Procurement: The Transaction Costs Perspective in a Globalizing World

Tinbergen Institute Discussion Paper No. 07-091/3

27 Pages Posted: 26 Nov 2007

Date Written: November 19, 2007


Fragmentation of production into more and more complex supply chains is a prominent feature of globalization. It implies that transaction costs as part of total costs of ownership carry a large weight in procurement decisions. An analysis of the various types of transaction costs is also essential in the "make or buy" and location decisions in global sourcing. A distinction can be made between "hard" and "soft" transaction costs. Soft transaction costs are difficult to quantify but become more important in strategic business decisions now that formal trade barriers gradually disappear and transport costs are reduced. Business strategies to keep transaction costs low in the long run can also, to a considerable extent, explain socially responsible business conduct from the perspective of rational economic behavior.

Keywords: procurement, outsourcing, transaction costs, managing transactions, orchestrating the supply chain

JEL Classification: F23, M14, M21

Suggested Citation

den Butter, Frank A. G., Procurement: The Transaction Costs Perspective in a Globalizing World (November 19, 2007). Tinbergen Institute Discussion Paper No. 07-091/3, Available at SSRN: or

Frank A. G. Den Butter (Contact Author)

Vrije Universiteit Amsterdam - Economics ( email )

Boelelaan 1105
NL 1081 HV Amsterdam
+31 20 444 6030 (Phone)

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