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The purpose of this paper is to analyse the extent to which transaction cost theory on hybrid governance structures can explain hybrid personalities observed in the South…
The purpose of this paper is to analyse the extent to which transaction cost theory on hybrid governance structures can explain hybrid personalities observed in the South African sugar industry.
Three governance structures used simultaneously by the same company to purchase sugar cane from small-scale growers are described in detail. One of these structures is close to a market arrangement, the other two are hybrids. The discriminating alignment hypothesis and more recent work on hybrid models are used to explain the factors driving the choice for a hybrid arrangement and determining their specific form. Factors not covered by theory are identified.
At least two areas would need to be included to explain the specific form taken by the studied governance structures: production characteristics and financial constraints of the transacting parties. Furthermore, the importance of national and local regulations in affecting organizational form by determining what is and is not possible is demonstrated.
This case study highlights limitations of current theory in fully explaining the “personality” of governance structures. Future work should not shun the finer details of governance structures and their interaction with the institutional environment.
Inclusive business models are promoted as tools for poverty alleviation and economic development. Public involvement plays an important role, however, more research is required to understand its reach and leverage its full potential.
This paper is the first to rigorously apply transaction cost theory to inclusive business models in agricultural sourcing, an area which is rapidly gaining prominence on the development agenda. It shows that a complete understanding requires going beyond current theory.