Transaction cost economics (TCE) is one of the most widely referenced organization theories in operations and supply chain management research. Even though TCE is a broadly applicable theory of ...governance, one of its specific topics of interest—the make‐or‐buy decision—readily aligns with some of the central research questions on how firms manage supply chains. However, both general management and operations management researchers sometimes misunderstand and misapply TCE's aims, assumptions, and logic. A common mistake is to read TCE as a theory of competence or of power. While TCE relates to both, TCE is essentially a theory of efficient governance of transactions in particular and exchange relationships in general. Our purpose in this study is to review the intellectual and theoretical foundations of TCE, its primary aims, and its applicability as a theory of supply chain efficiency. To this end, we discover much common ground between TCE and research in operations and supply chain management. We close by discussing implications for future research, focusing on how operations and supply chain management researchers could contribute to broader academic conversations on management and governance.
•Blockchain alleviates distrust issues only partially.•Upstream player opts for blockchain if it enables higher quality products•Downstream player opts for blockchain if it increases ...sales.•Blockchain’s downstream damages deter both players from its adoption.•Only future eco-friendly blockchain technology can lead to its diffusion.
This research proposes a game theory model in a supply chain (SC) involving one manufacturer and one retailer. The SC works in a global market in which consumers are located worldwide and subject to traceability issues that can create distrust of the product quality. This issue can be resolved by implementing blockchain technology which provides benefits in terms of high traceability along with low transaction costs. However, blockchain negatively impacts the environment because of their high energy consumption. Therefore, in this study, we capture the trade-offs between traceability and sustainability for blockchain adoption by characterizing a game theory model. Our findings show that high levels of distrust pushes firms to avoid the implementation of blockchain. In such circumstances, blockchain is not sufficient to make consumers recognize the product quality and trust the firms’ practices. In contrast, low levels of distrust can make blockchain an economically suitable technology conditioned to minimal environmental damages; otherwise, firms need to carefully evaluate the trade-offs between distrust and sustainability. Since the adoption of blockchain leads to an increase in prices and decrease of distrust, two factors determine whether to pursue this technology or not: low consumer sensitivity to price and high sensitivity to quality. In this study, we develop three specific cases where we model: 1) the direct impact of blockchain on distrust, 2) a stochastic distrust term, and 3) a Stackelberg game. Each case confirms our results and strengthens the robustness of our findings.
Supply Chain Risk Management has become a key concern for organizations, which is even further emphasized by the current economic and financial crisis. Against this background, this paper ...investigates successful approaches and experiences by companies in dealing with this new reality, especially as it concerns the supply side. Using in-depth case studies conducted among eight European enterprises, we develop a set of propositions about how companies manage supply risks in financial crises, highlight how their risk management approaches have shifted, and illustrate how they are related to Enterprise Risk Management. Our framework is further differentiated based on whether firms are predominantly engaged in manufacturing or services—a factor influencing how supply chain risk is managed. Transaction cost economics serves as our main theoretical anchor. By rigorously grounding our research in both theory and empirical evidence, we provide valuable insight for both academia and practice.
Drawing on transaction cost theories and the resource-based view of a firm, we posit that the value of corporate social responsibility (CSR) initiatives is greater in countries where an absence of ...market-supporting institutions increases transaction costs and limits access to resources. Using a large sample of 11,672 firmyear observations representing 2445 unique firms from 53 countries during 2003–2010 and controlling for firm-level unobservable heterogeneity, we find supportive evidence that CSR is more positively related to firm value in countries with weaker market institutions. We also provide evidence on the channels through which CSR initiatives reduce transaction costs. We find that CSR is associated with improved access to financing in countries with weaker equity and credit markets, greater investment and lower default risk in countries with more limited business freedom, and longer trade credit period and higher future sales growth in countries with weaker legal institutions. Our findings provide new insights on non-market mechanisms such as CSR through which firms can compensate for institutional voids.
Rather than searching for a universal optimal level of multinationality for all firms, we argue that firm-specific attributes should result in firm-specific optimal levels of multinationality. ...Specifically, we draw upon transaction cost and internalization theory to argue that there will be different optimal levels of multinationality for individual firms, and if firms internalize foreign operations to an extent less than or greater than their individual optimal levels, transaction costs will increase and performance will decrease. To test this idea, we use transaction cost models in the context of large US law firms during the time period from 1986 through 2008 to estimate firm-specific optimal multinationality. Next, we test relationships between alignment with, or deviations from, firm-specific optimal levels of multinationality and performance (MA-P). Consistent with the MA-P hypothesis, insufficient and excessive levels of multinationality are both negatively related to financial performance. In addition, excessive multinationality is positively associated with downside performance risk. One key implication is that an MA-P approach may offer greater theoretical validity and clarity than traditional multinationality and performance (M-P) approaches.
This Counterpoint investigates the continued relevance of the 30-year-old Kogut and Singh (KS) index of cultural distance. KS was a seminal contribution, highlighting the relevance of cultural ...differences in IB. However, since then, simplistic replications of the original arguments and index have prevented us from progressing towards a better understanding of how cross-national differences matter. We discuss the mechanisms underlying the construct and how they relate to the algorithm, data, and its critiques. We call for more theoretically informed approaches, highlighting the underlying mechanisms, and specifying which data and algorithms best capture those mechanisms in each research context.
Reflecting amplified hazards in cross-border exchange and imperfections in markets for intangibles, internalization has been central in multinational enterprise (MNE) theory. This centrality ...notwithstanding, the fact is that internalization coheres with lower-powered incentives and carries an implicit drawback, namely, higher realized production costs. With the emergence and deployment of information and communication technology (ICT), modern MNEs are reshaping their transnational governance to address this cost. The modern MNE uses ICT to mitigate transaction costs, and evolves more to arm's length exchange to incentivize lower production costs. A testable prediction is that MNEs in industries more susceptible to and employing more ICT will exhibit a reduced propensity for transnational integration. We examine this hypothesis using available data from 1982 to 1997 for US MNEs across all manufacturing sectors. Regression results and robustness tests are strongly congruent with the prediction. This study, a first to explore empirically the role of ICT in the evolution of transnational exchange, suggests that MNE theory, until now founded primarily on transaction cost economics and a cross-border control theory of value capture, is more likely to keep pace with developments in MNE practice by opening up to incentive theories of exchange governance and a cross-border coordination theory of value creation.
•The exact analytical formula of the transaction remainder factor is derived.•The state-dependent exponential moving average method is proposed.•The risk parity constraint is added to the net profit ...maximization model.•The state-dependent online portfolio selection algorithm is designed.
Artificial intelligence (A.I.) techniques have been applied to the online portfolio selection (OLPS) problem, a topic attracting increasing attention. In brief, OLPS is the task of sequentially updating the investment portfolio with the continuous update of assets’ prices. In this paper, we study the OLPS problem with transaction costs. First, we study the exact computation of the transaction cost and derive related constant upper and lower bounds, which allow us to take the transaction costs into account when deriving an optimal portfolio in each investment period. Second, considering that assets’ market states switch from time to time and their prices exhibit different behaviors in different market states, we propose the state-dependent exponential moving average method (SEMA), which can accurately predict assets’ returns based on historical return data and assets’ market states. Third, we construct the net profit maximization model (NPM) and the net profit maximization model with a risk parity constraint (NPMRP). Finally, we combine these three parts to build the state-dependent online portfolio selection algorithm (SOPS) for solving the OLPS problem with transaction cost. Our empirical results reveal that the proposed SOPS algorithm can outperform many state-of-the-art OLPS algorithms.
Service provider opportunism is a serious concern in third party logistics (3PL) relationships. However, our knowledge about the antecedents of 3PL providers' opportunism is limited. According to ...transaction cost economics (TCE), increased transaction costs cause opportunism. This study incorporates key TCE constructs (environmental uncertainty, specific assets, and opportunism) and conducts a transaction cost analysis. We argue that environmental uncertainty and specific assets create exchange hazards that result in opportunism. Meanwhile, specific assets reduce coordination costs raised by environmental uncertainty. Building on these arguments, this study tests a model that hypothesizes that environmental uncertainty (demand, supply, and technology uncertainty), and specific assets (user- and provider-specific assets) are positively related to opportunism, and that environmental uncertainty is positively related to specific assets. Structural equation modeling is used to examine data from 247 3PL relationships in China. The results show that demand uncertainty decreases opportunism, supply uncertainty increases opportunism, and technology uncertainty does not have a significant effect. User-specific assets increase opportunism, while provider-specific assets decrease opportunism. Demand and supply uncertainty have positive effects on user-specific assets, but non-significant effects on provider-specific assets, while technology uncertainty does not have a significant impact on user or provider-specific assets. In general, our findings are supported by the rationale of TCE, and industrial or cultural factors can explain several surprising findings. This study contributes to 3PL literature and practice.
The globalization of state-owned multinational companies (SOMNCs) has become an important phenomenon in international business (IB), yet it has received scant attention in the literature. We explain ...how the analysis of SOMNCs can help advance the literature by extending our understanding of state-owned firms (SOEs) and multinational companies (MNCs) in at least two ways. First, we cross-fertilize the IB and SOEs literatures in their analysis of foreign investment behavior and introduce two arguments: the extraterritoriality argument, which helps explain how the MNC dimension of SOMNCs extends the SOE literature, and the non-business internationalization argument, which helps explain how the SOE dimension of SOMNCs extends the MNC literature. Second, we analyze how the study of SOMNCs can help develop new insights of theories of firm behavior. In this respect, we introduce five arguments: the triple agency conflict argument in agency theory; the owner risk argument in transaction costs economics; the advantage and disadvantage of ownership argument in the resource-based view (RBV); the power escape argument in resource dependence theory; and the illegitimate ownership argument in neo-institutional theory. After our analysis, we introduce the papers in the special issue that, collectively, reflect diverse and sophisticated research interest in the topic of SOMNCs.
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