Sourcing in or out: Implications for social capital and knowledge sharing

The sharing of knowledge between a firm and its internal or external service suppliers has become an important element of contemporary sourcing arrangements. Moreover, the knowledge based view (KBV) has long suggested that due to stronger cognitive links within firms, internal compared to external service provision creates better conditions for knowledge sharing. Empirical evidence for this claim is however scarce, and the KBV does not explain the mechanisms for more knowledge sharing in internal sourcing in detail. Moreover, there is now some evidence to suggest that firms’ relationships with external sourcing partners are becoming more similar to those with captive centres, which represent a less traditional form of insourcing setting. To scrutinize the possible knowledge sharing advantages of internal sourcing in more depth, we turn to social capital (SC) research. There are some theoretical claims that SC and knowledge sharing are stronger within than between firms, and there is ample evidence that SC facilitates knowledge sharing. Our survey results suggest that the extent of knowledge sharing and SC are indeed stronger in a captive than in an external sourcing mode, and that structural (tie strength), cognitive (shared understanding), and relational (trust) aspects of SC mediate the effect of sourcing mode on the extent of knowledge sharing. By contrast, network stability (a structural aspect) mediated knowledge sharing only indirectly, by reinforcing the other SC aspects. We highlight important contributions to research and practice of IS outsourcing and social capital.