Academic journal article Journal of Business Strategies

Determinants of Governance Structure for the Electronic Value Chain: Resource Dependency and Transaction Costs Perspectives

Academic journal article Journal of Business Strategies

Determinants of Governance Structure for the Electronic Value Chain: Resource Dependency and Transaction Costs Perspectives

Article excerpt

Abstract

This paper investigates boundary decisions that determine governance structures, particularly intermediaries and external contractors, for executing the primary functions of procurement, sales, and information technology support functions in the value chain model. Utilizing data from 113 firms doing business on the Internet, the findings indicate that firm resources have a significant impact on decisions to outsource or internalize electronic value chain functions. Specifically, firms with a greater reliance on sales intermediaries were found to deploy fewer technical e-commerce resources than firms less dependent on sales intermediaries. Moreover, the number of intermediary procurement functions was positively related to investment in web-based human resources. The results also suggest that firms experiencing lower levels of transaction frequency utilize more types of Internet sales methods.

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With the advent of Internet-based electronic commerce, firms are searching for new business models to achieve organizational effectiveness. New technologies often do not lead to improved performance because managers lack a framework for deciding the optimal business model given their particular internal and external circumstances (Fisher, 1997; Janssen & Sol, 2000). Thus, research is needed that focuses on resources and capabilities and their impact on governance decisions for firms pursuing Internet-based commerce (Williamson, 1999; Barney, 1999).

This study applies well-established paradigms from strategic management, marketing, and organizational economic literature to examine strategic and structural issues related to electronic commerce. Critical to the strategic objective of maximizing firm performance is the appropriate choice of corporate governance mechanisms for interorganizational relationships within the value chain. In light of new information technology, firms need to reassess boundary decisions that determine governance structures. In particular, a focus is needed on the primary functions of procurement, sales, and information technology support functions in the value chain.

Although research suggests that the divergent resource requirements of this newly evolved information systems technology necessitate different governance structures, optimal boundary choices have not been empirically investigated (McWilliam & Gray, 1995; Tsang, 2000). In response to this void, this study examines how firm resources and exchange attributes impact interorganizational governance structures for specific value chain functions. First a discussion of the literature related to channel functions and governance structures is provided, followed by hypotheses regarding the effects of various exchange attributes on governance structures. Next, the methods used to test the hypotheses are presented and the results are provided. Lastly, a discussion of the theoretical and managerial implications is offered.

Literature Review

Channel Functions

There are four basic types of companies that use the Internet in the core of their business: (1) e-commerce companies that sell goods over the Internet; (2) content aggregators who gather and display content from multiple sources; (3) market makers that act as intermediaries or conduct electronic markets; and (4) service providers who furnish Internet based services (Afuah & Tucci, 2000). This study focuses on market makers that act as intermediaries within the primary activities of procurement (supply) and sales (demand). Channel functions related to procurement include purchasing through multi-party, interactive, or dynamic pricing online markets. Selling channel services by intermediaries include selling through hubs, online auctions, use of competitive bidding, or the management of dynamic pricing systems. We also investigate information technology support services for website design and commerce support. …

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