Information Technology Outsourcing: Influence of Supplier Firm Size and Reputation on Buyers’ A Priori Perceptions of Opportunism and Uncertainty

Growth in outsourcing has led to a renewed focus on vendor and/or business partner evaluation and selection criteria as inept selection can have an adverse impact on core organizational outcomes such as revenues and profitability. Outsourcing activities include use of a third party to perform a variety of business functions such as contract manufacturing, sales, distribution, public relations, and information technology (IT) management. While transaction cost analysis (TCA) researchers have extensively studied outsourcing arrangements, they have not examined how vendor firm characteristics affect buyers’ a priori or pre-contract perceptions of opportunism and uncertainty during the vendor evaluation phase. Similarly, while the procurement research stream has identified and explained a range of supplier characteristics and their effect on buyer’s vendor selection processes, it lacks integration with TCA. This paper purports to advance both TCA and vendor selection research streams by studying the influence of supplier firm size and reputation on buyers’ pre-contract perceptions of opportunism and uncertainty. Higher opportunism and technological uncertainty perceptions in a pre-contract stage can prevent a vendor or channel partner from winning business. Support is found for a relationship between vendor firm reputation and buyers’ a priori perceptions of opportunism and uncertainty. Results further show that stronger reputation can mitigate the perception of opportunism, larger firm size, on the contrary, raises the degree of perceived opportunism. Results also support a relationship between opportunism and technological uncertainty.