IDEAS home Printed from https://ideas.repec.org/a/ora/journl/v1y2017i1p883-891.html
   My bibliography  Save this article

The Relationship Between Transaction Costs And Flexibility In Outsourcing: A Conceptual Framework

Author

Listed:
  • Allam YOUSUF

    (Logistics Department Faculty of Economics and Business)

  • Janos Felfoldi

    (Logistics Department Faculty of Economics and Business)

Abstract

Companies face endless anxiety to ensure they deliver goods and services of the best quality in perfect time to their customers, so they have to find the best and most flexible outsourcing firms to contract with. However, this will lead to high transaction costs which arise because of the of company‘s activities in the market. The aim of this paper is to shed light on the relationship between transaction costs and flexibility in outsourcing, and then to determine the equilibrium point between them. Various publications, including (articles and research reports) have been used to explain the notions of transaction costs, outsourcing, flexibility in outsourcing, and related theoretical issues. As a result of a review of the literature it emerges that, transactions costs and outsourcing flexibility are the main challenges facing companies (operating as an anvil and a hammer. Transaction costs are costs which arise because of the company‘s activities in the market, and include (fees, commission and taxes) and which are paid by the firm to provide a service or produce a good, either to external parties or as internal costs. Companies must determine the equilibrium point which meets the optimal level of flexibility required in outsourcing for the best performance, and which allows them to cover transaction costs which arise because of uncertainty. The equilibrium point explains the extent to which the company is willing to bear high transaction costs in order to get benefits from applying outsourcing flexibility. We can use the terms outsourcing flexibility or supplier flexibility to express the way firms meet their needs in the light of uncertainties caused by demand fluctuations and market circumstances.

Suggested Citation

  • Allam YOUSUF & Janos Felfoldi, 2017. "The Relationship Between Transaction Costs And Flexibility In Outsourcing: A Conceptual Framework," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 883-891, July.
    • Handle: RePEc:ora:journl:v:1:y:2017:i:1:p:883-891
    as

    Download full text from publisher

    File URL: http://anale.steconomiceuoradea.ro/volume/2017/n1/91.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Elcio Mendonça Tachizawa & Cristina Giménez, 2005. "Drivers and sources of supply flexibility: An exploratory study," Economics Working Papers 889, Department of Economics and Business, Universitat Pompeu Fabra.
    2. Macher Jeffrey T & Richman Barak D, 2008. "Transaction Cost Economics: An Assessment of Empirical Research in the Social Sciences," Business and Politics, De Gruyter, vol. 10(1), pages 1-65, May.
    3. Steven Tadelis & Oliver E.Williamson, 2012. "Transaction Cost Economics [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    4. Alston, Lee J. & Gillespie, William, 1989. "Resource coordination and transaction costs : A framework for analyzing the firm/market boundary," Journal of Economic Behavior & Organization, Elsevier, vol. 11(2), pages 191-212, March.
    5. Keith D Brouthers, 2002. "Institutional, Cultural and Transaction Cost Influences on Entry Mode Choice and Performance," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 33(2), pages 203-221, June.
    6. Jeffrey H. Dyer & Wujin Chu, 2003. "The Role of Trustworthiness in Reducing Transaction Costs and Improving Performance: Empirical Evidence from the United States, Japan, and Korea," Organization Science, INFORMS, vol. 14(1), pages 57-68, February.
    7. Simona Daniela Grigore, 2007. "Supply chain flexibility," Romanian Economic Business Review, Romanian-American University, vol. 2(1), pages 66-70, March.
    8. Williamson, Oliver E., 2007. "Transaction Cost Economics: An Introduction," Economics Discussion Papers 2007-3, Kiel Institute for the World Economy (IfW Kiel).
    9. Macher, Jeffrey T. & Richman, Barak D., 2008. "Transaction Cost Economics: An Assessment of Empirical Research in the Social Sciences," Business and Politics, Cambridge University Press, vol. 10(1), pages 1-63, April.
    10. Ana Maria GRIGORE & Florica BADEA, 2012. "Successful Lean Lessons From Romanian Companies," Business Excellence and Management, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 2(4), pages 47-55, December.
    11. Robert J. David & Shin‐Kap Han, 2004. "A systematic assessment of the empirical support for transaction cost economics," Strategic Management Journal, Wiley Blackwell, vol. 25(1), pages 39-58, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Schneider, Christian O. & Bremen, Philipp & Schönsleben, Paul & Alard, Robert, 2013. "Transaction cost economics in global sourcing: Assessing regional differences and implications for performance," International Journal of Production Economics, Elsevier, vol. 141(1), pages 243-254.
    2. Marta Gancarczyk, 2015. "Proces wzrostu przedsiębiorstwa w świetle podejścia zasobowego i teorii kosztów transakcyjnych," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 5, pages 5-31.
    3. Christian Balcells, 2022. "Determinants of firm boundaries and organizational performance: an empirical investigation of the Chilean truck market," Journal of Evolutionary Economics, Springer, vol. 32(2), pages 423-461, April.
    4. Delbufalo, Emanuela, 2021. "Asset specificity and relationship performance: A meta-analysis over three decades," Journal of Business Research, Elsevier, vol. 134(C), pages 105-121.
    5. Foscaches, Caroline & Macchione Saes, Maria Sylvia & Bigio Schnaider, Paula Sarita, 2019. "Does social identity matter in governance decisions? Evidence from an agrarian reform settlement in Brazil," Land Use Policy, Elsevier, vol. 83(C), pages 215-226.
    6. Schnaider, Paula Sarita & Saes, Maria Sylvia Macchione & Raynaud, Emmanuel, 2022. "It takes two to tango: combining asset specificity and uncertainty to explain the diversity of plural forms," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 25(2), March.
    7. Merkert, Rico & Mulley, Corinne & Hakim, Md Mahbubul, 2018. "Trade-offs between transaction cost, operation cost and innovation in the context of procurement and asset specificity – The example of the bus industry," Research in Transportation Economics, Elsevier, vol. 69(C), pages 173-179.
    8. Giorgio Zanarone & Desmond (Ho-Fu) Lo & Tammy L. Madsen, 2016. "The double-edged effect of knowledge acquisition: How contracts safeguard pre-existing resources," Strategic Management Journal, Wiley Blackwell, vol. 37(10), pages 2104-2120, October.
    9. Thomas Mellewigt & Glenn Hoetker & Martina Lütkewitte, 2018. "Avoiding High Opportunism Is Easy, Achieving Low Opportunism Is Not: A QCA Study on Curbing Opportunism in Buyer–Supplier Relationships," Organization Science, INFORMS, vol. 29(6), pages 1208-1208, December.
    10. Geoffrey M. Hodgson, 2010. "Limits of Transaction Cost Analysis," Chapters, in: Peter G. Klein & Michael E. Sykuta (ed.), The Elgar Companion to Transaction Cost Economics, chapter 28, Edward Elgar Publishing.
    11. Knoefel, Jan & Sagebiel, Julian & Yildiz, Özgür & Müller, Jakob R. & Rommel, Jens, 2018. "A consumer perspective on corporate governance in the energy transition: Evidence from a Discrete Choice Experiment in Germany," Energy Economics, Elsevier, vol. 75(C), pages 440-448.
    12. Christian A. Ruzzier, 2009. "Asset Specificity and Vertical Integration: Williamson’s Hypothesis Reconsidered," Harvard Business School Working Papers 09-119, Harvard Business School.
    13. Mikko Ketokivi & Joseph T. Mahoney, 2020. "Transaction Cost Economics As a Theory of Supply Chain Efficiency," Production and Operations Management, Production and Operations Management Society, vol. 29(4), pages 1011-1031, April.
    14. Bhattacharya, Ananya & Singh, Prakash J. & Nand, Alka Ashwini, 2015. "Antecedents of buyer opportunistic behavior in outsourcing relationships," International Journal of Production Economics, Elsevier, vol. 166(C), pages 258-268.
    15. Benoit A. Aubert & Jean Francois Houde & Suzanne Rivard & Michel Patry, 2017. "Determinants of contract completeness for information technology outsourcing," Information Technology and Management, Springer, vol. 18(4), pages 277-292, December.
    16. Lasse B. Lien & Peter G. Klein, 2013. "Can the Survivor Principle Survive Diversification?," Organization Science, INFORMS, vol. 24(5), pages 1478-1494, October.
    17. Francisco Brahm & Jorge Tarzijan, 2016. "Relational Contracts and Collaboration in the Supply Chain: Impact of Expected Future Business Volume on the Make-or-Buy Decision," Journal of Supply Chain Management, Institute for Supply Management, vol. 52(3), pages 48-67, July.
    18. Jacqueline Christensen & Pamela Kent & Tom Smith, 2016. "The decision to outsource risk management services," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 56(4), pages 985-1015, December.
    19. Oliver Maaß & Philipp Grundmann, 2018. "Governing Transactions and Interdependences between Linked Value Chains in a Circular Economy: The Case of Wastewater Reuse in Braunschweig (Germany)," Sustainability, MDPI, vol. 10(4), pages 1-29, April.
    20. M. J. Histen, 2022. "The extent of the firm," Evolutionary and Institutional Economics Review, Springer, vol. 19(2), pages 545-567, September.

    More about this item

    Keywords

    Transaction Costs; Outsourcing; Supplier Flexibility; Flexibility in Outsourcing;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • M1 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ora:journl:v:1:y:2017:i:1:p:883-891. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catalin ZMOLE (email available below). General contact details of provider: https://edirc.repec.org/data/feoraro.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.