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How Much You Know versus How Well I Know You: Selecting a Supplier for a Technically Innovative Component

Author

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  • Hoetker, Glenn

    (U of Illinois at Urbana-Champaign)

Abstract

I use transaction costs economics to model an assembler's choice of supplier for an innovative component. I extend the TCE model by drawing on the insights of the evolutionary view of strategy, which suggests a focus on the technical capabilities of potential suppliers, and the literature on interfirm relationships. Using information on the procurement of displays by notebook computer manufacturers, I find that assemblers always prefer a more technically capable supplier. As uncertainty increases, assemblers value prior transactions with a supplier. At higher levels of uncertainty, prior transactions become irrelevant and assemblers prefer internal suppliers. The model presented in this paper advances the theoretical frontiers of TCE, while expanding the range of managerial issues to which it can be applied.

Suggested Citation

  • Hoetker, Glenn, 2002. "How Much You Know versus How Well I Know You: Selecting a Supplier for a Technically Innovative Component," Working Papers 02-0106, University of Illinois at Urbana-Champaign, College of Business.
  • Handle: RePEc:ecl:illbus:02-0106
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    Citations

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    Cited by:

    1. Mukherjee, Debmalya & Gaur, Ajai S. & Datta, Avimanyu, 2013. "Creating value through offshore outsourcing: An integrative framework," Journal of International Management, Elsevier, vol. 19(4), pages 377-389.
    2. Andreas Reinstaller, 2012. "Modularity and its Implications for the Theory of the Firm," Chapters,in: Handbook on the Economics and Theory of the Firm, chapter 32 Edward Elgar Publishing.
    3. Sofka, Wolfgang, 2007. "What Makes Foreign Knowledge Attractive to Domestic Innovation Managers?," ZEW Discussion Papers 07-055, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    4. Lokshin, Boris & Hagedoorn, John & Letterie, Wilko, 2011. "The bumpy road of technology partnerships: Understanding causes and consequences of partnership mal-functioning," Research Policy, Elsevier, vol. 40(2), pages 297-308, March.
    5. 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.
    6. Jacobides, Michael G. & Knudsen, Thorbjorn & Augier, Mie, 2006. "Benefiting from innovation: Value creation, value appropriation and the role of industry architectures," Research Policy, Elsevier, vol. 35(8), pages 1200-1221, October.
    7. Dekkers, Rob & Chang, C.M. & Kreutzfeldt, Jochen, 2013. "The interface between “product design and engineering” and manufacturing: A review of the literature and empirical evidence," International Journal of Production Economics, Elsevier, vol. 144(1), pages 316-333.
    8. repec:dau:papers:123456789/2423 is not listed on IDEAS
    9. Anderson, Edward & Coltman, Tim & Devinney, Timothy M. & Keating, Byron W., 2010. "What Drives the Choice of Third Party Logistics Provider?," MPRA Paper 40508, University Library of Munich, Germany.
    10. Wagner, Marcus, 2011. "To explore or to exploit? An empirical investigation of acquisitions by large incumbents," Research Policy, Elsevier, vol. 40(9), pages 1217-1225.
    11. Moeen, Mahka & Somaya, Deepak & Mahoney, Joseph T., 2011. "Supply Portfolio Concentration in Outsourced Knowledge-Based Services," Working Papers 11-0106, University of Illinois at Urbana-Champaign, College of Business.
    12. Marcus Wagner, 2008. "Technology sourcing by large incumbents through acquisition of small firms," SFB 649 Discussion Papers SFB649DP2008-055, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    13. Ansari, Shahzad (Shaz) & Krop, Pieter, 2012. "Incumbent performance in the face of a radical innovation: Towards a framework for incumbent challenger dynamics," Research Policy, Elsevier, vol. 41(8), pages 1357-1374.
    14. Martínez-Noya, Andrea & García-Canal, Esteban, 2011. "Technological capabilities and the decision to outsource/outsource offshore R&D services," International Business Review, Elsevier, vol. 20(3), pages 264-277, June.
    15. Andreas Reinstaller, 2011. "The Modularity of Technology and Organisations. Implications for the Theory of the Firm," WIFO Working Papers 398, WIFO.
    16. Richard Carter, 2012. "Transaction Cost Empirical Work," Chapters,in: Handbook on the Economics and Theory of the Firm, chapter 13 Edward Elgar Publishing.
    17. Tzabbar, Daniel & Aharonson, Barak S. & Amburgey, Terry L., 2013. "When does tapping external sources of knowledge result in knowledge integration?," Research Policy, Elsevier, vol. 42(2), pages 481-494.
    18. Haeussler, Carolin & Patzelt, Holger & Zahra, Shaker A., 2012. "Strategic alliances and product development in high technology new firms: The moderating effect of technological capabilities," Journal of Business Venturing, Elsevier, vol. 27(2), pages 217-233.
    19. repec:dau:papers:123456789/2412 is not listed on IDEAS
    20. Vlaar, P.W.L. & van den Bosch, F.A.J. & Volberda, H.W., 2006. "On the Evolution of Trust, Distrust, and Formal Coordination and Control in Interorganizational Relationships: Towards an Integrative Framework," ERIM Report Series Research in Management ERS-2006-035-STR, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    21. Yeung, Kwong & Cheng, T.C.E. & Lee, Peter K.C., 2015. "Buyers’ perceptions on the impact of strategic purchasing on dyadic quality performances," International Journal of Production Economics, Elsevier, vol. 168(C), pages 321-330.
    22. Gerwin, Donald, 2006. "Buyer-vendor relations for components: The extreme example of custom integrated circuits," Research Policy, Elsevier, vol. 35(5), pages 673-690, June.

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