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Dealing with Business Service Transactions after the Sourcing Decision: Influence of Contract and Uncertainty

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  • D. VANDAELE
  • P. GEMMEL

Abstract

Business companies are increasingly dealing with external sourcing agents in today’s marketplace. However, few research studies have investigated how purchased business services should be governed after the sourcing decision, during the interaction between buyer and seller. In this study, we investigate business service exchange governance, both contractual and relational, after the purchase decision and taking into account the impact of asset specificity and uncertainty. The results reveal that contracts should not just be used to establish business relationships as these formal agreements do impact business services exchanges after the sourcing decision. The two components of contractual governance, specificity and flexibility, each have a distinct impact on business services exchanges, indicating that both need to be developed carefully when drafting a contract. Though formal agreements influence business service exchange governance in the life after the purchase, informal mechanisms such as relational governance should not be overlooked. The relational norms developed during the buyer-seller interaction complement the contractual arrangements made. In business services settings, governance mechanisms are more strongly determined by uncertainty related to behavioral than to environmental aspects. Specific investments of the buyer are reflected in the informal governance aspects of the relationship, while specific investments made by the supplier are also safeguarded by contractual arrangements. Based on the results, an integrated governance scheme for business services transactions is developed.

Suggested Citation

  • D. Vandaele & P. Gemmel, 2007. "Dealing with Business Service Transactions after the Sourcing Decision: Influence of Contract and Uncertainty," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 07/432, Ghent University, Faculty of Economics and Business Administration.
    • Handle: RePEc:rug:rugwps:07/432
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