Outsourcers' control mechanisms, vendors' contract schemas, and project performance in cross-border IT outsourcing: A vendor's perspective

Relational conflicts are likely to occur in cross-border IT outsourcing between partners with different cultural backgrounds. Extant literature diverges on the role of contract and trust as control mechanisms in managing relational conflicts. Prior studies have examined the effectiveness of the control mechanisms primarily from the outsourcer's perspective, with little consideration of how vendors interpret outsourcers' control mechanisms. Based on psychological contract theory, this study addresses the effects of contract-based and trust-based control mechanisms on relational conflicts from the vendor's perspective and further explores the contingency of the effects on vendors' psychological contract schemas (transactional contract schema and relational contract schema) towards their relationships with outsourcers. Based on survey data from 180 offshore outsourcing IT projects, the results show that vendors' transactional contract schema reduces the effect of trust-based control whereas vendors' relational contract schema strengthens the effect of outsourcers' contract-based control on relational conflict. Relational conflicts, in turn, exhibit a negative impact on project performance. The findings offer new insights into the role of outsourcers' contract-based control and trust-based controls in relationship management from a vender's perspective. The findings also extend the outsourcing governance literature by illustrating the contingency of the control mechanisms on vendors' psychological contract schemas.