Paper info

Core Competencies, Vertical Integration and Governance Costs in Buyer-Supplier Relationships

Arnt Buvik, Boge Gulbrandsen and Kåre Sandvik

The paper was published at the 17th IMP-conference in Oslo, Norway in 2001.

Current inter-organizational research applies various approaches to the study of inter-firmgovernance and business strategy. This study applies the lenses of governance andcompetence to the study of vertical integration and governance performance in business-tobusinessrelationships. Building on transaction cost economics (TCE) and the competenceperspective (CP), the authors examine significant antecedents of governance costs withinbuying firms and ex post transaction costs in on-going buyer-supplier relationships. The studyfocuses in particular on governance performance of inter-firm organization by investigatingthe association between vertical integration on governance costs.In accordance with TCE-reasoning, the empirical findings demonstrate that employment ofspecific assets in the buying firms is associated with substantial ex post transaction costs andintention of vertical integration. Further, high core competence in the buying firm actuallyreduces internal governance difficulties and enforces the intention of vertical integration.Accordingly, the study demonstrates both the theoretical foundation and empirical support forthat TCE and CP are complementary explanations of vertical integration.