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Corruption as a determinant of transaction governance structure

Corruption as a determinant of transaction governance structure Purpose – As companies move their businesses offshore to developing countries, how to estimate market costs and select transaction governance structures (TGS) accordingly has become a challenge. Based on transaction cost theory, the purpose of this paper is to propose that corruption is an influential factor, which can potentially increase market transaction costs and favor selections of hierarchy oriented TGSs. Design/methodology/approach – Data are collected from World Development Indicators database and the Corruption Perception Index 2006. In total, 154 countries are included in the study. A regression analysis is used to demonstrate the correlation between levels of corruption and selections of TGS. Findings – The results indicate a strong correlation between corruption and TGS. Practical implications – Low labor costs and other incentives should not be the only reasons for moving businesses into developing countries. Managers should take a closer look at levels of corruption and estimate transaction costs accordingly. If a company plans to enter into a highly corrupted environment, it should consider using a hierarchy oriented TGS. Originality/value – This paper applies transaction cost theory to strategic management of outsourcing and highlights corruption as an unfavorable factor for outsourcing to developing countries. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Strategic Outsourcing: An International Journal Emerald Publishing

Corruption as a determinant of transaction governance structure

Strategic Outsourcing: An International Journal , Volume 2 (1): 10 – Feb 20, 2009

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Publisher
Emerald Publishing
Copyright
Copyright © 2009 Emerald Group Publishing Limited. All rights reserved.
ISSN
1753-8297
DOI
10.1108/17538290910935873
Publisher site
See Article on Publisher Site

Abstract

Purpose – As companies move their businesses offshore to developing countries, how to estimate market costs and select transaction governance structures (TGS) accordingly has become a challenge. Based on transaction cost theory, the purpose of this paper is to propose that corruption is an influential factor, which can potentially increase market transaction costs and favor selections of hierarchy oriented TGSs. Design/methodology/approach – Data are collected from World Development Indicators database and the Corruption Perception Index 2006. In total, 154 countries are included in the study. A regression analysis is used to demonstrate the correlation between levels of corruption and selections of TGS. Findings – The results indicate a strong correlation between corruption and TGS. Practical implications – Low labor costs and other incentives should not be the only reasons for moving businesses into developing countries. Managers should take a closer look at levels of corruption and estimate transaction costs accordingly. If a company plans to enter into a highly corrupted environment, it should consider using a hierarchy oriented TGS. Originality/value – This paper applies transaction cost theory to strategic management of outsourcing and highlights corruption as an unfavorable factor for outsourcing to developing countries.

Journal

Strategic Outsourcing: An International JournalEmerald Publishing

Published: Feb 20, 2009

Keywords: Corruption; Outsourcing; Developing countries; Governance

References