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Book part
Publication date: 25 October 2014

Alexander H. Wisgickl and Jonas Puck

Building on transaction cost economics (TCE) and recent critique on international business (IB) research, we intend to sharpen our knowledge on the application of TCE in…

Abstract

Purpose

Building on transaction cost economics (TCE) and recent critique on international business (IB) research, we intend to sharpen our knowledge on the application of TCE in entry mode studies.

Methodology/approach

We develop a two-sided model of transaction costs by considering the multinational corporation (MNC) and the local partner.

Findings

Overall, we illustrate that the decisions firms undertake are not always in line with traditional MNC-centric TCE reasoning. Specifically, we identify three situations when “traditional” TCE predicts transaction costs lower than they actually are. Based on our findings we derive implications for future TCE studies.

Originality/value

Our study is among the first to highlight the relevance of potential partners’ transaction costs during market entry. Our model of dually impinged transaction costs is supposed to guide future research and can be of direct use to firms assessing costs of entry.

Details

Multinational Enterprises, Markets and Institutional Diversity
Type: Book
ISBN: 978-1-78441-421-4

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Article
Publication date: 1 June 1999

Christos N. Pitelis and Anastasia N. Pseiridis

Two major advances in the theory of the firm and (micro)economics more generally are arguably transaction costs economics (TCE) and the theory of firm resources. TCE has…

Abstract

Two major advances in the theory of the firm and (micro)economics more generally are arguably transaction costs economics (TCE) and the theory of firm resources. TCE has originally been applied to the theory of the firm, but found applications in virtually all fields of economic inquiry. The theory of firm resources currently spans much of the industrial organisation (IO) and strategic management literature. In some fields, e.g. diversification, it has already acquired dominant status. Despite significant progress in TCE there still seem to remain significant unresolved issues. Indeed we claim that transaction cost economics fail to supply convincing answers to the issues of the nature of the firm (why do firms exist?), and their essence (running a business). It offers a partial explanation of the “nature” and little on the “essence”. The resource value view complements the nature side and goes far beyond on the essence issue. It provides a fruitful starting point for an integrative framework. This, we suggest, should be based on the resource value perspective story and craft (dynamic) transaction costs in the ensuing evolutionary tale.

Details

Journal of Economic Studies, vol. 26 no. 3
Type: Research Article
ISSN: 0144-3585

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Book part
Publication date: 10 June 2009

Kyle J. Mayer

Transaction cost economics (TCE) has received extensive attention from a variety of disciplines, but it holds a particularly central place in strategic management. The…

Abstract

Transaction cost economics (TCE) has received extensive attention from a variety of disciplines, but it holds a particularly central place in strategic management. The focal issues examined by TCE, vertical integration and interfirm governance (including contract design), are important determinants of firm performance – the central issue in the field of strategy. While several extensive reviews of empirical work in TCE have been undertaken, one key issue has received relatively little attention – construct validity in TCE empirical research. The purpose of this chapter is to highlight some of the challenges of operationalizing key transaction cost predictions and provide some ideas for better measuring core constructs such as asset specificity, uncertainty, and frequency.

Details

Research Methodology in Strategy and Management
Type: Book
ISBN: 978-1-84855-159-6

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Article
Publication date: 30 August 2011

Martin Müller and Huguette Aust

This paper aims to present an in‐depth review on the latest state of empirical research in transaction cost economics (TCE), focusing on single‐industry studies. The…

Abstract

Purpose

This paper aims to present an in‐depth review on the latest state of empirical research in transaction cost economics (TCE), focusing on single‐industry studies. The intensely discussed subject of operationalization of transaction costs is critically assessed, and a concept of how to increase the quality of findings in empirical studies is presented.

Design/methodology/approach

The sample was obtained by a literature research and review in high‐class media and submitted to in‐depth quantitative and qualitative analysis such as content analysis.

Findings

The findings are in part unexpected and substantially contribute to research: applicability of TCE to a broad range of industries is found, the majority being large industries with important markets. Most studies support TCE statements, some suggesting theory extension by complementary aspects. Operationalization of transaction costs remains a field requiring further research.

Research limitations/implications

First, this article is condensed and therefore limited to single‐industry studies within TCE, understanding “industry” as a specialized field of activity. The question of industry boundaries may be a base for future research. Second, the subject of operationalization of transaction costs still requires further research.

Practical implications

Decision makers can continue to use TCE for various applications such as strategic alliance, vertical integration, governance choice, make‐or‐buy or contract choice questions. A shortcoming in most articles reviewed is the presentation of the industry's characteristics. Authors need to consider them in order to increase the qualitative level of single‐industry studies.

Originality/value

This paper provides significant insight into the field of single‐industry TCE studies. As a result of penetrating research in high‐class media and in‐depth analysis, the paper provides highly structured and intensely examined statements on existing literature and related findings, which support TCE statements and will lead current disputes in the literature to a further stage.

Details

Industrial Management & Data Systems, vol. 111 no. 8
Type: Research Article
ISSN: 0263-5577

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Article
Publication date: 31 May 2006

Aimao Zhang

Transaction cost economics is an important anchor for analyzing a wide range of economic and organizational issues and is complemented by various theories, resulting in a…

Abstract

Transaction cost economics is an important anchor for analyzing a wide range of economic and organizational issues and is complemented by various theories, resulting in a perception shift of transaction governance structure from a polar classification toward a continuum (John & Reve, 1982; Heide & Miner, 1992; Hennart, 1993). Despite conceptual framework developments, empirical studies based on the continuum are scarce. This research is an initial effort toward TGS dimensionalization and operationalization and reviews theoretical developments since 1930, surveys empirical studies from 1982 to 2004, presents Williamson’s framework (1991), and proposes a set of items for instrument design.

Details

International Journal of Commerce and Management, vol. 16 no. 2
Type: Research Article
ISSN: 1056-9219

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Article
Publication date: 1 May 2006

Ed Vosselman and Jeltje van der Meer‐Kooistra

This paper specifically seeks to explore the contribution of extended TCE‐reasoning to our understanding of intended change in management control in interfirm…

Abstract

Purpose

This paper specifically seeks to explore the contribution of extended TCE‐reasoning to our understanding of intended change in management control in interfirm transactional relationships.

Design/methodology/approach

The approach is theoretical of nature. After having outlined the essentials of TCE‐reasoning and having critically reviewed the extant TCE‐contribution to research in management control, this paper extends TCE‐reasoning by incorporating the notion of trust into the analysis. Different sources of trust as well as the management control related impacts of trust are explored.

Findings

The paper develops propositions that, in the context of an interfirm transactional relationship, confront choices for alternative management control patterns with situational and institutional features.

Research limitations/implications

The paper particularly covers the overt instrumental level of management control in interfirm transactional relationships. Although the paper covers relational aspects, it does not provide a strong theory of the working of “soft controls”.

Practical implications

An explanation of intended change could help practitioners to improve decision making at the level of their organizations.

Originality/value

The paper contributes to the extant knowledge by exploring the scope of TCE with regard to choices in the (re)design of management control patterns in interfirm transactional relationships.

Details

Journal of Accounting & Organizational Change, vol. 2 no. 2
Type: Research Article
ISSN: 1832-5912

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Book part
Publication date: 13 August 2014

Reinald Minnaar

The study aims to add to the knowledge of governance and control aspects of intrafirm relationships by exploring a transaction costs economics perspective (TCE

Abstract

Purpose

The study aims to add to the knowledge of governance and control aspects of intrafirm relationships by exploring a transaction costs economics perspective (TCE perspective) on governance and management control structure choices related to the development of a shared service center (SSC).

Design/methodology/approach

The notion of governance and control in SSC organizations is explored and a TCE model is developed to analyze management control structure choices for SSC governance. The nature of internal transactions is related to the dimensions of transactions. Then an example case study is used to illustrate the application of the theoretical model.

Findings

The theoretical analysis broadens existing frameworks of management control structures by particularly pointing to the possibility of including governance structures for internal transactions and exit threats (connected to a market mechanism) in the management control structure of an organization. Confrontation with the case example illustrates that the possibility of an exit threat was not explicitly considered by top management (“the designer” of management control). Although the TCE model may be a useful tool for analysis purposes, it has little explanatory power in this particular case. Organizational change processes toward SSCs are complex and can only partly be examined with conventional economics-based approaches such as TCE.

Research limitations/implications

Governance and control of SSCs is conceptually theorized, using an instrumental economics approach. The case study is not generalizable but illustrates the use of the model in a particular situation. To understand governance and control change within SSC organizations, more longitudinal case studies are needed.

Practical implications

A TCE approach to governance and control choices regarding SSCs might provide practitioners with insights into the efficiency of specific management control structures.

Originality/value

This chapter contributes to the extant knowledge by both exploring and challenging a TCE perspective on SSC-related changes in management control.

Details

Shared Services as a New Organizational Form
Type: Book
ISBN: 978-1-78350-536-4

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Article
Publication date: 17 February 2012

Aini Aman, Noradiva Hamzah, Rozita Amiruddin and Ruhanita Maelah

Finance and accounting (FA) offshore outsourcing is a growing trend involving a relocation of business processes to Asia but only few studies focus on understanding the…

Abstract

Purpose

Finance and accounting (FA) offshore outsourcing is a growing trend involving a relocation of business processes to Asia but only few studies focus on understanding the issues that underlie the relocation of FA services. This paper aims to provide understanding of transaction costs economics (TCE) issues in FA offshore outsourcing using a case study of the Malaysia outsourcing industry which is growing and experiencing significant change.

Design/methodology/approach

This study uses a qualitative case study approach. Interviews cover several foreign firms, which are based in Malaysia and involved in FA offshore outsourcing services worldwide. Interviews also include related regulatory bodies in Malaysia.

Findings

Using TCE and management control theoretical framework, findings indicate issues and challenges faced by the firms and the need for contract management skills to mitigate the issues.

Research limitations/implications

This study is limited to a broad discussion of FA offshore outsourcing, TCE and contract management but it could be a basis for future studies on specific issues of managing attrition in FA offshore outsourcing. This study contributes to prior works in TCE and FA offshore outsourcing by establishing controls to minimise costs at contact, contract and control stage. Specifically, this study emphasises contract management such as negotiating contract and using long‐term contractual arrangement.

Practical implications

This study not only identifies TCE issues in offshore FA outsourcing, but also provides suggestions for minimising transaction costs. For example, firms should consider the type of transaction costs involved and plan for appropriate contract management to mitigate the costs.

Originality/value

There is no study yet that discusses in‐depth the issues of TCE in FA offshore outsourcing especially in Malaysia and the need for contract management in mitigating such issues.

Details

Strategic Outsourcing: An International Journal, vol. 5 no. 1
Type: Research Article
ISSN: 1753-8297

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Article
Publication date: 3 September 2018

Abha Chatterjee, Sasanka Sekhar Chanda and Sougata Ray

This paper aims to develop conceptual arguments questioning the efficacy of administration by the transaction cost economics (TCE) approach in an organization undergoing a…

Abstract

Purpose

This paper aims to develop conceptual arguments questioning the efficacy of administration by the transaction cost economics (TCE) approach in an organization undergoing a major change.

Design/methodology/approach

The focus is on three distinct dimensions of organizational life where, as per prior research, TCE is likely to be inadequate: interdependence across transactions, high reliance on managerial foresight and inseparability of administrative decisions made at different points in time.

Findings

The climate of coercion and surveillance engendered by administration based on TCE approaches – that punishes deviation from goals, even when they are framed on inadequate knowledge – forestalls creative problem-solving that is necessary to address unforeseen developments that arise during change implementation. Fiat accomplishes within-group compliance in the change project sub-teams, but between-group interdependencies tend to be neglected, hampering organizational effectiveness. Moreover, attempts to create independent spheres of accountability for concurrent fiats regarding pre-existing and new commitments breed inefficiency and wastage.

Research limitations/implications

The malevolent aspects of TCE-based administration contribute to organizational dysfunctions like escalation of commitment and developing of silos in organizations.

Practical implications

To succeed in effecting a major organizational change, meaningful relaxation of demands for delivering on prior goals is required, along with forbearance of errors made during trial-and-error learning.

Originality/value

TCE-based administration is deleterious to an organization attempting a major change. Supremacy accorded to resolution of conflicts in distinct hierarchical relationships by the mechanism of fiat fails to address the needs of an organizational reality where multiple groups are engaged in a set of interdependent activities and where multiple, interdependent organizational imperatives need to be concurrently served.

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Article
Publication date: 6 April 2012

Ed Vosselman

The purpose of this paper is to contrast and to connect a transaction cost economics (TCE) perspective and an actor‐network theory (ANT) perspective on control of…

Abstract

Purpose

The purpose of this paper is to contrast and to connect a transaction cost economics (TCE) perspective and an actor‐network theory (ANT) perspective on control of interfirm transactional relationships.

Design/methodology/approach

The paper outlines two theoretical perspectives on interfirm control: an ostensive TCE perspective and a performative ANT perspective. By contrasting these perspectives the different assumptions of each perspective are highlighted. By connecting them, potentially interacting research approaches become visible.

Findings

Ostensive research and performative research may be two sides of the same coin. Ostensive TCE‐based research produces intentional explanations for the choice of certain control structures, while performative research exposes the mobilization of control structures in specific episodes from practice. Interaction between the two potentially accelerates and enhances knowledge production on control in interfirm relationships. TCE‐based ostensive research produces conceptualizations that can be followed as actors, thus enabling a demonstration of their enactment. Conversely, ANT‐based research may challenge the stability of (con)text as it is perceived in TCE‐based research.

Originality/value

The paper offers a base for multi‐paradigm research into control of interfirm transactional relationships. Specifically, the paper offers a base for connecting TCE‐informed research and ANT‐informed research into interfirm control.

Details

Qualitative Research in Accounting & Management, vol. 9 no. 1
Type: Research Article
ISSN: 1176-6093

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