Abstract
This paper revisits the offshoring, outsourcing and performance relationship. We suggest that adopting a portfolio approach is important to study this relationship. Specifically, we examine the impact of diversity of sourcing portfolio of R&D projects on firm level performance. Sourcing portfolio refers to the spread of the firm’s R&D projects across different sourcing choices. Using ownership and geographic location as the two dimensions for our model, we examine the spread of a firm’s R&D projects across four sourcing choices: domestic in-house, domestic outsourcing, offshoring to a foreign subsidiary (captive offshoring), and offshore outsourcing. Our focal activity is drug development, a component of the biopharmaceutical industry’s R&D, and the unit of analysis is sourcing portfolio for R&D projects (clinical trials) of a firm. Using data from a unique database, CROCAS, we examine the impact of sourcing portfolios for 98 firms during the period of 1997- 2008. We find that firms that have a more diversified sourcing portfolio indeed have better firm level performance. However, when we divide the projects by core and non-core therapeutic areas, we find that firms that do not diversify their core projects perform better while those who diversify their non-core projects also improve their performance.
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