How Transaction Cost Economics and Social Network Analysis Can Inform the Partner Selection Process
Introduction
With information mobility, borderless business expansion and rapid updates of technologies, increasing competition for technology-based companies is a well accepted phenomenon. In order to cope with this phenomenon, more technology-based companies form alliances or M&As, because they expect positive returns of it. The expected advantages of forming alliances are sharing partners’ strength, dispersing costs and risks, acquiring resources, and learning from partners. Quite in line with the reasons for forming alliances, reasons for forming M&As are increasing market or political power, reaching economies of scope or synergies, and reducing of transaction and information costs. However, some studies reveal there are not only positive effects after forming alliances or M&As. Hagedoorn and Schakenraad (1994) have given us some examples : joint venture activity tends to have a significant negative impact or insignificant effects on profitability (a study of Berg et al. (1982)), and general mergers have shown a decline in profitability (a study of Meeks (1977)). Consequentially, companies need careful strategic management that might affect their ex post effects of alliances or M&As. For the strategic management, literature highlights that understanding motives and selecting suitable partners are crucial for forming alliances or M&As.
There are dominant perspectives on alliances and M&As, which two are, among others, Transaction cost economics (TCE) and Social network analysis (SNA). In this essay, I will address briefly what these perspectives are and how these can inform the companies’ strategic management especially in the partner selection process. Furthermore, I will discuss the determinants for the partner selection process by reviewing them from a TCE and SNA perspective.
TCE perspective
Transaction costs occur in a companies’ choice between markets, M&As and alliances, and there are six factors that guide their choice process :
With information mobility, borderless business expansion and rapid updates of technologies, increasing competition for technology-based companies is a well accepted phenomenon. In order to cope with this phenomenon, more technology-based companies form alliances or M&As, because they expect positive returns of it. The expected advantages of forming alliances are sharing partners’ strength, dispersing costs and risks, acquiring resources, and learning from partners. Quite in line with the reasons for forming alliances, reasons for forming M&As are increasing market or political power, reaching economies of scope or synergies, and reducing of transaction and information costs. However, some studies reveal there are not only positive effects after forming alliances or M&As. Hagedoorn and Schakenraad (1994) have given us some examples : joint venture activity tends to have a significant negative impact or insignificant effects on profitability (a study of Berg et al. (1982)), and general mergers have shown a decline in profitability (a study of Meeks (1977)). Consequentially, companies need careful strategic management that might affect their ex post effects of alliances or M&As. For the strategic management, literature highlights that understanding motives and selecting suitable partners are crucial for forming alliances or M&As.
There are dominant perspectives on alliances and M&As, which two are, among others, Transaction cost economics (TCE) and Social network analysis (SNA). In this essay, I will address briefly what these perspectives are and how these can inform the companies’ strategic management especially in the partner selection process. Furthermore, I will discuss the determinants for the partner selection process by reviewing them from a TCE and SNA perspective.
TCE perspective
Transaction costs occur in a companies’ choice between markets, M&As and alliances, and there are six factors that guide their choice process :