From the Theory of the Firm to FDI and Internalisation: A Survey

This paper surveys recent contributions on the Internalisation issue, based on different theories of the firm, to show how the make-or-buy decision, at an international level, has been assessed through the opening up of the “black box” - traditionally explored by the theorists of the firm – and the simultaneous endogenization of the market environment – as in the International Economics tradition. In particular, we consider three Archetypes – Grossman-Hart-Moore treatment of hold-up and contractual incompleteness, Holmstrom-Milgrom view of the firm as an incentive system, Aghion-Tirole conceptualisation of formal and real authority in organisations – and show how they have been embedded in industry and general equilibrium models of FDI to explain the boundaries of global firms.FDI, Internalisation, International Economics, Incomplete contracts

Buyer Commitment and Opportunism in the Online Market for IT Services

Companies increasingly outsource IT-related tasks using reverse auction mechanisms embedded into online marketplaces. However, a considerable proportion of auctions at these marketplaces do not result in a contract between buyer and supplier. Extant literature mostly refers to costly bidding and bid evaluation to explain this phenomenon. Another possible explanation is that because of the low entry barriers, buyers with a low commitment to exchange can use the marketplace solely for information gath-ering purposes such as price benchmarking and obtaining free consultations, having little or no intention to contract a supplier. We test this explanation by looking at how different types of costs incurred by the buyer during the sourcing process, are related to the outcome of reverse auctions in terms of contract award. We argue that higher levels of search, preparation and negotiation costs are associated with higher commitment to exchange and find that opportunistic behaviour does indeed play a part in the non-contracted projects, while committed buyers are more likely to enter into a contract with a supplier. The hypotheses are tested on a sample of 2,574 reverse auctions at a leading online marketplace for IT services and further verified across projects of different value and different levels of buyer experience. On the practical side, we recommend setting up entry barriers for buyers with a low level of commitment.IT Outsourcing;Online Markets;Opportunism;Reverse Auctions;Transaction Costs

Leveraging Offshore IT Outsourcing by SMEs through Online Marketplaces

Following their larger counterparts, an increasing number of small firms outsource their IT tasks to lower cost offshore destinations. For small firms, however, offshore outsourcing is a difficult undertaking as it involves high transaction costs. Online marketplaces for IT services, which have recently become available to small firms, make offshore IT outsourcing more accessible and manageable, although differences in the marketplace design result in varying outcomes across the marketplaces. This has consequences for SME’s decision as to which online marketplace to use, because different markets may have different types of benefits and costs. This paper sets to analyze some of the similarities and differences between online marketplaces for IT services and their effects for small firms. First, we analyze if and how online marketplaces reduce small firms’ transaction costs in offshore IT outsourcing. Second, we examine the effects of market entry barriers on outcomes of online marketplaces and their implications for small firms. The results indicate that online marketplaces for IT services do reduce transaction costs for small firms in offshore outsourcing across ten specific market processes. More surprising, however, is the finding that the lower market entry barriers for suppliers result in lower prices for buyers without compromising other aspects of market performance.Offshore IT Outsourcing;Online Market;Process-Stakeholder Analysis;Reverse Auction

Buyer Commitment and Opportunism in the Online Market for IT Services

Companies increasingly outsource IT-related tasks using reverse auction mechanisms embedded into online marketplaces. However, a considerable proportion of auctions at these marketplaces do not result in a contract between buyer and supplier. Extant literature mostly refers to costly bidding and bid evaluation to explain this phenomenon. Another possible explanation is that because of the low entry barriers, buyers with a low commitment to exchange can use the marketplace solely for information gath-ering purposes such as price benchmarking and obtaining free consultations, having little or no intention to contract a supplier. We test this explanation by looking at how different types of costs incurred by the buyer during the sourcing process, are related to the outcome of reverse auctions in terms of contract award. We argue that higher levels of search, preparation and negotiation costs are associated with higher commitment to exchange and find that opportunistic behaviour does indeed play a part in the non-contracted projects, while committed buyers are more likely to enter into a contract with a supplier. The hypotheses are tested on a sample of 2,574 reverse auctions at a leading online marketplace for IT services and further verified across projects of different value and different levels of buyer experience. On the practical side, we recommend setting up entry barriers for buyers with a low level of commitment

Leveraging Offshore IT Outsourcing by SMEs through Online Marketplaces

Following their larger counterparts, an increasing number of small firms outsource their IT tasks to lower cost offshore destinations. For small firms, however, offshore outsourcing is a difficult undertaking as it involves high transaction costs. Online marketplaces for IT services, which have recently become available to small firms, make offshore IT outsourcing more accessible and manageable, although differences in the marketplace design result in varying outcomes across the marketplaces. This has consequences for SME’s decision as to which online marketplace to use, because different markets may have different types of benefits and costs. This paper sets to analyze some of the similarities and differences between online marketplaces for IT services and their effects for small firms. First, we analyze if and how online marketplaces reduce small firms’ transaction costs in offshore IT outsourcing. Second, we examine the effects of market entry barriers on outcomes of online marketplaces and their implications for small firms. The results indicate that online marketplaces for IT services do reduce transaction costs for small firms in offshore outsourcing across ten specific market processes. More surprising, however, is the finding that the lower market entry barriers for suppliers result in lower prices for buyers without compromising other aspects of market performance

The hurdles of local governments with PPP contracts in the waste sector

With this paper we identify a number of the theoretical principles that apply to public–private partnership (PPP) contracts, introducing new case studies and policy discussions relevant for Europe and elsewhere. We discuss to what extent these contracts can and should be applied in the waste sector and perform a comparison between the purely contractual and the institutionalised models of PPP arrangements. We analyse four case studies in the ‘wholesale’ waste market in Portugal and examine the implementation and degree of success of these partnerships in the field. It seems that public authorities are failing to secure an adequate level of protection of the public interest. Drawing on the empirical evidence, we present some guidelines that could lead to better regulatory contracts for waste services

The simple micro-economics of public-private partnerships

We build a unified theoretical framework to analyze the main incentive issues in Public Private Partnerships (PPPs) and the shape of optimal contracts in those contexts. We present a basic model of procurement in a multitask environment in which a risk-averse agent chooses unobservable efforts in cost reduction and quality improvement. We begin by studying the effect on incentives and risk transfer of bundling building and operation into a single contract, allowing for different assumptions on the contractual framework and the quality of the information held by the government. We then extend the basic model in several directions. We consider the factors that affect the optimal allocation of demand risk and their implications for the use of user charges and the choice of contract length. We study the relationship between the operator and its financiers and the impact of private finance. We discuss the trade-off between incentive and flexibility in long-term PPP agreements and the dynamics of PPP contracts, including cost overruns. We also consider how the institutional environment, and specifically the risk of regulatory opportunism, affects contract design and incentives. We conclude with some policy implications on the desirability of PPPs

Law Firm Selection and the Value of Transactional Lawyering

Following the contraction in demand for law firms’ services during the Great Recession, “Big Law” was widely diagnosed as suffering from several maladies that would spell its ultimate demise, including excessive fees, excessive size, increased competition from in-house counsel, the commoditization of legal work, and the decline in demand for “relationship firms.” While each of these market pressures is only too real for certain segments of the law-firm population, their threat to the most elite U.S. law firms has been largely misunderstood. Even as many firms reduce their fees and contract in size, we should expect certain firms to continue to charge more and grow bigger. The current prescriptions for fixing Big Law fail to recognize that the top-tier firms within the group serve a unique market function. Focusing on a particular type of legal work – major corporate transactions – this Article proposes a novel theory of the value created by elite law firms: their private information about “market” deal terms, acquired through repeated exposure to the same types of transactions, provides clients with a significant bargaining advantage in deal negotiations. By aggregating expertise in the ever-changing and ever-increasing set of deal terms for certain transactions, law firms help their clients price such terms more accurately and thereby maximize their surplus from the deal. This pricing function – traditionally thought to be limited to investment banks – is one that cannot be replicated or subsumed by in-house counsel, other service providers, or commoditized contracts

Online reverse auctions research in marketing versus SCM: A review and future directions

An online reverse auction (ORA) is a dynamic procurement mechanism that allows suppliers to compete in real time via a platform to gain a buyer’s business. The ORA is a technological tool introduced in the late 1990s, gaining proponents and detractors among practitioners and academics. Remarkably, while practitioner interestin ORAs has grown, related marketing and supply chain management (SCM) research has declined. This contradiction between theory and practice suggests the need to conduct a systematic review to provide readers with a state-of-the-art understanding of ORAs and recommend fruitful avenues for further research. We focus on the marketing literature and contrast the findings with SCM literature, in such an analysis practical relevance is stressed. Our study offers three main contributions: (1) integration of the cumulative marketing knowledge on ORAs in the 2002–2020 period, (2) development of a three-layer framework of the ORA domain (i.e., conceptualization, ORA as a process, and research setting), and (3) construction of a new research agenda to deal with scholarly challenges and emerging trends.Xunta de Galicia | Ref. GPC ED431B 2022/10Universidade de Vigo/CISU