Outsourcing residual competences is typically carried out via which type of transaction?

• A. Internal transfer
• B. Joint venture
• C. Arms-length transaction
• D. Strategic alliance

Answer: (C)

Outsourcing non-core capabilities to the market is done most effectively through arms-length transactions because it keeps the relationship transactional and market-driven rather than collaborative.

Residual competences are the activities or know-how that aren’t central to what the business does best. By contracting external suppliers on an arms-length basis, the firm can tap specialized expertise without creating a long-term, integrated partnership. This approach relies on competitive pricing, clear service levels, and formal contracts, making it easier to switch suppliers if performance or costs change. It also preserves strategic focus and flexibility, avoiding the higher coordination costs and potential dependency that come with deeper collaborations.

Internal transfer would keep the work inside the organization, defeating the purpose of outsourcing. Joint ventures and strategic alliances involve ongoing collaboration and shared governance, which is less suitable for transferring these non-core tasks that are better left to market competition based on price and performance.