Complexity of Outsourcing Contracts and "Ex Post" Transaction Costs: An Empirical Investigation
AbstractIn this article, we use Transaction Cost Economics (TCE) and the Resource-Based View (RBV) of the firm to study outsourcing agreements. We develop an original approach of contract complexity and analyse the links among exchange hazards (i.e. specificity and environmental uncertainty), the contractual aspects of outsourcing (control, incentives, penalties, price and flexibility clauses) and the level of "ex post" transaction costs. Both contract complexity and "ex post" transaction costs are operationalized and measured. Our empirical research analyses 82 outsourcing contracts. This article uses three different dimensions (proximity to the core business, switching costs and adaptation costs) to assess the strategic importance of an outsourced activity. Our findings extend TCE's validity for the outsourcing of activities with a strategic value. Finally, this study offers an indirect measurement of "ex post" transaction costs. In short, to restrict vendor opportunism, contracts must contain incentives and penalties, as well as pricing and monitoring clauses. Copyright Blackwell Publishing Ltd 2006.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Journal of Management Studies.
Volume (Year): 43 (2006)
Issue (Month): 8 (December)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2380
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- Mukherjee, Debmalya & Gaur, Ajai S. & Datta, Avimanyu, 2013. "Creating value through offshore outsourcing: An integrative framework," Journal of International Management, Elsevier, Elsevier, vol. 19(4), pages 377-389.
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- Kang, Min-Ping & Mahoney, Joseph T. & Tan, Danchi, 2007. "Why Firms Make Unilateral Investments Specific to Other Firms: The Case of OEM Suppliers," Working Papers 07-0110, University of Illinois at Urbana-Champaign, College of Business.
- Hansen, Zeynep & Higgins, Matthew, 2007. "The Effect of Contractual Complexity on Technology Sourcing Agreements," MPRA Paper 4979, University Library of Munich, Germany.
- Albert Plugge & Jacques Brook, 2011. "Examining the Implications of Organizational Structure Changes from a Transaction Cost Perspective: a Longitudinal Study of an Outsourcing Vendor," Working Papers 2011/12, Maastricht School of Management.
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