Abstract

The theories of transaction cost economics (TCE) and the resource-based view (RBV) have been applied in studies of outsourcing. The research presented in this study was conducted to gain an understanding of why firms outsource their value chain activities, using a combined TCE and RBV perspective. The research assesses how six instant coffee firms in Brazil perceive the rationale for their outsourcing processes. The authors conclude that the two theories should be used together to determine a firm’s frontiers, and they offer a mechanism for combining them. The results, relevant to both academics and practitioners, reveal that outsourcing should be defined at two stages: an initial strategic stage in which the activities that should be performed internally are identified, based on RBV, and a second stage in which the activities that can be performed externally are examined and those that should be outsourced are identified on the basis of both TCE and RBV. Insights relevant to practitioners include the importance of the executive leadership role in defining a firm’s outsourcing strategy and the need for constant vigilance to prevent opportunism in relationships with trading partners.