Strategic models for the development of obligation based inter‐firm relationships

Abstract

This paper seeks to examine the link between the academic debates on obligation contracting and its successful implementation as a mode of governance. The literature reports that firms are increasingly entering into long‐term, high dependency exchanges as a result of: increased demand for quality goods, demand for variability of goods, demand for constant innovation, severe price competition and increasing technology costs. These changes are forcing firms to enter into complex relationships with other firms in order to remain competitive. Examples of such relationships are: relational contracting, network organisations, strategic alliances and horizontal co‐operation. The increase in number and complexity of these exchanges in an environment characterised by uncertainty has led to the increased interest in the use of obligation contracting. Furthermore, this interest has been reinforced by the changing nature of products being exchanged. More knowledge‐based products and information‐based modes of production necessitate the sharing of strategically sensitive data. Hence the rise of importance of obligation contracting is not only due to the increased number of complex exchanges in uncertain environments, but also the very nature of the goods being exchanged.

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