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This paper aims to develop a theoretical framework based on transaction cost economics that identifies key factors shaping public agencies’ governance of supplier relationships and related performance implications.

The paper presents an extended transaction cost framework for research on public procurement (PP) with a corresponding set of propositions. Transaction cost theory and specific features of and challenges to the PP function identified in extant literature constitute the main elements of the framework.

This conceptual paper makes three sets of proposals. First, public agencies tend to rely on market governance of supplier relationships and when PP deploys non-market governance, such governance tends to be of a unilateral (vs bilateral) kind. Second, increases in purchasing competence and autonomy of PP and particularly if implemented in tandem, will reduce PP’s overreliance on market governance and increase PP’s use of non-market governance. Third, PP should perform better for less complex transactions – and when contracting complexity relates to safeguarding of specific assets rather than when complexity relates to environmental and behavioral uncertainty. Increases in competence and autonomy should increase PP’s performance, particularly for complex transactions.

Public agencies may be in a better position to align governance solutions with transaction complexities by developing their procurement competence, decentralizing procurement decisions and increasing the flexibility of national and international procurement regulations. Private companies selling to public agencies need to be aware of and able to adapt to PP practices such as extensive use of market governance and unilateral governance as the primary form of non-market governance.

The paper discusses how public agencies can improve procurement performance through better alignment of governance of supplier relationships with transaction attributes and thereby increase the quality of public services.

The paper relies on a well-established theoretical perspective, enabling identification (and, potentially, correction) of governance misalignment in the public sector.

Research within the inter-organizational field has until recently focused on the formation and maintenance of business relationships, while less research has been directed toward the study of relationship ending. Lately, however, research on dissolution and related constructs, such as exit intention and switching has emerged (Halinen, Havila, & Tähtinen, 1999a; Prim-Allaz, 2000; Tähtinen & Havila, 2004; Vaaland, Haugland, & Purchase, 2004). Some literature focuses on the reasons and antecedents to relationship dissolution (Ping, 1999; Haugland, 1999; Wathne, Biong, & Heide, 2000), while other research investigates the process and consequences of relationship dissolution (Grønhaug, Henjesand, & Koveland, 1999; Giller & Matear, 2001; Alajoutsijärvi, Möller, & Tähtinen, 2000). Yet, few studies have investigated relationship dissolution in cross -national dyads. Specifically, the current research examines how supplier reps’ cultural knowledge, cultural adaptation and communication affect buyer tolerance of conflict in cross-national business relationships. The construct tolerance of conflict refers to the intention to discontinue the business relationship with the current partner given conflict situations. This construct is therefore conceptually close to exit intention; a construct frequently used in relationship dissolution studies (e.g. Ping, 1993,1995; Halinen & Tähtinen, 1999b).

Argues that relational exchange is dependent upon both effectiveness and power considerations. The primary objective is to study the effect of power and effectiveness on the relational exchange process between voluntary retail chains and their vendors. In particular, proposes that relational exchange between the chain and the vendor is dependent on (1) the chain’s ability to obtain necessary coordination and limiting free‐riding within the chain system, as well as (2) creating a symmetrical dependence structure that fosters trust and long‐term commitment. The first issue is related to effectiveness, while the second issue concerns aspects of power. The hypotheses were tested on a sample of relations between voluntary retail chains and their suppliers in Norway. Results suggest that free‐riding within the chain, number of chain members and asymmetry of market position are negatively related to relational exchange.

This part contains four papers. Even though this volume of AIM primarily concerns exporter–intermediary relations, the first two contributions deal with channel choice and partner selection. The first chapter by Kent Eriksson, Jukka Hohenthal and Jessica Lindbergh, “SME export channel choice in international markets”, tests some of the fundamental factors proposed by the IP model explaining choice of entry mode (accumulation of knowledge of foreign markets determining foreign operation modes). Later developments of the model claim that experience and knowledge of local business relationships are also essential elements of the IP model. Whereas the IP model has been found to hold well for incremental resource commitments, it has – in contrast to transaction-cost theories – produced mixed results concerning its ability to explain operation modes. The authors present findings from research in 494 firms from Sweden, Denmark and New Zealand: factors included in the initial explanation of the IP model explain choice of channel, but later developments of the model do not. Implications are that the foreign market knowledge is, and that more incremental experiential knowledge accumulation is not relevant for export channel choice as regards integrated or non-integrated channel. The results show that for Small and Medium Sized Businesses (SMEs), expected market growth lead to use of integrated channels. Integrated channels make it possible to reap more of the profits from a growing market and to learn faster about what is going on in the market. They also found that use of integrated channels is correlated with cultural distance, contradicting the findings of Johanson and Vahlne (1977) and Kogut and Singh (1988). The IP model therefore offers a rather weak explanation of choice of integrated channel.