Journal of Robotics, Networking and Artificial Life, Vol. 3, No. 3 (December 2016), 205-208

The TCE-RBV Framework for Information Systems Outsourcing: Empirical Testing using
Survey Data in Japan
Seigo Matsuno*, Shin-ya Tagawa, Yasuo UchidaDept. of Business Administration, National Institute of Technology, Ube College, Ube, Yamaguchi 755-8555, Japan
Tsutomu Ito, Takao Ito

Graduate School of Engineering, Hiroshima University, Higashi-Hiroshima, Hiroshima 739-8527, Japan*Corresponding author, E-mail: matsuno@ube-k.ac.jp
Tel: +81-836-35-4016, Fax: +81-836-35-4016

Abstract
This paper investigates the factors that influence the motives of make-or-buy decisions on information systems
from the viewpoints of Transaction cost economics (TCE) and the resource-based view (RBV). Using our originalquestionnaire survey data carried out in 2007 targeting Japanese firms, we analyze the relationships between therecognition related to the role of their information systems and the pattern of their make-or-buy decisions. As aresult, we make it clear that there are two cases in which TCE-motive and RBV-motive are complement orcontradictory each other. And in latter case, TCE-motive tends to dominate over RBV-motive. Finally, theimplications for theory and practice are discussed.
Keywords: Information systems outsourcing, Make-or-buy decisions, Transaction cost economics, Resource-basedview

1. Introduction
Up to now, two influential perspectives of outsourcing,that is, Transaction cost economics (TCE) and theresource-based view (RBV) have been both making avaluable contribution to understanding and explaining
the complexities of outsourcing. However, thediscussion has treated TCE and RBV as independent
approaches to the outsourcing decisions. This paper
investigates the factors that influence the motives ofmake-or-buy decisions on information systems (IS)from the viewpoints of TCE and the RBV.
This paper is organized as follows. In Section 2, we
briefly review some previous arguments of the IS
outsourcing. After reviewing the relevant literature on
the IS outsourcing, we analyze the relationships
between the recognition related to the role of theirinformation systems and the pattern of their make-orbuy decisions. The TCE-RBV framework is tested
empirically by using our original questionnaire survey
data targeting Japanese firms in Section 3. In Section 4,

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Seigo Matsuno, Shin-ya Tagawa, Yasuo Uchida, Tsutomu Ito, Takao Ito

we discuss the implications derived from the results ofthe statistical testing. Finally, in Section 5 we conclude
by a summary of this paper.
2. Literature review on IS outsourcing
2.1. Transaction-based perspective
TCE posits that organizations prefer insourcing whenthe market costs are higher than internal governancecosts [1]. Markets generally lead to smaller production
costs, because of economies of scale obtained bysuppliers and/or vendors. However, markets lead tohigher transaction costs arising from three principal
attributes of transactions: asset specificity, uncertainty,
and frequency [2].
Asset specificity for the IS outsourcing has twoaspects; for business of a client company supported by
the developed information systems, and for technologies
which external vendors utilize. If the business that aclient company outsources is unusual, external vendors
have to be familiar with the business so that the asset
specificity will occur and increase on mainly humanresources. Similarly, if technology used by externalvendors is very specific, it will be difficult to use theinformation systems for other purposes on the clientcompany. Due to the investment to these unusual assets,
the transaction costs would increase.
Hence, if it is necessary to reduce the risk ofopportunism resulted from asset specificity and torestrict the increase of transaction costs, insourcing or
quasi-outsourcing would be selected.
2.2. Resource-based perspective
The RBV of the firm posits that organizations preferinsourcing when a resource or capability is strategic so
as to enable them to sustain competitive advantage [3].
It builds upon four properties of a strategic resource:
economic value, rareness, imperfect imitability, andnon-substitutability. The RBV is important to the studyof the IS outsourcing, as superior performance achievedin the IS activities related to external vendors wouldexplain why such activities are performed internally.
Thus understanding of managerial resources as anadvantage for the company is called “corecompetencies” in general today. Prahalad and Hamel(1990) defined the core competence as “a combinationof technologies and production skills which is based on

the company's infinite product lines” [4]. This concept
is understood more broadly today and is recognized as
their own resources and abilities, which are hard to beimitated and implemented by other companies, as asource of the company's sustainable competitive
advantage.
From the viewpoint of the RBV, competitive
advantage of organizations can only be achieved
through a focus on core competencies, the managementof organizations have chosen to concentrate on what anorganization does better than anyone else while
outsourcing the rest.
2.3. The TCE-RBV Framework
The large number of studies of the IS outsourcing waspublished in the past [5]. Especially, in the previous
study on the two patterns of the IS outsourcing, some
focus on factors of the influence on its selection. Forinstance, Barthelemy and Geyer (2005) classify thefactors of the influence on the choice of either
conventional outsourcing or quasi-outsourcing into
internal and external factors [6]. They focus on testingsome hypotheses which are suggested based on the TCE
approach, but they do not refer to the RBV arguments.
TCE and the RBV approach are treated as
independent argument so far, but each theoreticalperspective alone cannot fully describe the phenomenaof the IS outsourcing. Then there is a growing bodies ofresearch on the recognition that the TCE and the RBV
are complementary one another [7].
McIvor (2009) integrated TCE and the RBV
perspectives into a framework specifically assessing theoutsourcing decisions [8]. The TCE dimension of thisframework focuses upon the potential for opportunism
in any outsourcing decision. The RBV dimension
focuses upon a firm's resource position against potential
suppliers or competitors. This conceptual framework(see Fig. 1) suggests that for an activity in which thefirm has a weak resource position or capability, and thepotential for opportunism is low, outsourcing is the bestoption. In the opposite case, where a firm enjoys strong
resource position and potential for opportunism is high,insourcing is the best answer. This framework implies
not only complementary but also contradictory
prescriptions of the RBV and TCE in outsourcing
decisions due to the inherent conflicts between the twotheories [9].

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The TCE-RBV Framework forFig. 1. The TCE-RBV Framework. (Adapted from McIvor,2009.)

3. Data and Method
3.1. Data collection
We conducted a mail questionnaire survey from July to
September 2007 with the research objective ofinvestigating “the current state and issues in IS
outsourcing and inter-firm collaboration”. Sinceordinarily the implementation of IS outsourcing is likely
to be affected by a firm size, we targeted Japanese firms
with 500 or more employees in this survey. The numberof valid response rate obtained from randomly sampledfirms was 25.9%, but detailed results are omitted here.
3.2. Constructs variables and operationalization
In this study, it is postulated that both ‘TCE-motive’attaching importance to the logic of TCE and ‘RBVmotive’ attaching importance to the logic of the RBV
affect make-or-buy decision making on information
systems. And we assume that these two constructs
consist of each four question items shown in Table 1.
Each score (6-point scale) obtained directly from eachquestion item is regarded as an interval scale.
Here, we omit exploratory factor analysis process
for examining the validity of the assumed constructs
variables and use the value obtained by dividing thetotal of the values of the items pertaining to eachconstruct variable by the number of items. The
reliability of the measurements was calculated using theCronbach's α.

Table 1. Status of the recognition related to the roles of ICT
and information systems
Construct
Items
TCE-motive
1. Even if the company's own information(α = 0.73)
systems are outsourced, it isn't expected
to reduce the cost concerning them.
2. When the company's own information
systems are outsourced, it isn't expectedto accumulate skills and know-how
concerning them.
3. When the company's own information
systems are outsourced, there is a riskthat it would be dependent excessively
on a specific vendor.
4. When the company's own information
systems are outsourced, it isn't possible tocorrespond to internal users' needs
rapidly.
RBV-motive
1. ICT is very important to reduce the cost
(α = 0.80)
of the company's products and services.
2. ICT is very important to improve thequality of the company's products andservices.
3. ICT is closely related to and operated
integrally with the execution of thecompany's core business.
4. ICT is an important infrastructure which
supports the execution of the company'score business.
Note: Each item is measured by 6-point scale. 1 = It does not
apply at all. 6 = It applies fully.

Then, we classified sample data into 4 groups basedon the average value of each construct variable. For
example, LOSR (Lower potential for Opportunism andSuperior Resource position) group means that theaverage value of TCE-motive is lower than the averagevalue of the whole and the average value of RBVmotive is higher than the average value of the whole.
On the contrary, HOWR (Higher potential for
Opportunism and Weaker Resource position) groupmeans that the average value of TCE-motive is higher
and the average value of RBV-motive is lower thaneach average value of the whole.
4. Analysis and discussion
We conducted a chi-squared test between the 4 groups
mentioned above and the IS sourcing pattern(insourcing or outsourcing). Such a contingency table isshown in Table 2. The result was significant (χ2(3) =11.96, p = 0.01, Cramer's V = 0.26, power = 0.84) andtherefore the two variables are not independent. The

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Seigo Matsuno, Shin-ya Tagawa, Yasuo Uchida, Tsutomu Ito, Takao Itoevaluation of effect size was medium degree and powerof the test was a desirable level sufficiently.
In Table 3, from the multiple comparison testing
among 4 groups (adjusted p-value is based onBenjamini and Hochberg, 1995) [10], we found out thesignificant difference between each of HOSR–LOSR,HOSR–LOWR, LOSR–HOWR, LOWR–HOWR (χ2(1)= 4.92, p = 0.05; χ2(1) = 4.55, p = 0.05; χ2(1) = 5.34, p =0.05; χ2(1) = 5.00, p = 0.05, respectively).
Table 2. Contingency table of the relation between the 4groups and the IS sourcing pattern
Outsourcing
Insourcing
28
31
HOSR
(0.47)(0.53)
32
13
LOSR(0.71)(0.29)
31
13
LOWR(0.70)(0.30)
1419
HOWR(0.42)(0.58)
Note: The numerical value in each parenthesis is the relative
frequency in each row.
Table 3. Multiple comparison test among 4 groups
χ2dfadj. p
HOSR – LOSR
4.92
10.05
HOSR – LOWR
4.55
10.05
HOSR – HOWR
0.06
10.97
LOSR – LOWR
0.00
11.00
LOSR – HOWR
5.34
10.05
LOWR – HOWR
5.00
10.05

In light of the above analysis, the percentage of IS
insourcing is high by HOSR group, and the percentageof IS outsourcing is high by LOWR group conversely.
This means that TCE-motive and RBV-motive arecomplement mutually. On the other hand, thepercentage of IS outsourcing is high by LOSR group,and the percentage of IS insourcing is high by HOWR
group. Therefore, when TCE-motive and RBV-motive
are contradictory each other, TCE-motive tends torelatively dominate over RBV-motive.

cases in which TCE-motive and RBV-motive werecomplement or contradictory each other. And in latter
case, TCE-motive tends to dominate over RBV-motive.
Acknowledgments
This research was partly supported by the Japan Society
for the Promotion of Science, Grant-in-Aid for
Scientific Research (C) 16K03843 and authors wouldlike to thank the organization.
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5. Concluding remarks
This paper investigates the factors that influence themotives of make-or-buy decisions on information
systems from the viewpoints of TCE and the RBV. We
empirically test the TCE-RBV framework by using ouroriginal questionnaire survey data targeting Japanesefirms. As a result, we made it clear that there were two

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