Corruption as a determinant of transaction governance structure
Strategic Outsourcing: An International Journal
ISSN: 1753-8297
Article publication date: 20 February 2009
Abstract
Purpose
As companies move their businesses offshore to developing countries, how to estimate market costs and select transaction governance structures (TGS) accordingly has become a challenge. Based on transaction cost theory, the purpose of this paper is to propose that corruption is an influential factor, which can potentially increase market transaction costs and favor selections of hierarchy oriented TGSs.
Design/methodology/approach
Data are collected from World Development Indicators database and the Corruption Perception Index 2006. In total, 154 countries are included in the study. A regression analysis is used to demonstrate the correlation between levels of corruption and selections of TGS.
Findings
The results indicate a strong correlation between corruption and TGS.
Practical implications
Low labor costs and other incentives should not be the only reasons for moving businesses into developing countries. Managers should take a closer look at levels of corruption and estimate transaction costs accordingly. If a company plans to enter into a highly corrupted environment, it should consider using a hierarchy oriented TGS.
Originality/value
This paper applies transaction cost theory to strategic management of outsourcing and highlights corruption as an unfavorable factor for outsourcing to developing countries.
Keywords
Citation
Zhang, A. (2009), "Corruption as a determinant of transaction governance structure", Strategic Outsourcing: An International Journal, Vol. 2 No. 1, pp. 27-36. https://doi.org/10.1108/17538290910935873
Publisher
:Emerald Group Publishing Limited
Copyright © 2009, Emerald Group Publishing Limited