BOT Outsourcing Contracts: Boon or Bane to Emerging Market Vendor Firms?

Build-operate-transfer (BOT) contracting has been widely usen in the engineering and construction industry, but has only recently been introduced in services industry domains. Notably, service provider firms from emerging
markets have recently started offering BOT outsourcing contracts. In this paper we investigate under which circumstances a BOT outsourcing contract (i.e. a contract where the client firm exercises its call option) is beneficial, or the opposite, to the emerging market vendor firm. We draw on various theoretical literatures (transaction cost economics, real options, inter-firm linkages) and develop three scenarios for the implications for vendor firms. We find that BOT contracts, under certain circumstances, may imply benefits of process and
knowledge upgrading for the emerging market vendor firm. However, given different sets of circumstances, engaging in a BOT contract carries important competitive risks for the vendor firm, in terms of a gradual downgrading of the vendor firm's role in the collaboration with clients, and the ensuing hollowing out of knowledge competences.