Beyond Supply and Assembly Relations: Collaborative Innovation in Global Factory Systems

Synthesizing strands of literature from internalisation theory and the resource-based view of the firm we develop a rationale for the adoption of outsourced collaborative ventures in innovation in rapidly changing business environments within the context of global factory systems. Improvements in capability and communication within the global supply base and increased recognition of the complementarities between leading MNEs and specialist contractors have increased the incentives for collaboration within functions traditionally undertaken in-house. Supporting our arguments with the illustration of Apple and Foxconn in consumer electronics, we argue that collaborative relations with an outsourced partner offer benefits in the creation of additional value, more efficient identification of opportunities, effective safeguarding of technologies, and suppression of opportunism. We discuss the implications of our analysis for the structuring of collaborative ventures, management of lead firm subsidiaries, and the upgrading of contract partners.