Make or buy in a mature industry? models of client - supplier relationships under TCT and RBV perspectives

Abstract

In this paper, we use the transaction cost theory [TCT] and the resource-based view [RBV] to discuss three propositions on the models of client-supplier relationships in mature industries. The two theories seem to advance different organizational forms of the client-supplier relationships, and in some instances are contradictory. How should firms organize to prosper and grow, namely in the international markets? Through the case study of three Portuguese packaging firms, with primary (interviews) and secondary data, we discuss how the three firms deploy three distinct strategic organization models in a mature industry. One firm utilizes market-based governance mechanisms, and concentrates its production in a few selected locations. Another firm vertically integrates almost the entire value chain of the product to provide full service to its clients. The third firm operates in a model of integrated outsourcing, with the installation wall to wall with its clients. The client-supplier models adopted by these firms are based on efficient, stable, and trustworthy relationships that permit them to focus on their core competences and reduce transaction costs. The superior performance of firms requires a proper alignment of hierarchical and relational governance, taking the dimensions of their transactions into consideration.

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