Designing Contracts for Business Networks

2010 ◽  
pp. 395-401
Author(s):  
Peter Rittgen
Keyword(s):  
Information Technology ◽  
Transaction Costs ◽  
Agency Theory ◽  
Transaction Cost Economics ◽  
Business Networks ◽  
Economic Activities ◽  
Coordination Costs ◽  
Trading Partners ◽  
The Impact ◽  
Networked Organizations

Economic activities within and between networked organizations can be coordinated via hierarchies (internal coordination) or markets (external coordination). There are theories that explain both agency theory (Jensen & Meckling, 1976) and transaction cost economics (Williamson, 1985). It is assumed that networked organizations design their organization and network of trading partners such that the sum of internal and external coordination costs is minimized. The impact of information technology (IT) has been assessed in different ways. Malone, Yates, and Benjamin (1987) expected that IT will lower transaction costs and lead to increased market coordination. Clemons, Reddi, and Row (1993, p. 9) posited that organizations will “move to the middle”, that is, to “more outsourcing, but from a reduced set of stable partnerships” if non-contractible issues such as quality and trust play an important role. Empirical evidence (Holland & Lockett, 1997) shows that companies often mix aspects from both markets and hierarchies.

Designing Contracts for Business Networks

2010 ◽  
pp. 1400-1408
Author(s):  
Peter Rittgen
Keyword(s):  
Information Technology ◽  
Transaction Costs ◽  
Agency Theory ◽  
Transaction Cost Economics ◽  
Business Networks ◽  
Economic Activities ◽  
Coordination Costs ◽  
Trading Partners ◽  
The Impact ◽  
Networked Organizations

Economic activities within and between networked organizations can be coordinated via hierarchies (internal coordination) or markets (external coordination). There are theories that explain both agency theory (Jensen & Meckling, 1976) and transaction cost economics (Williamson, 1985). It is assumed that networked organizations design their organization and network of trading partners such that the sum of internal and external coordination costs is minimized. The impact of information technology (IT) has been assessed in different ways. Malone, Yates, and Benjamin (1987) expected that IT will lower transaction costs and lead to increased market coordination. Clemons, Reddi, and Row (1993, p. 9) posited that organizations will “move to the middle”, that is, to “more outsourcing, but from a reduced set of stable partnerships” if non-contractible issues such as quality and trust play an important role. Empirical evidence (Holland & Lockett, 1997) shows that companies often mix aspects from both markets and hierarchies.

An Empirical Analysis of Productivity Gains from Information Technology's Reduction of Coordination Costs

2011 ◽  
pp. 125-145 ◽  
Author(s):  
Namchul Shin
Keyword(s):  
Information Technology ◽  
Firm Productivity ◽  
Economic Activities ◽  
Is Research ◽  
Coordination Costs ◽  
Value Of It ◽  
The Impact ◽  
Productivity Gains ◽  
The Relationship ◽  
It Productivity

Most information systems (IS) research has examined the impact of information technology (IT) on the organization of economic activities by starting from the theoretical speculation that IT reduces coordination costs and improves coordination of economic activities. This theoretical speculation, however, has not been empirically analyzed in the IS field. The value of IT for reducing coordination costs has also not been considered in the studies on IT productivity gains. This study empirically examines the relationship between IT and coordination costs, and the relationship between IT and firm productivity by considering coordination as a factor of production. The results indicate that IT is strongly associated with a decline in coordination costs and that IT and coordination make a substantial and statistically significant contribution to firm output. The results show that IT contributes to firm output by reducing coordination costs and improving coordination; that is, by making a higher level of coordination more efficient.

Lines of Advance in Global Information Technology Management

2011 ◽  
pp. 87-111
Author(s):  
Ana R. del Aguila ◽  
Sebastián Bruque ◽  
Antonio Padilla
Keyword(s):  
Information Technology ◽  
Transaction Costs ◽  
Agency Theory ◽  
Future Research ◽  
Information Technology Management ◽  
Theoretical Frameworks ◽  
Resource Based View ◽  
General Management ◽  
Knowledge Based ◽  
Transaction Costs Economics

During the last decades, numerous theoretical frameworks have been developed in the field of general management. Each theoretical framework has proved useful to explain specific questions about the structure, processes, or performance of the modern firm. In this study we try to propose some connections between general management literature and IT literature. Some of the most important management theories, such as the Transaction Costs Economics, the Agency Theory, the Resource-Based View, and the Knowledge- Based View can be useful to explain specific IT issues. The final goal of this chapter is to propose several lines of advance in global IT using different theories or frameworks as the basis for future research.

scholarly journals A tranzakciós költségek és a szabványosítás kapcsolata (Relationship between transaction costs and standardization)

2013 ◽  
pp. 37-49
Author(s):  
István Kovács
Keyword(s):  
Transaction Costs ◽  
Economic Impact ◽  
Transaction Cost ◽  
Theoretical Basis ◽  
Transaction Cost Economics ◽  
Research Question ◽  
Coordination Mechanism ◽  
Main Research ◽  
The Impact ◽  
The Relationship

Az elmúlt néhány évtizedben a szabványosítás terén igen komoly változások mentek végbe. Ugrásszerűen megnőtt a szabványok száma, és jelentősen átalakult a szabványosítás folyamata is. Ezzel párhuzamosan a téma gazdasági hatásaival foglalkozó kutatások száma is megsokszorozódott, ami elsősorban a hálózati externáliák irodalmának robbanásszerű gyarapodásának köszönhető. Jelen tanulmány – az elméletek fősodrától eltérően – a tranzakciós költségek elméletében (TKE) helyezi el a szabványosítást. A szabványok és a tranzakciós költségek kapcsolatáról már születtek korábban is tanulmányok, de ezek a szabványoknak a tranzakciós költségekre gyakorolt hatásaira fókuszáltak. A tanulmány ezzel szemben arra helyezi a hangsúlyt, hogy azonosítsa a tranzakciós költségeknek a szabványosításra gyakorolt hatásait. A kutatás célja, hogy olyan elméleti alapot adjon, amelyben a témakör átfogóan elemezhető. A fő kutatási kérdés az, hogy mitől függ az, hogy melyik mechanizmus kereteiben érdemes a szabványosítást lebonyolítani. ________ Significant changes have characterized the last few decades of standardization. The number of standards has dramatically increased and processes of standardization have also changed a lot. At the same time the amount of researches that are concerned with the economic impact of standardization has also multiplied due to the boom in the literature of network externalities. Unlike the mainstream, this paper places standardization in the theory of transaction cost economics. Although there are earlier papers that are concerned with the relationship between standards and transaction costs, these studies focus on the impact of standards on transaction costs. In contrast, this paper lays emphasis on the identification of the impact of transaction costs on standardization. This study aims to provide a theoretical basis for the comprehensive analyses. The main research question: What determines which coordination mechanism is used to evolve a standard?

scholarly journals VERTICAL INTEGRATION in AGRO-INDUSTRY: ECO-FRIENDLY GAMBIER PRODUCTS

2021 ◽  
Vol 10 (4) ◽  
pp. 9-17
Author(s):  
Hamira Hamira ◽  
◽  
Bernadette Robiani ◽  
Mukhlis Mukhlis ◽  
◽  
...  
Keyword(s):  
Environmental Pollution ◽  
Transaction Costs ◽  
Vertical Integration ◽  
Raw Materials ◽  
Garment Industry ◽  
Added Value ◽  
Primary Data ◽  
Economic Activities ◽  
Cost Component ◽  
The Impact

Textile dyeing on fabrics and clothing causes environmental pollution and health problems. There is an innovation of natural coloring using gambier in the Gambo Muba fabric industry and the garment industry in Indonesia. Gambier farmers supply natural dye raw materials. Then through the supply chain of the Gambo Muba fabric industry and the garment industry, it causes vertical integration in the gambier agro-industry. This study uses primary data from 39 vertically integrated companies in the gambier agro-industry, including the gambier rubber industry, the Gambo Muba fabric industry, and the garment industry. The data was then analyzed using descriptive qualitative. This study analyzes the relationship between vertically integrated industries, including the transaction costs between them, their impact of vertical integration on added value, and their profitability. Vertically integrated industries have low transaction costs. The impact of vertical integration on the gambier agro-industry adds to the chain of economic activities that can increase added value and profits. The impact of vertical integration can reduce transaction costs, especially the supplier coordination cost component, distributor cost component, inter-company lobbying costs components. The benefits of vertical integration in the gambier agro-industry are increasing high added value, profit levels, decreasing environmental pollution, and agro-industry sustainability.

scholarly journals How to manage a long-term buyer-supplier relationship successfully? The impact of network information on long-term buyer-supplier relationships in the Dutch potted plant and flower industry

2004 ◽  
Vol 4 (1) ◽  
pp. 7-24 ◽  
Author(s):  
Danny Claro ◽  
D. Zylbersztajn ◽  
S. (Onno) Omta
Keyword(s):  
Transaction Cost Economics ◽  
Relationship Management ◽  
Business Networks ◽  
Business Network ◽  
Dyadic Relationship ◽  
Supplier Relationships ◽  
Potted Plant ◽  
Flower Industry ◽  
The Impact

Recently, scholars have suggested that to understand fully the nature of a dyadic relationship, greater attention must be directed to the network context. In this study we drew on emerging perspectives on inter-firm governance and networks to develop a theoretical framework to understand the successful governance of long-term buyer-supplier relationships. In order to test the research framework, we conducted a survey among 174 merchant distributors (buyers) and 67 growers (suppliers) in the Dutch potted plant and flower industry. In the estimated models, we found several positive impacts of the information obtained from the business network on the dimensions of relationship management, and ultimately performance, both in terms of operations as well as finance. The results of this study support our rationale that the business network compensates for the information asymmetry assumed in transaction cost economics. Although there are several similarities in our findings, buyers and suppliers use clearly different information strategies to achieve success. While the most successful distributors tend to take the 'hard', tangible approach using transaction-specific investments and fostering joint action, the successful growers take the 'soft', social approach by putting emphasis on norms of flexibility in the relationship. Managers may use these findings to check the adequacy of their business networks and their approach to relationship management.

Organizational Forms in the Electronic Age

2004 ◽  
Vol 29 (3) ◽  
pp. 83-96 ◽  
Author(s):  
Abhoy K Ojha
Keyword(s):  
Transaction Costs ◽  
Bounded Rationality ◽  
Information And Communication Technologies ◽  
Network Governance ◽  
The Internet ◽  
Organizational Forms ◽  
Governance Mechanisms ◽  
Coordination Costs ◽  
Modes Of Governance ◽  
The Impact

There is a fundamental shift in economics of information due to emerging information and communication technologies (ICTs). This shift has resulted in what is popularly called the ‘information revolution.’ Most people are quite familiar with arguments that suggested the death of organizations as we know them. While a lot of such writing was hyped, there is a definite impact of the emerging ICTs on fundamental organizing principles leading to some real changes in organizations. This paper attempts to understand and explicate some of these influences by expanding the framework offered by Transaction Cost Theory (TCT). TCT assumes that economic actors (individuals or firms) display bounded rationality and opportunism. Bounded rationality suggests that people cannot be truly rational despite their desire to be so. Opportunism suggests that people often cheat to gain at the expense of the other party in a transaction. Hence, organizations are designed to reduce the impact of bounded rationality and safeguard against opportunism. Transaction costs are incurred in ensuring efficient and fair exchanges between economic actors. There are three kinds of transaction costs: information costs related to the search, acquisition, storing, processing, and dissemination of information associated with the transactions contracting costs which refer to the cost of negotiations and contract development coordination costs related to the activity concerned with satisfying each party to an exchange that the value given and received is in accordance with the formal contractual agreements and expectation. The most efficient forms of organizations result when governance mechanisms reduce the transactions costs. Traditionally, TCT suggested that market, hierarchy, and clan were three governance mechanisms that were efficient in three different contexts. This paper argues that the internet has increased the efficiency of market governance leading to transactions that were not feasible earlier. Large and reputed organizations now have an opportunity to reach out to customers and also increase their participation in transactions. The internet has also led to the emergence of virtual organizations based on a new mode of governance called self-governance. Organizations can now encourage their employees to be part of communities of practice for mutual benefit. Extranets have enhanced the scope of network organizations by making network governance more viable. They provide a means of developing a reliable vendor network that gives the large organizations the benefits of the market while maintaining appropriate hierarchical control. Finally, intranets have improved the efficiency of hierarchical governance thus expanding its scope of application. They have improved the efficiency of matrix organizations and facilitated the management of integrated and centralized organizations. Intranets have also made clan governance more feasible. This will allow large companies to build organic solidarity in a geographically distributed team to create new products. In essence, the emerging information technologies are beneficial for the following reasons: They have led to the emergence of new modes of governance. They have increased the opportunity to govern a greater range of exchanges than was possible without them. They have altered the conditions under which the alternate modes of governance are suitable. However, organizational designers need to acquaint themselves with the limitations before designing organizational forms.

Relationship characteristics and performance in fresh produce supply chains: the case of the Mexican avocado industry

2010 ◽  
Vol 10 (1) ◽  
pp. 1-15 ◽  
Author(s):  
Jose Jaime Arana Coronado ◽  
Jos Bijman ◽  
Onno Omta ◽  
Alfons Oude Lansink
Keyword(s):  
Supply Chains ◽  
Transaction Costs ◽  
Information Exchange ◽  
Transaction Cost Economics ◽  
Fresh Produce ◽  
Credence Attributes ◽  
And Performance ◽  
The Individual ◽  
Uncertainty Information ◽  
The Impact

Inter-organisational relations research has shown that relationship characteristics can influence performance in seller-buyer transactions. Using a transaction cost economics approach, this research shows that relational elements such as expectation of continuity reduce the transaction risks related to behavioural uncertainty or asset specificity. However, transaction costs are not only caused by transaction risks but also by the need to coordinate the individual activities of the buyer and the seller. Inter-organisational coordination is important in transactions with perishable products and products with credence attributes, such as in fresh produce supply chains. To study the impact of different relationship characteristics on the efficiency of transactions in a fresh produce supply chain, we collected and analyzed data from 122 avocado producers in Mexico. We found that information exchange and producer expectation of continuity of the relationship positively affect performance in the seller-buyer transaction. While expectation of continuity leads to lower transaction costs associated with behavioural uncertainty, information exchange facilitates the efficient alignment of interdependent activities.

The Impact of Ronald Coase’s “Nature of the Firm” on my Research Agenda on Overseas Chinese Merchants in Southeast Asia

2019 ◽  
Vol 5 (2) ◽  
Author(s):  
Janet Tai Landa
Keyword(s):  
Southeast Asia ◽  
Transaction Costs ◽  
Price Mechanism ◽  
Single Product ◽  
Contract Negotiation ◽  
Ethnic Boundary ◽  
Trading Partners ◽  
Concentric Circles ◽  
Trading Network ◽  
The Impact

Abstract Ronald Coase (1937), in his article “Nature of the Firm,” argued that if the price mechanism is used, a factor of production (owner of the firm) would need to negotiate a series of contracts separately with each of the factors with whom he is co-operating; these contract negotiation costs could be reduced by organizing a firm because the owner-entrepreneur of the firm is able to direct resources within the firm, hence saving some transaction costs. Furthermore, Coase used a von Thünen concentric circles diagram to depict a single-product firm, as it expands, grows into a multi-product firm. My theory of the ethnically homogeneous [Chinese] middleman group/EHMG (Landa 1981), argued that the EHMG is an organization which reduces the transaction costs of contract enforcement. Using a von Thünen concentric circles diagram, I showed how a rational trader chooses his trading partners, moving from the innermost circle (most trusted partners) outwards to the ethnic boundary as he expands the size of this trading network. The aggregative result of all rational traders’ choice of trading partners is the spontaneous emergence of the EHMG. My 1981 papers together with subsequent published papers on the EHMG have been reprinted in my book, Economic Success of Chinese Merchants in Southeast Asia (Landa 2016); these papers created the “Economics of Identity,” a new subfield, while carrying on the Coasian transaction costs tradition.

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