourcing to outsourcing. Capabilities have two effects: they result in a change in firm production costs and in firm governance costs relative to the market. As a result, the frontier at which market governance gives way to firm governance shifts. Three factors that produce such...