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: Suggested Citation