Make, Buy, and Ally: Can Plural Sourcing Reconcile the Tension Between Outsourcing and Corporate Social Responsibility?

Make, Buy, and Ally: Can Plural Sourcing Reconcile the Tension Between Outsourcing and Corporate Social Responsibility?

Summary

This study investigates whether plural sourcing (doing an activity in-house while also sourcing it from partners via strategic alliances — a make-and-ally approach) can reduce the negative effect that outsourcing has on a firm’s CSR performance. The authors argue that CSR outcomes are harder to test and supplier behaviour is harder to monitor than traditional metrics (quality, cost), creating agency problems when firms outsource. By maintaining internal production for the same activity, firms gain tacit “know-how” that improves their supplier evaluation capabilities and helps detect hidden non-compliance on social and environmental standards.

Using a panel of 9,057 firm-year observations from 1,437 US publicly traded manufacturers (2003–2018), the paper measures CSR with Refinitiv ESG scores, outsourcing as the inverse of a vertical-integration coefficient, and plural sourcing via documented strategic alliances where the firm also produces the same product/component internally. The authors run firm fixed-effects models and 2SLS (instrumenting outsourcing with industry-average outsourcing) and report robust findings.

Source

Source: https://onlinelibrary.wiley.com/doi/10.1111/jscm.12348?af=R

Key Points

1. Outsourcing is empirically associated with worse firm-level CSR performance — due to CSR-specific measurement difficulties (low testability of outcomes and low visibility of behaviour).
2. Plural sourcing (make-and-ally) mitigates the negative effect of outsourcing on CSR by improving a buyer’s ability to evaluate supplier social and environmental conduct via tacit know-how gained from internal production.
3. The mitigating effect of plural sourcing is stronger when it occurs in a firm’s secondary (non-core) business segment — where the firm typically lacks evaluation capabilities.
4. The effect is also stronger when the buying firm has a high presence (own facilities) in the supplier’s country, which increases monitorability and reduces liability of foreignness.
5. Empirical strategy: 9,057 firm-year observations (US manufacturing), Refinitiv ESG for CSR, outsourcing measured via inverse vertical-integration coefficient, plural sourcing identified from SDC alliance texts and 10-Ks; analysis uses firm fixed effects and 2SLS (industry-average outsourcing as instrument).
6. Robustness checks include alternative CSR measures (supplier ESG training), addressing endogeneity of interactions, Heckman correction for selection, and splitting CSR into environmental vs health & safety — findings remain consistent.
7. Managerial implication: plural sourcing can be a deliberate tool to keep outsourcing’s economic benefits while regaining oversight on suppliers’ social and environmental practices — especially for risky, low-testability components or in secondary segments.
8. Trade-off: plural sourcing raises costs compared with full outsourcing, so firms should target it selectively (high-risk components, secondary segments, or where local presence is possible).

Why should I read this?

Want to have your cake and eat it too — keep the cost gains from outsourcing without wrecking your ESG standing? This paper shows a practical, evidence-backed route: keep some manufacturing in-house while allying with suppliers so you can actually check what they do. It’s great for ops and sustainability leads who need actionable strategies, not just platitudes.

Author (style)

Punchy take: outsourcing can dent your CSR score, but you don’t have to choose between profits and principles. The study is highly relevant for managers and policy-makers because it provides a concrete, tested strategy (plural sourcing) and clear boundary conditions for when it works best — so read the empirical detail if you plan sourcing or ESG interventions.

Context and relevance

The paper speaks directly to ongoing debates about global supply chains, Scope 3 emissions, audit effectiveness, and reputational risk. It reframes make-versus-buy decisions from a binary to a blended, strategic choice that manages agency problems specific to CSR. With regulators, investors and ratings agencies increasingly focused on supply-chain controversies, the findings are timely for firms that want to balance cost, resilience and social/environmental accountability.

Practical next steps for managers

Identify outsourced activities with low testability or monitorability (e.g., critical components, high-risk processes). Consider targeted plural sourcing in secondary segments or countries where you have or can develop a presence. Build specialised internal teams to translate manufacturing know-how into CSR evaluation metrics and use alliance contract design to retain collaboration while signalling legitimate oversight.