Assessing Transaction Cost to Describe Scope of the Firm in Emerging Farm Supply Chain in India: The Case of ITC E-Chaupal

Abstract

This paper aims to describe the implication for transaction costs for agricultural marketing channel structure and outline a model of vertical coordination in agriculture. Considering new ways of assessing the true cost of conducting business is an important step towards improving system and reducing such costs. This is the question of appropriate scope of the corporation. The corporation should leverage its resources into every business in which it can create value. 262 The paper is based on recent work done by the author for the Indian agribusiness supply chain (Rakesh 2004). The rationale for undertaking work of this sort stems from two main objectives. First is a general dissatisfaction with the way economist have approached their study of vertical coordination in the broader framework of political economy (Sukhpal 2000) and others. The second perspective from which this work has emerged is the belief that a sensible coordination of the theories from the institutional economics, supply chain management and relationship marketing can be applied fruitfully to the study of agri food and agri commodity supply chains. When the emphasis within most agricultural system and most predominantly Indian agriculture is changing from policy dependence to more market orientation and when technological and structural changes suggest a need for a more analytical and dynamic approach. The objective of this paper is to illustrate the possibility of using a series of studies from Institutional economics as a basis of detailed diagnostic investigation of individual relationship within agricultural supply chain systems and to explore the implications for vertical coordination and integration. This study is a need to bridge the gap in the study of agricultural supply chains by concentrating on relationship between contractual organizational forms and their strategic viability. We will thus explore the scope of corporation in a strategic context. The rest of the paper concentrates closely on the nature of such contractual forms. It starts by considering recent antecedent research from the institutional economics and then discusses approaches to evaluate vertical coordination before applying one approach to the assessment of ITC e-choupal sourcing and rural retailing system. It studies the E-Chaupal experiment from transaction costs perspective and studies its scope within the context of the nature of it‘ corporate strategy.