Investigating vendors' decision to terminate it outsourcing contracts

Abstract

Despite the prevalence of IT outsourcing, a substantial amount of contracts have been terminated. Prior research has primarily assumed that clients initiate it, overlooking the possibility of vendors doing so. Unlike clients whose reasons may stem from poor performance or other alternatives, vendors would be triggered by very different reasons. They are less likely to admit their own poor performance or forgo contracts due to competitors. Integrating various theories, we propose antecedents reflecting three critical dimensions: strategic, economic and relational. Empirically verifying our model, we conducted a field survey, eliciting 91 responses from vendors. Results indicate that strategically, low reusability, negative referencing power, and low resource dependence will trigger vendors' intention to terminate contracts. Economically, low penalty and late payment will also influence termination decision. Relationally, we observe two unexpected findings. Vendors are less likely to terminate an unequal contract or clients with negative social relationship.