GREEN OUTSOURCING IN GLOBAL VALUE CHAINS: FROM TRANSACTION COST MINIMISATION TO ENVIRONMENTAL CAPABILITY RECOMBINATION

The governance of outsourcing decisions in multinational enterprises has been theorised extensively through transaction cost economics, property rights theory, and the resource-based view. However, these frameworks, developed largely without reference to environmental constraints, provide insufficient guidance for firms navigating the demands of supply chain decarbonisation, scope 3 emissions accountability, and green value chain transformation. This article identifies a fundamental theoretical gap and proposes a conceptual extension to address it. The concept of ecological asset specificity, the degree of mutual dependency created through joint environmental investment and regulatory interdependence between supply chain partners, as a distinct governance variable absent from Williamson’s original typology were introduced. It is argued that this omission has practical consequences: firms that have made significant co-investments in supplier environmental capability face governance risks, including environmental asset stranding and regulatory exposure, that existing contractual frameworks cannot adequately anticipate or mitigate. Drawing on Gereffi, Humphrey, and Sturgeon’s global value chain governance typology, it is demonstrated that modular governance architectures, though widely adopted for their flexibility advantages, create structural disincentives for the relational investment that genuine environmental capability development requires. Relational governance, by contrast, provides the organisational conditions under which innovation offsets of the kind described by Porter and van der Linde can be realised at the supply chain level. The article culminates in a reconceptualisation of green outsourcing as a form of environmental capability recombination – a strategic practice through which MNEs assemble and develop environmental resources across organisational and national boundaries. This framing, grounded in Verbeke’s internalisation theory, repositions outsourcing from a cost arbitrage instrument to a platform for sustainability-driven competitive advantage. Theoretical and managerial implications are discussed, and directions for future empirical research are identified.