When suppliers shift my boundaries: Supplier employee mobility and its impact on buyer firms' sourcing strategy

• Published date: 01 September 2020
• Date: 01 September 2020
• Author: George Chondrakis,Mari Sako
• DOI: http://doi.org/10.1002/smj.3154

RESEARCH ARTICLE

When suppliers shift my boundaries: Supplier

employee mobility and its impact on buyer

firms' sourcing strategy

George Chondrakis

1

| Mari Sako

2

1

Universitat Ramon Llull, ESADE, Barcelona, Spain

2

Saïd Business School, University of Oxford, Oxford, United Kingdom

Correspondence

George Chondrakis, Universitat Ramon

Llull, ESADE, Av. Torreblanca 59, E-

08172, Sant Cugat, Barcelona, Spain.

Email: george.chondrakis@esade.edu

Funding information

Novak Druce center for professional

service firms - Said Business School;

Spanish Ministry of Economy and

Competitiveness, Grant/Award Number:

PGC2018-098610-B-I00

Abstract

Research summary:Buyer firms respond to supplier

employee mobility by reshuffling work among suppliers.

However, the extant literature has not considered plural-

sourcing firms which can bring work back in-house. In

this paper, we develop a governance framework in which

buyers engage in a comparative assessment of the costs

associated with different sourcing modes following sup-

plier employee mobility. Due to the imperfect transfer-

ability of social capital and associated uncertainty, buyers

face increased contracting costs when supplier employees

move. This prompts plural-sourcing buyers to increase

their reliance on insourcing when the costs of adjusting

in-house capacity are relatively low and when the costs of

switching to alternative suppliers are relatively high. The

analysis of data on patent prosecution activities and pat-

ent attorney mobility provides support to our theory.

Managerial summary:This study provides a decision

framework for buyer firms when their suppliers experi-

ence employee departures. Buyers may choose to

(a) stay with the suppliers suffering employee losses or

(b) follow mobile employees to their new suppliers.

However, in both cases contracting becomes more

Received: 9 November 2017 Revised: 13 January 2020 Accepted: 24 January 2020 Published on: 7 April 2020

DOI: 10.1002/smj.3154

This is an open access article under the terms of the Creative Commons Attribution-NonCommercial License, which permits use,

distribution and reproduction in any medium, provided the original work is properly cited and is not used for commercial purposes.

© 2020 The Authors. Strategic Management Journal published by John Wiley & Sons, Ltd. on behalf of Strategic Management Society.

1682 Strat Mgmt J. 2020;41:1682–1711.wileyonlinelibrary.com/journal/smj

difficult due to the disruption in supplier relationships

or the need to work with new suppliers. There is a third

option (c) though which is to bring work in-house. We

explain that buyers opt for option (c) when it is easy to

expand in-house capacity and when the costs of

switching to alternative suppliers already in use are rel-

atively high. Thus, supplier employee mobility may

lead buyer firms to adjust their reliance on outsourcing

even when there are no buyer employee departures.

KEYWORDS

employee mobility, firm boundary, patent prosecution, plural

sourcing, social capital

1|INTRODUCTION

What happens to supplier relationships when employees move? This is an important question, espe-

cially for knowledge-intensive firms where employees constitute a central, if not the only, part of

their contracting strategy (Coff, 1997; Dyer & Singh, 1998). The extant literature addresses this ques-

tion by focusing on human and social capital and their effect on work allocation among different

suppliers (Dokko & Rosenkopf, 2010; Wezel, Cattani, & Pennings, 2006). In particular, buyer firms

tend to follow employees when they move from one supplier to another (Broschak, 2004; Carnahan &

Somaya, 2013; Somaya, Williamson, & Lorinkova, 2008), but different employee or exchange charac-

teristics mitigate the adverse effect of employee departures on trading ties (Bermiss &

Greenbaum, 2016; Briscoe & Rogan, 2016; Broschak & Block, 2014; Raffiee, 2017; Rogan, 2014).

While this line of research has yielded important insights, it upholds an assumption that

firm boundary is fixed. This assumption implies that work can be reallocated among external

suppliers only. However, this is not always the case. Firms often engage in plural sourcing, that

is, carry out part of the work in-house (Bradach, 1997; Dutta, Bergen, Heide, & John, 1995;

Parmigiani, 2007; Puranam, Gulati, & Bhattacharya, 2013). Plural-sourcing firms may respond

to supplier employee mobility either by reshuffling work among suppliers or by changing their

relative reliance on making versus buying. But under what circumstances would firms choose

the latter, thus redrawing their boundaries?

We answer this question by developing a framework in which buyer firms engage in a com-

parative assessment of the costs associated with different sourcing modes following supplier

employee mobility. First, supplier employee losses increase buyers' costs of contracting with

suppliers due to the imperfect transferability of employee social capital. As boundary spanners,

employees develop “external”social capital (Nahapiet & Ghoshal, 1998; Somaya et al., 2008)

and contribute towards establishing “relational capital”between firms (Kale, Singh, &

Perlmutter, 2000). However, employees' external social capital is complementary to firm-level

relational capital (Perrone, Zaheer, & McEvily, 2003; Zaheer, McEvily, & Perrone, 1998;

Zaheer & Venkatraman, 1995). Hence, employees' ability to use their external social capital

diminishes when they move from one supplier to another.

Moreover, employees develop “internal”social capital that allows them to access intra-

organizational networks and mobilize firm resources (Adler & Kwon, 2002; Leana & Pil, 2006).

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