Transaction Cost Approach Research Articles

The retailer's role in the reconstruction of areas affected by the Great East Japan Earthquake: how can retailers make their social contribution coexist with their pursuit of profit?

Although national and local government played a major role in supplying relief goods to victims immediately after the Great East Japan Earthquake, private companies, such as manufacturers, retailers, transportation traders, etc., also played important roles. Especially for retailers – though they were also victims of the disaster – offering refuge and supplying food, water, and a stable supply of necessary goods to affected people was an important part of the recovery process in affected areas. In spite of these important roles played by retailers, there is little research that analyzes these activities from the position of distribution and marketing.This paper seeks to clarify three particular questions. First of all, what damage did retailers suffer due to the earthquake and how did they restart their businesses? The speed of recovery depended on the damage suffered and the recovery of shopping streets composed of small retail stores was delayed compared with that of national chain stores such as convenience stores.After the disaster many retailers recognized their social responsibility to support affected residents, as well as stricken producers. However, when retailers prefer their own profit, it is likely to negatively affect the recovery of stricken producers, as it is easier for retailers to switch suppliers. In fact, major CVS companies tried to secure alternative suppliers. The second question is: why did some retailers endeavor to support the recovery of stricken producers? From the transaction cost approach, it can be inferred that the more reliable the relationship which has been established, the more difficult it is for the retailers to quit the relationship. In this case, it is beneficial for retailers to support stricken producers because the retailers' actions will provide gains. However, in a situation where no benefits are expected from their support, is it a genuine altruistic social contribution? Even in this case, the retailers can expect that consumers will evaluate their social contribution and thus enhance store loyalty and hopefully increase their product sales. When we analyze the continuation of the relationship in terms of cost-benefit derived from the transaction, social consideration should be incorporated into the framework.We call these actions “ethical marketing” in this paper and emphasize its effects during the period as consumers changed their attitudes toward the social role of companies, including retailers, after the earthquake. The final question addressed is what kind of mechanism is at work in the interaction between retailers'contribution to society and ethical consumers' response. Some business models are explained which will enable retailers to try and achieve coexistence between social contribution and profit pursuit.

Explaining the Informal Sector in Indonesia from the Transaction Costs Perspective

The informal sector in Indonesia is massive, and has become a challenge to the growth of the open market economy. Explanations of the cause of informality have shifted over time from structural dualism to excessive government regulation. This paper argues that merely focusing on the high cost regulation may not reveal the bottom line of informality. Assessment and elaboration of infomality need the help of the transaction cost approach that suggests that informality in the economy exists due to the high-transaction-cost institutional framework. To support the argument, this paper provides a preliminary study on the transaction costs borne by firms in the industrial manufacturing sector based on two industrial surveys conducted by BPS-Statistics Indonesia, which are the 2009 survey on medium and large-scale enterprises (MLEs) and the 2010 survey on micro and small-scale enterprises (MSEs). This paper shows that micro and small-scale enterprises with no legality bore the least transaction costs compared to those operating legally, both micro and small-scale, as well as medium and large-scale enterprises. Consequently, regulatory reforms aimed at reducing transaction costs, not merely aimed at reducing official costs and simplifying procedures, are the keys to achieving economic growth while ensuring full participation of the private sector.

Evaluation of the Effect of the Outsourcing on Resource Dependency and Transaction Cost Approach: A Research in Konya Oiz, Turkey

In the research, it is aimed to measure the impact of outsourcing, which appears as a case of extremely critical within today's rapidly changing environmental conditions and brutal competitive conditions on the transaction costs of organizations and resources dependencies, on the businesses operating in Konya Organized Industrial Zone, in Turkey and to detect the relationship between these concepts. Accordingly, resource dependency approach, transaction cost approach and a conceptual framework for outsourcing are tried to be put forward first, then the findings of the study and the results are given. In the analysis made as a result of obtained data, it comes into the open that the outsourcing has a positive effect on the direction of resource dependency and reducing transaction costs. In addition, a negative and meaningful correlation is found between the transaction cost and the resource dependence.

Innovations in Barge Transport for Supplying French Urban Dense Areas: A Transaction Costs Approach

Experimentations and innovations that involve barge transport flourish in France as the main leg for urban distribution of goods. Based on a study of existing container barge transport (CBT) chains, this article identifies several obstacles impeding their use for urban river logistics: the complexity of these chains, on the one hand, and the level of specificity of assets involved in the loading and unloading phases, on the other hand. With the help of transaction costs economics, the article shows that several innovations involving barge transport to supply French cities share a common aim to diminish transaction costs, especially in those phases. This article also shows that coordination and pooling issues lead to adopt integrated or quasi-integrated governance structures to organize regular inland shipping lines necessary to supply dense French urban areas.

Policy and regulatory design for developing countries: a mechanism design and transaction cost approach

The first-generation literature on policy design has made considerable contributions over the last 30 years to our understanding of the process, politics and implications of policy design and instrument choice. This literature, however, has generally treated institutions as a black box and has not developed a coherent set of frameworks, theories and models of how institutions matter to policy design. In this paper, I unpack the black box of institutions using transaction cost and mechanism design to show how regulations can be better designed in developing countries when institutions are weak, unaccountable, corrupted or not credible. Under these conditions, I show that efficient regulatory design has to minimize transaction costs, particularly agency problems, by having incentive compatible (self-enforcing) mechanisms. I conclude with a second-generation research agenda on regulatory design with implications for environmental, food and drug safety, healthcare and financial regulation in developing countries.

Disruptive innovation in multinational enterprises

Purpose – This paper aims to address the link between the internationalization of the MNC and its location choices and the discovery of disruptive innovations among the dispersed network of subsidiaries. Design/methodology/approach – A recent categorization of innovation suggests that not all innovations can be treated the same. Distinguishing between the various innovation typologies, this paper focuses on disruptive innovation within an international context. Many researchers have found that large incumbent firms tend to have issues with developing disruptive innovation, and are often disrupted by new entrants. However, there are cases of MNEs being successful with disruptive innovation and this paper sets out to theoretically explain where MNEs find ideas for disruption to aid in the incumbent's curse. Specifically, this paper asks, where do disruptive innovations originate in a MNE? Findings – Using a transaction cost approach and resource-based view, along with other seminal pieces in international business, it is proposed that disruptive ideas start in subsidiaries. It further proposes the characteristics of these subsidiaries that should increase the likelihood of discovering disruption. Originality/value – This paper not only expands the boundary conditions of disruptive innovation, but also expands on the “where” question for knowledge acquisition and long-term performance in MNEs.

Negotiating conflict resolution mechanisms for transboundary water treaties: A transaction cost approach

Conflict resolution mechanisms are recognised as indispensable constituting elements of transboundary water agreements. Earlier studies confirm, however, that such mechanisms are either incomplete, unsophisticated or absent from treaties. We argue that transaction costs, which occur during treaty negotiation, may constitute a barrier to the adoption of conflict resolution mechanisms in water treaties. Transaction costs are never equal and depend largely on the context in which negotiations take place. A content analysis of the treaties in the Transboundary Freshwater Dispute Database demonstrates that the adoption of conflict resolution mechanisms to transboundary water treaties is not random, but may be affected by external factors that influence the transaction cost of negotiating such mechanisms. Water scarcity and a history of cooperative hydro-relations are factors that coincide with the presence of conflict resolution mechanisms in treaties and are therefore considered to lower transaction costs. External resource dependency is believed to stir transaction costs to such an extent that it prevents the adoption of mature mechanisms. The same goes for political freedom, political heterogeneity and the presence of colonial signatories as these factors correlate with mechanism absence and the adoption of a low number of conflict resolution mechanisms per treaty. The effect of hydrological variability resulted insignificant, indicating that variability remains largely ignored by negotiators of transboundary water treaties. Our research further shows that if a mechanism for conflict resolution contains one element of maturity (e.g. institutionalisation or an activation procedure based on a unilateral rule) other elements of maturity are also likely to be present, providing negotiators with an incentive to negotiate conflict resolution mechanisms with at least one mature characteristic. Finally, the adoption of a high number of mechanisms coincides with the presence of institutionalised forms for conflict resolution, supporting the incentive of negotiating more than two mechanisms per treaty.

Influência da conexão política na diversificação dos grupos empresariais brasileiros

Argumentamos que a abordagem teórica baseada na economia política fornece explicações alternativas para o fenômeno da diversificação dos grupos empresariais no Brasil em relação à abordagem baseada na economia dos custos de transação. Utilizamos doações empresariais às campanhas eleitorais como proxy de conexões políticas para testar a abordagem da economia política frente à abordagem mainstream de custos de transação. Estimamos um modelo de regressão em painel com efeito fixo em uma amostra de 760 observações de 95 grupos empresariais em 8 anos no Brasil. Encontramos forte evidência para colocar a abordagem da economia política como uma explicação alternativa plausível à diversificação dos grupos empresariais brasileiros. Esses resultados contribuem para mostrar a evidência das questões políticas na estratégia corporativa da forma organizacional preferida para empresas diversificadas no Brasil.

Production outsourcing offshore in the New Zealand printing, publishing and packaging industries

PurposeThe study aims to investigate the production offshore outsourcing practices of SMEs in the New Zealand printing, publishing and packaging industries. It identifies the techniques SMEs use to organise and manage their offshore outsourcing activities. The authors then develop a managerial framework to assist SMEs in their future offshore outsourcing ambitions.Design/methodology/approachThe study takes a qualitative approach; obtaining data from a sample of 22 New Zealand SMEs in the printing, publishing and packaging industries that are actively offshore outsourcing production tasks. Data was gathered in the form of semi‐structured interviews with SME managers who have carried out offshore outsourcing.FindingsTo mitigate offshore outsourcing costs, SMEs use the internet to locate suppliers and use short‐term reliable contracts that are managed remotely or by intermediaries. Customer involvement was highly important during the entire offshore outsourcing process. Most SMEs developed long‐term business relationships with reliable suppliers. These findings are integrated into the SME framework, which identifies ways SMEs can overcome resource constraints and minimise risks when offshore outsourcing.Research limitations/implicationsThis study is confined to a single country and reports on findings for several related industries, i.e. the printing, publishing and packaging industries in New Zealand. This limits its applicability to research in other settings and other industries. However, it identifies an area of research (offshore outsourcing activities in SMEs) that could be extended to other industries and countries by future research.Practical implicationsThe SME framework presents an easily understood approach that has been verified by SME managers who have successfully offshore outsourced production tasks. The research proves that SMEs can offshore outsource within the constraints of limited physical and managerial resources.Social implicationsThe study showed that the decision‐making process to outsource is supported by the transaction costs approach. Firms have to balance out total cost considerations in making their decision to offshore (including contingency costs) to ensure that the savings from outsourcing are greater than the transaction costs. The resource‐based view of the firm is also used to suggest that offshore outsourcing means that firms may be able to improve their own competences by providing (through their suppliers) access to more sophisticated and higher‐quality processes.Originality/valueThe research contributes to the growing area of SME offshore outsourcing research, providing detailed empirical evidence of SME offshore outsourcing activities occurring in New Zealand.

A Capability Perspective on Performance Deficiencies in Utility Firms

Infrastructure services such as electricity, water supply, sanitation and transportation are crucially important in our economies. Despite this importance, utility firms have found little attention in management research. This is surprising because the lack of adequate organizational structures, skills and specialized managerial know-how is an emergent issue and main challenge for many utilities worldwide. We propose a capability-based framework to explain performance deficiencies in utilities. The framework elaborates why capability gaps emerge and persist, and how this, in turn, affects performance. The insights from this framework go beyond the conventional explanations of the transaction cost and agency approaches, which suggest that appropriate incentives and regulatory structures increase the performance of public utilities immediately or after a short adaptation process. In contrast, capability gaps - understood as an inadequate availability of competences, expertise and experience - tend to have l...

A capability perspective on performance deficiencies in utility firms

This paper proposes a capability-based framework to explain performance deficiencies in utility firms as a result of policy and regulatory changes. The framework complements conventional explanations such as transaction cost and agency approaches, which suggest that appropriate incentives and regulations increase the performance of public utilities after relatively short adaptation processes. In contrast, we argue that capability gaps – understood as an inadequate availability of competences, skills and experiences – tend to have long-lasting effects on firm performance. A crucial implication of the capability perspective is that regulatory interventions that create capability gaps at the firm level may affect utility performance – and the ability of infrastructure sectors to provide adequate services – more severely than expected by traditional approaches.

Restructuring and innovation in pharmaceuticals and biotechs: The impact of financialisation

In this paper we explore whether a financialisation perspective can provide a more empirically satisfying account of recent developments in the pharmaceutical industry than the more commonly used resource-based or transaction cost approaches. Specifically, we note the evolution of the pharmaceutical industry structure from giant vertically integrated firms, selling patent protected blockbuster products at premium prices, to greater vertical disintegration. Big Pharma1 now sources a significant volume of early stage R&D activity externally, through outright acquisitions or alliances, especially with biotechnology firms. Much of the reason for such vertical disintegration is to be found in the fundamental tension experienced between the high R&D spend necessitated by the cost of pharmaceutical innovation and declining returns on this expenditure in terms generating new product sales and FDA approval rates, which have remained broadly constant at an average of 20–35 approvals per year. The new R&D outsourcing strategy has not delivered an increase in marketable drug discoveries or new ‘blockbuster’ profits. Instead, shareholder returns have been maintained through Big Pharma's decision to distribute cash back to shareholders via share buybacks and dividends (as advocated by Jensen). Thus we conclude that such developments within Big Pharma worldwide are best explained through the lens of a financialisation, as opposed to a resource-based or transaction cost framework.

Capabilities, Transaction Costs, and Firm Boundaries

Although the literature on firm boundaries has been greatly influenced by transaction cost economics, strategy scholars often emphasize the importance of capabilities considerations in these decisions. This has led to a debate that, we suggest, has generated more heat than light. We argue that the two sets of considerations are in fact so intertwined dynamically that treating them as independent, competitive explanations is fundamentally misleading. We offer a theoretical synthesis of transaction cost and capabilities approaches to firm boundaries that seeks to overcome each approach's limitations and provides a unified and logically consistent understanding of boundary decisions.

A transaction cost approach to climate adaptation: Insights from Coase, Ostrom and Williamson and evidence from the 400-year old zangjeras

Abstract I argue in this paper that transaction cost is central to the analytics of climate adaptation in the local commons. I illustrate this by bringing together insights from Coase on tradability of property rights, Ostrom on institutional design principles for long lived commons and Williamson on transaction cost and governance mechanisms. I call this the COW model on the analytics of climate adaptation, which I illustrate using grounded theory in the case of the 400-year old zangjera irrigation societies in Northern Philippines. The zangjeras are highly vulnerable to climatic risks but has successfully managed to adapt steadily overtime. I argue that their ability to adapt is a function of transaction cost which is associated with some ingenious principles of institutional design such as: (1) clear allocation and tradability of rights and obligations; (2) fairness in the allocation of risks, costs and benefits; (3) reliance on prices and incentives as adaptation mechanisms; (4) adaptive efficiency, i.e. maximization of welfare at least adaptation cost; (5) reliable enforcement mechanisms; and (6) a polycentric structure of governance. I conclude that the COW model can provide a useful foundation for the analytics of climate adaptation.

Capabilities: Structure, Agency, and Evolution

This paper examines conceptual issues and reviews empirical results bearing on the relationship between research approaches emphasizing organizational capabilities and those based in transaction cost economics (TCE)—or in organizational economics more generally. Following a review of conceptual fundamentals—what capability is and why organizations differ in capability—it assesses recent progress toward an integration of the capabilities and transaction cost approaches, primarily in the context of the analysis of vertical structure and related phenomena. This review suggests that progress has been substantial and that the key elements of a promising dynamic synthesis have been identified. The paper then considers issues that call for attention if further progress is to be achieved. The first of these is the role of agency, which must be seen in expansive terms (relative to standard economic rationality) if its evolutionary significance is to be fully appreciated. The second is the role of structure, or more specifically, industry architecture, which affects capability development by way of its effect on the feedback that firms receive. After drawing on the recent financial crisis for an illustration of these ideas, this paper considers the rise of interest in business models as a useful field of application, and it concludes with a discussion of the role of organizational economics (beyond TCE). We argue that, whatever the theoretical perspective at the level of the firm, analyses must reach beyond that level to grasp the important causal forces affecting capability development, firm boundaries, and structural features more generally.

A transaction costs approach to purchasing portfolio management

PurposeThe purpose of this paper is to propose a theoretically sound and empirically tested classification system composed of purchasing strategic categories as a basis for purchasing portfolio models.Design/methodology/approachAn international, cross‐industry survey has been designed to assess the characteristics and corresponding strategies of the purchasing categories.FindingsThe paper operationalises the constructs derived from previous scientific contributions related to purchasing portfolio management and transaction cost economics (TCE) to empirically test the purchasing portfolio. In total, four different types of strategic categories have been identified, and distinctive competitive priorities have been found.Research limitations/implicationsManagers might be able to identify different types of purchasing strategic categories, whose characteristics drive specific purchasing strategies. Longitudinal data and more extensive tests of the characteristics of each category might contribute to improving the proposed research framework.Originality/valueThe research overcomes some of the classical limits of purchasing portfolio models, including the absence of a theoretical and empirical basis. In particular, TCE is used to support and expand traditional purchasing portfolio approaches, and a broad empirical base is used to test such an approach.

Advantages and disadvantages of outsourcing: analysis of outsourcing practices of Kazakhstan banks

In contemporary life, where competition among businesses intensifies rapidly, one of the instruments that will give possibility to open access to nearly every resource that offered in market is outsourcing. Drawing from Resource-Based View, Core Competency Theory, and Transaction Cost Approach, this study analyzes outsourcing practices of Kazakhstan banks. Sample of this research consists of three banks operating in Kazakhstan: HSBC Bank Kazakhstan, BTA Bank and Halyk Bank. Results of face-to-face interview with managers of these banks reveal that, advantages and disadvantages of outsourcing vary according to its type and size. In spite of the fact that outsourcing became very popular topic among scientific works all over the world, there is no research done on outsourcing activities in Kazakhstan particularly, and especially in banking industry of the republic.

THE ‘REFERENCE POINT’ APPROACH TO THE THEORY OF THE FIRM: AN INTRODUCTION

AbstractThere is a small but growing literature on the ‘reference point’ approach to incomplete contracts as formulated by Hart and Moore. The reference point approach has begun to be applied to the theory of the firm in 3 recent papers. This introduction reviews the main theoretical aspects of each of these papers. It then discusses the relationship between the reference point approach to the firm, the transaction cost approach and the property rights approach. Here it is argued that the reference point approach is a step back towards ex post inefficiencies, away from reliance on ex ante inefficiencies.

Governing Complex Social Production in the Internet: The Emergence of a Collective Capability in Wikipedia

In this paper we propose a theoretical framework to understand the evolving governance of internet-mediated social production. Specifically, we focus on the emergence of a collective capability that integrates knowledge relevant to large-scale production and coordination. Focusing on one of the most popular websites and reference tools, Wikipedia, we undertake an exploratory theoretical analysis to clarify the structure and mechanisms driving the endogenous change of a massive social production system. We argue that the standard transactions costs approach underpinning many extant analyses is an insufficient framework for unpacking the evolutionary character of governance. The evolution of Wikipedia and its shifting modes of governance can be better framed as a process of building a collective capability of editing and managing a new kind of encyclopaedia. By applying cluster analysis we then submit six propositions derived from this framework to a preliminary empirical testing in order to assess the morphological development of Wikipedia.

INNOVATIVE BUSINESS MODELS IN SEMICONDUCTOR FOUNDRY INDUSTRY: FROM SILICON INTELLECTUAL PROPERTY PERSPECTIVES

Intellectual property (IP) is an exponentially consequential driver of competitive advantage nowadays. We bring in the technical views in the use of SIP technology as a more strategic weapon to elaborate our proposed strategies — design for manufacturability (DFM) adder, and home depot strategies through transaction cost approach that are able to be practically applying in the semiconductor foundry industry with added value by all means. DFM adder strategy is an effective solution specifying wafer processing enhancement while home depot strategy is an entire solution massing on product design integration. More substantially, these strategies are totally awesome mechanisms that can be matching and winning in the evolving marketplace for foundry industry in the 21st century.