Strategic Outsourcing: An International Journal

Short-run vs long-run trade-offs in outsourcing relationships: Impacts on loyalty and

switching propensity
Jouni Juntunen David B. Grant Jari Juga

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Jouni Juntunen David B. Grant Jari Juga, (2010),"Short-run vs long-run trade-offs in outsourcing
relationships", Strategic Outsourcing: An International Journal, Vol. 3 Iss 3 pp. 211 - 225
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Short-run vs long-run trade-offs

in outsourcing relationships

Trade-offs
in outsourcing
relationships

Impacts on loyalty and switching propensity

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Jouni Juntunen

211

Department of Marketing, Oulu Business School,

University of Oulu, Oulu, Finland

David B. Grant
Logistics Research Centre, School of Management and Languages,
Heriot-Watt University, Edinburgh, UK, and

Jari Juga
Department of Marketing, Oulu Business School,
University of Oulu, Oulu, Finland
Abstract
Purpose The purpose of this paper is to report on a study of a shippers dilemma as a customer.
Shippers desire both lower costs and good service levels, and this dilemma may lead in the long run
to a trade-off consideration between staying loyal to existing service providers and seeking cost
reductions from competing providers.
Design/methodology/approach A model was devised from the literature exploring how a
shippers propensity to switch logistics service providers may be affected by perceptions of service
elements and logistics cost reductions. The model was tested with survey data from 235 Finnish
industrial firms and analysed using structural equation modelling.
Findings Findings indicate that in the short-run trade-offs do not exist, but there may be a
propensity to trade-off in the long run. Further, quality of service is a more important factor for
customers than participating in tight price competition.
Research limitations/implications The data were collected from one country and further
studies are required to test these research propositions in other countries and contexts.
Practical implications Logistics service providers should concentrate more on service quality and
refrain from tight price competition to gain and reinforce customer loyalty. Further, shippers should also
adopt a long perspective regarding strategy and refrain from short-run, cost reduction seeking behaviour.
Originality/value This study integrates several factors as drivers of outsourcing relationship
continuity and/or change and presents a fresh collection of data for analysis.
Keywords Outsourcing, Customer services quality, Channel relationships, Cost reduction,
Freight forwarding, Finland
Paper type Research paper

1. Introduction
There has been strong interest among academics and practitioners regarding logistics
outsourcing over the last three decades. This interest has been fuelled by the need to
develop sustainable competitive advantage, a growing emphasis on providing good
customer service effectively and efficiently, and the strategic value of focusing on core
business activities and re-engineering business processes. All these factors have
resulted in the evolution of contract logistics which is very different from traditional
logistics (Razzaque and Cheng, 1998). The benefits and risks of outsourcing have been
widely documented in the literature (see for example Kakabadse and Kakabadse, 2000;
Kremic et al., 2006) and process models exist for managing outsourcing relationships
from initiation to potential termination (e.g. Momme and Hvolby, 2002; Marshall et al.,
2005; Fredriksson and Johansson, 2009).

Strategic Outsourcing: An
International Journal
Vol. 3 No. 3, 2010
pp. 211-225
# Emerald Group Publishing Limited
1753-8297
DOI 10.1108/17538291011093802

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212

Outsourcing relationships can be examined from several theoretical perspectives.

For instance, Logan (2000) discusses how resource-based theory, transaction cost
theory and agency theory could be used to investigate outsourcing relationships.
Various behavioural and cultural theories have also been used for analysing the nature,
antecedents and outcomes of outsourcing relationships (Cahill, 2007). Relationship
marketing theory explains how successful relational exchanges are established,
developed and maintained, thus offering valuable insights into the success factors of
outsourcing arrangements (Knemeyer et al., 2003). In contrast however, factors related
to unsuccessful third party logistics (3PL) relationships and the propensity to switch
service providers have received little attention in the extant literature (Murphy and
Poist, 2000; Wilding and Juriado, 2004).
Defining and analysing outsourcing performance is not an easy task (Deepen et al.,
2008). It has been shown in empirical studies that the dimensions of service
performance vary from one industry to the next in industrial services like logistics
the focus is on intangible actions directed towards physical objects (Stank et al., 2003).
Also, the link between service quality and business performance can be complicated.
Service quality correlates with customer satisfaction and repeated satisfaction
generally leads to loyalty. However, various social and situational factors mediate the
satisfaction-loyalty relationship (Dick and Basu, 1994) and satisfied customers also
switch suppliers (Mittal and Lassar, 1998), especially in highly competitive markets
and if switching costs are low (Jones and Sasser, 1996; De Ruyter et al., 1998).
It is evident that links between service performance, satisfaction and loyalty exist in
logistics relationships (Innis and LaLonde, 1994; Daugherty et al., 1998; Stank et al.,
2003). What appears to be less obvious is how different dimensions of service provision
contribute to satisfaction and thus to loyalty. For example, the cost performance
component has been variously treated in outsourcing models and empirical studies
have shown mixed results regarding its importance. Although it is possible to improve
customer service and reduce costs simultaneously by outsourcing (Rabinovich et al.,
1999), the link between cost performance and customer satisfaction is not clear (Stank
et al., 2003). After reviewing outsourcing studies in logistics, Maltz (1994) remarked
that most surveys do not answer the question as to whether cost concerns translate
into outsourcing behaviour.
A starting point for this exploratory study is the intuitive assumption that there is a
trade-off for a logistics services buyer between service quality and cost performance in
an outsourcing relationship. In other words, a logistics services buyer faces a dilemma
of having to weigh the value of a current outsourcing relationship against possible cost
savings through competing providers. Hence, this study aims to analyse the impacts of
contrasting value drivers on a service buyers commitment, i.e. loyalty, and switching
propensity in an outsourcing relationship. A theoretical model is developed showing
the hypothesized effects of service quality and cost performance on relationship
continuity. The model is tested with structural equation modelling (SEM) using survey
data from Finnish industrial companies.
This paper is organized as follows. First, the theoretical background and key
concepts related to outsourcing performance are discussed. Then, the hypotheses are
presented and a conceptual model outlined, followed by operational measures of the
concepts. Next, the model is tested with SEM using the LISREL software package.
Finally, the results are discussed and managerial implications are presented together
with further research suggestions.

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2. Literature background
Value created by logistics has traditionally been viewed as a trade-off between cost
efficiency and competitive service levels (Langley and Holcomb, 1992). These two value
dimensions also pertain to logistics outsourcing decisions (Maltz, 1994; Boyson et al.,
1999). Other aspects such as scope, criticality, client-supplier relationships and overall
business objectives are also considered to be important for outsourcing engagements
based on the unique needs of individual firms (Sanders et al., 2007).
Additionally, there are several other drivers for logistics outsourcing including
reduced capital expenditures, the transfer of fixed to variable costs, quality improvement,
increased speed, greater flexibility, access to latest technology/infrastructure, access to
skills and talent, increased focus on core functions, getting rid of problem functions,
copying competitors, reduced political pressures or scrutiny, legal compliance and better
accountability/management (Kremic et al., 2006). However, the importance of service
performance and cost efficiency consistently rank high in outsourcing surveys (Wilding
and Juriado, 2004); thus it is useful to focus on these two dimensions when studying the
drivers of continuity and change in an outsourcing relationship.
2.1 Logistics value drivers
Research into service quality is very rich in definitions, models and measurement issues,
and a number of frameworks have previously been presented to analyse these
dimensions (see e.g. Seth et al., 2006; Ladhari, 2008). Perhaps the most famous model, the
expectancy-disconfirmation or gaps analysis model, conceptualizes service quality as
the difference between expectations and performance (Parasuraman et al., 1985) along
quality dimensions that were explicated in the SERVQUAL instrument (Parasuraman
et al., 1988, 1994). In an alternative model, the performance only model or SERVPERF,
Cronin and Taylor (1992) emphasized the perception of service performance without
expectations, which makes it a more efficient measurement instrument.
Conceptual and empirical models of logistics service quality have been presented
by many researchers, including Bienstock et al. (1997), Mentzer et al. (1999, 2001),
Franceschini and Rafele (2000), Stank et al. (2003), Grant (2004a), Rafaele (2004) and Davis
and Mentzer (2006). Most of this research deals with logistics service in supplier-buyer
relationships; studies focusing on service quality in 3PL relationships are somewhat less
common. Rafic and Jaafar (2007) used the service quality model of Mentzer et al. (1999) in
the logistics industry context while Seth et al. (2006) studied the service gaps that exist
between the 3PL service provider and the manufacturer. A selection of the use of service
quality models in logistics is presented in Table I.
Cost savings are commonly mentioned in the literature as the main motive for
outsourcing (Kremic et al., 2006) and some authors have reported that firms can routinely
achieve 30-40 per cent reductions in logistics costs and be able to greatly streamline global
logistics processes as a consequence of outsourcing (Boyson et al., 1999). Cost advantages
also include reductions in asset investments and labour costs. Logistics service providers
serve multiple customers and are able to utilize capacity better and spread logistics costs,
thus achieving economies of scale (Selviaridis and Spring, 2007). According to a recent
survey among 3PL providers in North America the most important trend in the logistics
service market is the continuing downward pressure on pricing (Lieb, 2008).
However, outsourcing does not always reduce costs in some outsourcing relationships,
including some logistics relationships such as Laura Ashley and Fed Ex (Song et al.,
2000). Further, Domberger and Fernandez (1999) reported on an Australian survey
showing an average cost increase of 9 per cent in IT-related outsourcing projects. In this

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214

Table I.
Service quality
dimensions in logistics/
SCM research

Bienstock et al. (1997)

Timeliness
Availability
Condition
Mentzer et al. (1999, 2001)
Personnel contact quality
Order release quantities
Information quality
Ordering procedures
Order accuracy
Order condition
Order quality
Order discrepancy handling
Timeliness
Stank et al. (2003)
Operational performance
Relational performance
Cost performance
Grant (2004a)
Pre-order
Order service and quality
Relationship service
Relationship quality
Rafaele (2004)
Tangible components (assets, personnel, inventory/availability)
Ways of fulfilment (flexibility, service care, supply conditions, lead time)
Information actions (marketing, order managing, after sales, e-business)
Davis and Mentzer (2006)
Reliability
Communication
Timeliness
Responsiveness

context, it is also useful to observe that outsourcing may in fact have a negative impact on
labour productivity, as indicated in a study of German manufacturing industries by
Broedner et al. (2009).
Thus, mere cost-efficiency comparisons alone are insufficient criteria for outsourcing
decisions and it is important to consider performance effects of different types of
outsourcing arrangements, e.g. simple part supply vs outsourcing of whole processes.
According to Maltz (1994), cost differentials do not seem to be critical for the use of 3PL
providers. Further, Stank et al. (2003) found that firms rank cost performance as a
qualifier whereas relational performance acts as a strong differentiator in logistics
outsourcing decisions.
According to the Finnish logistics survey 2006 (Naula et al., 2006) average logistics
costs as a percentage of turnover in Finnish trade and industry vary between 13.3 per
cent in large companies and 15.9 per cent in micro companies. Transport costs in this
industrial sector account for 4.1 per cent, warehousing and inventory costs for 5.8 per
cent, administrative costs for 1.5 per cent and other costs (e.g. packaging or indirect
costs) for 1.6 per cent of turnover. Such costs in Finnish companies are considerably
higher than in European companies on average; the European Logistics Association
has reported values of 3.5 per cent for transport, 3.0 per cent for warehousing and

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inventory and 0.8 per cent for administrative costs (A.T. Kearney/ELA, 2009). Thus,
logistics costs in Finland may play a central role in decisions concerning logistics
outsourcing relationships compared to other countries.
2.2 Research model and hypotheses
As noted above buyers of logistics services may gain both lower costs and better service in
the short run from outsourcing. However, in the long run a trade-off may exist that poses a
dilemma for buyers: should they stay loyal to their current service providers or start to
search for lower costs by changing service providers? To analyse the importance of
service quality and cost performance as antecedents to loyalty or switching propensity in
an outsourcing relationship, we developed the model shown in Figure 1 from the literature
and reflecting this long-run trade-off condition from the service buyers perspective.
In the model, the hypothesized trade-off between two beneficial but mutually
contrasting objectives leads to different outcomes regarding the continuity of
outsourcing relationship. Thus, the assumption is that a service buyer has to choose
the emphasis in outsourcing objectives, much in line with Porters (1980) ideas about
strategy, and then act in a way that these objectives are accomplished.
The conceptualization of service includes two key dimensions of service quality
largely in accordance with service dimensions in the Stank et al. (1999) and Stank et al.
(2003) models. Operational service quality is related to the capability to provide
required service reliably when needed, while personal service quality is related to the
nature of the customer contact in the supplier-buyer relationship. In our study, the
focus is on the buyers attitude towards continuity of the outsourcing relationship this
aspect of loyalty is normally referred to as commitment (Moorman et al., 1992).
Following the general structure of the satisfaction-loyalty paradigm, we thus
hypothesize that operational service quality (H1) and personal service quality (H2)
positively affect overall satisfaction and satisfaction is positively associated with the
buyers commitment to the outsourcing relationship (H3).
The propensity to switch service providers is seen as one measure of loyalty, or
disloyalty, together with complaining behaviour, negative word-of-mouth (Zeithaml et al.,
1996). However, it is also useful to analyse switching propensity as a distinct outcome

Trade-offs
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relationships
215

Figure 1.
Proposed model

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216

that is triggered by inter alia service failures, pricing issues and competitive offerings
(Keaveney, 1995). Besides a suppliers practices, the buyers price consciousness also
increases switching propensity.
It is generally considered that loyal customers are profitable because of lower price
sensitivity while price sensitive customers scan the market for cheaper options (Stock,
2005). It has also been suggested that an emphasis of cost reductions may serve as an
indicator of competitive bidding games in an outsourcing relationship (Juntunen, 2010).
Therefore, a positive association may actually be found between perceived cost
performance and switching propensity (H5), whereas service-driven commitment
and loyalty obviously decreases the customers propensity to switch the service
provider (H4).
The constructs in the model are latent variables or factors that are not directly
observable but are inferred from other measurable variables. The operational measures
were presented in a questionnaire as attitudinal statements based on a seven-point
Likert scale. Service level was measured by performance perceptions from the
SERVPERF model with questions anchored by weak and excellent. Satisfaction
anchors were very unsatisfied and fully satisfied and all other questions were
anchored by strongly disagree and strongly agree. The descriptions and the
operational measures for the constructs are presented in Table II.
Some latent constructs have less than the usual three or four measures per latent
construct recommended by some authors. However, the literature review should
primarily drive any theoretical model specification and identification for both
measurement and structural models (Schumacher and Lomax, 1996). Further, some
concepts and behavioural outcomes may be very simple and self-explanatory, e.g.
satisfaction, and thus can be represented with two or even a single item measure (Hair
et al., 2009). We have used this approach in developing our model for this exploratory
research.
3. Methodology and analysis
3.1 Data description and estimation method
Data were collected from Finnish industrial companies during 2008. A survey was
conducted using the internet and the Webropol online survey software package. The
survey questionnaire included various sections for mapping the current state and
development of logistics outsourcing in Finland. The first criterion for target group
selection was that a companys business activities consume a lot of logistics services
(e.g. mining, manufacturing, oil, gas, water maintenance and construction). The next
criterion was that the companies must have at least 50 employees and an annual
turnover of over 400,000 euro. This target group included some companies twice
because they had several offices in Finland. After eliminating double entries from the
register, the final target group consisted of 1,043 companies and there were 235
acceptable responses (response rate 22.5 per cent).
The respondent demographics indicated that different company sizes were well
represented in the sample population. Measured by personnel, 47 per cent of the respondent
companies were small (50-100 persons), 34 per cent were mid-size (100-250 persons) and 19
per cent were large (over 250 persons). This corresponds fairly well with the general
industry statistics in Finland, considering that the smallest companies were excluded from
the target population. Among the main industry branches represented in the sample the
manufacturing of metal products is the largest sector (19 per cent of respondents), followed
by the production of machinery and equipment (12 per cent), groceries and beverages

Latent variable

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Operational service

Explanation and operational measures in the

questionnaire

Refers to operational service levels experienced

Recent experiences in logistics service related to
keeping schedules
Recent experiences in logistics service related to
promptness of service
Personal service
Refers to personal service levels experienced
Recent experiences in logistics service related to
service-mindedness of personnel
Recent experiences in logistics service related to
availability of personnel
Recent experiences in logistics service related to
expertise of personnel
Cost reduction
Refers to how outsourcing has decreased logistics
costs
Outsourcing has reduced our transportation costs
Outsourcing has reduced our IT costs
Outsourcing has reduced our logistics personnel costs
Satisfaction
Refers to overall satisfaction experienced with the
service provider
Give an evaluation of your overall satisfaction with
the operation of your main logistics service provider
Commitment
Refers to a customers commitment to the service
provider
With high probability we will continue the
relationship with our present logistics service
providers as long as possible
Propensity to switch
Refers to a customers propensity to change their
logistics service provider (LSP) logistics service provider
With high probability we will change our main
logistics provider in the next few years
With high probability we will outsource more
functions to new logistics providers

Label
OSERV
schedule
quick

Trade-offs
in outsourcing
relationships
217

PSERV
service
contact
expert
COST
costtran
costit
costper
SATIS
satisfi
COMMIT
continue

SWITCH
change
wider

(11 per cent) and construction (10 per cent). Some 25 per cent of the respondents were
heavily export-oriented companies (export share over 60 per cent of turnover) while
50 per cent of the companies reported small export value (export 0-20 per cent of turnover).
Non-response bias was studied by comparing different response waves (Armstrong
and Overton, 1977) using a randomized one-way analysis of variance (ANOVA). The
first wave included companies that responded after the original e-mail request (37.4 per
cent). The second wave consisted of companies that responded after the telephone
reminder (62.6 per cent). There were no statistically significant differences (using the
criterion of p > 0.05) between the two groups for any of the variables used in this
study. Therefore, it may be assumed that non-response bias is not a problem in this
study and sample represents target group. Respondents completed the questionnaires
with high accuracy (over 98 per cent) and missing data were completed with SPSS
softwares expectation maximization function.
The estimation was made with the Lisrel software (Joreskog et al., 2000; Joreskog
and Sorbom, 1993a). The estimates were calculated using the maximum likelihood

Table II.
Latent variables and
their operational
measures

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218

method based on covariance matrix analysis. The normality of the variables was
studied with Prelis2 software (Joreskog and Sorbom, 1993b).
3.2 Data analysis
Using the operational measures described above, correlations between service quality
and costs were tested as shown in Table III. As intuitively predicted, traditional tradeoffs between quality and costs do not exist on a cross-sectional basis, i.e. in the short run.
There is a strong correlation between operational and personal service level factors at
0.80; however correlations between service and cost factors are weak at around 0.32 each.
The proposed model was tested using SEM and the results are shown in Figure 2; all
relationships between the latent variables were as intuitively predicted and thus all
hypotheses were supported. On the one hand, operational and personal service
perceptions positively affect a buyers commitment via satisfaction in this respect; the
satisfaction-loyalty model is supported. On the other hand, a positive relationship exists
between cost performance and switching propensity, indicating a trade-off in
outsourcing objectives with contrasting impacts on outsourcing relationship continuity.
Hence, buyers of logistics services still seek 3PL providers with good service quality
but may be looking towards better pricing in future, even though they have already
gained improved service level and lower costs due outsourcing. In this sense, good service
appears to be an antecedent and thus an order qualifier in both the short and long run.
Standardized estimates show that personal service and operational service explain
overall satisfaction supporting H1 and H2. Overall satisfaction explains customer
commitment as expected in H3. A negative association is found between customer
commitment and switching propensity to support H4. Finally, the impact of cost
reduction on switching propensity is positive as predicted in H5. It is noteworthy that
there is a strong association between service-driven satisfaction and commitment
whereas the relationship between cost performance and switching propensity is quite
weak, yet statistically significant.
Based on the statistical test values shown in Table IV the model can be considered
acceptable. The chi-square test shows an acceptable fit of the model to the data, the
minimum acceptable p-value normally being 0.05. According to Browne and Cudeck
(1993), an root mean square error of approximation (RMSEA) value below 0.05
indicates a close fit of the model. Jaccard and Wan (1996) argue that the models
comparative fit index (CFI) and goodness of fit index (GFI) values should be above 0.90.
The value of the normed chi-square should be between 1.0 and 2.0 (Grant, 2004b).
Correlations

Table III.
Factor correlations
and fit indices of
trade-off model

Factor
Costs
O-service
P-service
Test
Chi-square (degrees of freedom)
RMSEA
CFI
GFI
SRMR
Normed chi-square

Correlation (t-value)

Correlation (t-value)

Correlation (t-value)

Costs
1
0.31 (3.68)
0.33 (3.81)
Value
16.41 (17)
0.000
1.00
0.98
0.036
0.965

O-service
0.31 (3.68)
1
0.80 (8.02)
p-value
0.495

P-service
0.33 (3.81)
0.80 (8.02)
1

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219

Figure 2.
Empirical model

Test
Chi-square (degrees of freedom)
RMSEA
CFI
GFI
SRMR
Normed chi-square
Relationship
schedule > OSERV
quick > OSERV
service PSERV
contact PSERV
expert PSERV
costtran > COST
costit > COST
costper > COST
satisfi > SATIS

Value
59.33 (45)
0.037
0.99
0.96
0.049
1.318
t-value
13.39
NA
NA
14.38
14.45
7.97
7.54
NA
NA

p-value
0.075

Relationship
continue > COMMIT
change > SWITCH
wider > SWITCH
OSERV > SATIS
PSERV > SATIS
SATIS > COMMIT
COMMIT > SWITCH
COST > SWITCH

t-value
NA
NA
4.92
3.99
3.39
10.73
7.02
2.50

Regarding a measurable variables relationships to its respective latent variable, the

usual threshold for t-values is that |t-value| > 1.96 to provide statistical significance.
Each latent variable was also examined individually as shown in Table V. Because
some of the factors have only one or two measures it is impossible to perform separate
factor analyses of individual latent variables. Also two factors, SATIS and

Table IV.
Fit indices of
final model

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COMMIT, naturally show low average variance extracted (AVE) values since factors
only have one measure. As noted above we relied on the literature review to develop
drivers for the model specification and identification of both the measurement and
structural models (Schumacher and Lomax, 1996). Notwithstanding, we recognize that
this weakens the usability of traditional test values like construct reliabilities (CR) and
AVE, and thus the results should be evaluated primarily on the basis of the fit indexes
of the full model and theoretical background of these measures. Otherwise, CR and
AVE values indicate a good statistical fit of the model.
Lisrels modification indexes indicated a high error correlation between a customers
service experiences related to keeping schedules (schedule) and the overall
satisfaction with the logistics service provider (satisfi). This is an interesting detail
because it highlights the importance of reliable schedules in an increasingly timeoriented logistics environment. Thus, the error terms between these two measurement
variables were allowed to correlate freely in the estimation.
Somewhat contrary to earlier studies on outsourcing performance (e.g. Gilley and
Rasheed, 2000; Hsiao et al., 2010), the empirical model confirms the hypothesized
association between cost performance and switching propensity in an outsourcing
relationship. It appears that cost reductions may be attained through competitive
bidding games that increase the switching propensity in outsourcing arrangements.
hlstrom (2008), outsourcing decisions are a dynamic process
According to Moses and A
while Rushton and Walker (2007) mention cost reductions as a driver in development
cycles. This kind of dynamism in outsourcing relationships is understandable as chief
executive officers are under unrelenting pressure to seek new sources of competitive
advantage (Hesketh, 2008).
4. Discussion and conclusions
This paper has reported on an exploratory study of how loyalty and cost reductions
may affect a shippers propensity to switch third-party logistics service providers.
Shippers have a dilemma as customers: they want both good service and low costs
which often also involves a trade-off between staying loyal to present service providers
and seeking cost reductions from competitors. A structural model was developed from
theoretical literature concerning 3PL provision and services marketing where a
shippers propensity to switch 3PL providers is affected by cost reductions and loyalty.
Loyalty in turn is influenced by perceived satisfaction and service elements.
The empirical model is similar to the work of Stank et al. (2003); however, there
are two interesting differences in this study. First, the relationship from operational
service level to satisfaction (H1) is stronger and statistically significant. Second, the
relationship between personal service level and satisfaction (H2) is lower. Because
relationships towards loyalty are as expected in theory and quite similar to earlier

Table V.
Construct reliabilities
and average variance
extracted

Latent variable

CR

AVE

OSERV
PSERV
COST
SATIS
COMMIT
SWITCH

0.84
0.87
0.75
0.80
0.86
0.76

0.59
0.67
0.60
0.45
0.46
0.56

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empirical results, it is reasonable to argue that the model is valid regarding the
relationship between service performance and loyalty.
The relationship between loyalty and propensity to switch 3PL providers (H4) is
negative as expected. However, the coefficient is quite high which means that
service performance through loyalty strongly decreases the customers willingness to
switch LSP. In contrast, cost reductions increase a customers willingness to switch
3PLs (H5) even if the influence is not very strong. However, this weaker yet statistically
significant relationship may serve to explain why there was no significant
relationship between cost reductions and customer satisfaction in the Stank et al. (2003)
model. It may be that there are two temporal dimensions, the first one concerning
short-term trade-offs between service quality and price, and a second one concerning
long-term disloyalty when buyers of the logistics services seek further savings in
logistics costs.
Our results indicate that logistics services buyers may indeed encounter this
dilemma in the long run. They want good service but also want to reduce costs by
using market competition. Because quality is more important than possibilities to cost
reductions by competition, we suggest that 3PL providers should focus primarily on
service quality to increase their customers overall satisfaction. Tight price competition
does not guarantee continuity of a relationship even if it may sometimes be necessary
to do so to compete with other providers on a cost basis. Based on the results of our
study it may be argued that the service satisfaction-loyalty paradigm (Olsen, 2002)
is also highly relevant in a logistics outsourcing business context, with or without
countervailing factors that simultaneously push towards changes in the relationship.
As with all research studies there are limitations to our work. The data were
collected from one country, which may cause country bias despite the empirical model
and the relationships largely being similar to earlier work by Stank et al. (2003) in the
USA. According to Grant (2004a), different countries have different practices in
logistics and thus wider data would help researchers understand the influence of
different circumstances to practices. Different economic cycles might also influence the
propensity to switch 3PLs and increase the usage of the market competition to lower
costs. The data were collected in 2008 but circumstances in Finland were already very
different by the end of that year as the world-wide economic slowdown hit this
industrial sector.
Further research is needed to investigate and validate the dimensions of service and
cost performance in an outsourcing relationship. While operational and relational or
personal service performance is mentioned in numerous studies in logistics, there are
additional dimensions such as technology and information quality that were not accounted
for in the present study. Also, the logistics context has not been studied from corporate
branding perspective (Ahonen, 2008) which might offer several new perspectives on
logistics services research.
Similarly, antecedents to switching propensity include other factors besides cost
performance, for example corporate brand image; such factors should be identified
and investigated both theoretically and empirically. Finally, it has been observed in
services research that intentions related to customer loyalty do not necessarily
correspond with actual behaviour. In outsourcing research too, it would be valuable
to study actual decisions regarding the continuity and change of the outsourcing
relationship and see if these match with findings based on intentions, as is the
case in our study.

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Corresponding author
Jouni Juntunen can be contacted at: jouni.t.juntunen@oulu.fi

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