Causes of Service Receiver Opportunistic Behavior in Outsourcing Arrangements

Abstract

Parties acting opportunistically is a major concern in many outsourcing arrangements. The extant literature has focused mainly on opportunistic behavior of service providers and the safeguards that service receivers need to put in place to protect their interests. Service receivers can also act opportunistically; however, this side of a dyadic relationship is under researched. We address this imbalance in this paper. The focus is on establishing the causes of service receiver opportunism and strategies to manage this. Based on transaction cost economics theory, we developed a two-level model consisting of five factors that could give rise to service receiver opportunism. This model was tested with dyadic data from 51 outsourcing arrangements between firms in Australia. Data was analyzed using the linear mixed model method. Results show that three predictors were significant and positive in sign: business environmental uncertainty, performance ambiguity and ease of switching. The other two factors, investments made by service providers and number of providers, were not significant. One control factor, duration of arrangement, was significant and negative in sign. These findings show that, in contrast to what has been found previously for service providers, a smaller set of factors gives rise to service receiver opportunism. Furthermore, service receivers’ opportunism can be controlled by reducing business environmental uncertainty, reducing performance ambiguity, making switching tougher for service receivers, and opting for longer term arrangements.