How do transaction costs, capabilities and networks influence the procurement strategies of small agri-food firms? Evidence from the wine industry

Abstract

Purpose

The purpose of this study is to disentangle the drivers of adoption of procurement strategies in situations where small agri-food firms deal with constrained organizational choices. More specifically, the authors investigate the role of transaction costs, capabilities and networks in the definition of feasible “make-or-buy” choices in emerging wine regions.

Design/methodology/approach

This article analyzes a unique dataset of small wineries from five US states: Illinois, Michigan, Missouri, New York and Vermont. The reported results derive from both a hurdle model (i.e. a probit model and a truncated regression model) and a tobit model.

Findings

The results suggest the importance of trust as a replacement for formal governance structures whenever small firms deal with highly constrained sets of organizational choices. On the other hand, the level of dependence on a limited mix of winegrape varieties and the perception that these varieties are fundamental in building legitimacy help to explain higher rates of vertical integration.

Originality/value

This study is important because it sheds light on organizational constraints that affect millions of farmers across the globe. The study of “make-or-buy” decisions in agri-food supply chains has mostly relied on the implicit assumption that all organizational choices are available to every firm. Nevertheless, limited capabilities and the participation in low-density networks may constrain the ability of a firm to adopt a governance mechanism. Stated organizational preferences and actual organizational choices may thus differ.

Citation

Varella Miranda, B., Ross, B., Franken, J. and Gómez, M. (2022), "How do transaction costs, capabilities and networks influence the procurement strategies of small agri-food firms? Evidence from the wine industry", Journal of Small Business and Enterprise Development, Vol. 29 No. 4, pp. 550-573. https://doi.org/10.1108/JSBED-01-2021-0007