Impact of Client–Vendor Relationship on Firm’s Financial Performance: A Study of Outsourcing Firms

The success of any outsourced activity depends on the selection of right vendor and its relationship with the firm (Arshad et al., 2008). The selection of the right vendor is the most difficult challenge for the outsourcing firm. The study examines the client–vendor relationship of outsourcing firm and its affect on the firm’s financial performance. The study is primarily based on first-hand information gathered from managers of medium-scale firms. The data has been collected through schedule. Based on theoretical considerations, a model has been proposed linking the client–vendor relation and the cost and quality of the product with the firm’s financial performance. Exploratory and confirmatory factor analysis empirically tested and validated the underlying scales, namely, client–vendor relationship scale and financial performance scale. Structural equation modelling was employed to test the model. Data analysis revealed that there is significant impact of client–vendor relationship on firm’s financial performance as well as on cost and quality of the product. Further, direct and indirect effect of client–vendor relation, cost and quality on financial performance has been discovered.