To investigate under what conditions an outsourcing strategy can show superior environmental performance, one stream of scholars has underscored the importance of prior green innovation experience, and another stream of scholars has underscored the importance of the in‐house possession of outsourced component knowledge. However, the empirical findings regarding the positive role of both scholarly streams when studied separately are mixed and sometimes contradictory. This study bridges these two distinct but related streams and suggests that prior green innovation experience and in‐house knowledge regarding outsourced components play a complementary role in enhancing environmental performance. The U.S. hybrid electric vehicle market lends support to the argument of this study. In so doing, this study increases our understanding of the role of prior green innovation experience and outsourced component knowledge on environmental performance while pursuing an outsourcing strategy. This study also provides guidance for managers and policymakers on how to achieve superior environmental performance in outsourcing.