Transaction cost analysis of supply chain logistics services: firm-based versus port-focal

Abstract

With the overwhelming findings that systemic risk dominates idiosyncratic risk in individual firms along a supply chain or in an industrial sector, and noting the fact that supply chain literature so far has been firm-based, it is critical to analyse inter-firm transactions and related risks which have largely been omitted from current supply chain research. To advance along this critical dimension, we develop a transaction cost frontier model that allows inter-firm transaction facilities in terms of a port-focal supply chain modelling framework. The key findings are as follows. (1) Environment heterogeneity is a characteristic transaction attribute, and logistics efficiency is critically dependent on both intra-firm asset specificity (Williamson, 2002) and inter-firm environment heterogeneity when ports are considered as transaction facilities. Port logistics demonstrates that horizontal integration (as opposed to vertical integration) becomes more cost effective as environment heterogeneity increases, given the same degree of asset specificity among individual ports. (2) An adaptive advantage (eg, transaction efficiency) is identified and characterized through the port-focal industrialization of supply chains, and is found to be an explanatory cause for the geographically concentrated horizontal specialization and differentiation, as increasingly observed in practice. Logistics industrialization will bring about the growth of port-focal urbanization.