Drivers of falling interaction costs in global business networks

Abstract

Purpose The purpose of this paper is to analyse the interactions that are engaged in when specialist organizations collaborate in business networks organized around global value chains. Interaction costs are defined as including transaction costs plus the costs for exchanging information and ideas. The view is forwarded that as interaction costs decrease, potential business partners have greater scope to interlink their business strategies and operations to co‐create value. Design/methodology/approach The paper draws on ideas linking the emergence of new forms of organization, technology and innovation, and global business strategy. In particular, its focus is on how ICT is transforming the ways in which organizations around the globe interlink through innovative approaches to operational and strategic imperatives. Findings Three factors that are either reducing interaction costs or increasing the effectiveness or frequency of interactions are identified and examined: the convergence of technologies, the delineation of roles within value chain business networks, and the emergence of innovative interaction strategies among network participants. Research limitations/implications Further developments of “interactions theory,” based on the four factors discussed in this paper, would increase our knowledge of contemporary business models. A greater understanding of how interactions influence strategy and operational decisions is needed. Practical implications Advances in interaction efficiency will facilitate an increase in the number of businesses working together as networks. The speed and transparency of business arrangements will increase. As a consequence, executives will require advanced technology and relationship management skills. Originality/value This paper builds on previous conceptualizations, but provides a more encompassing and integrated explanation of new business approaches than most other accounts.

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