| Chapter 2: | Theoretical Background |
Transaction costs include the time spent searching for customers and suppliers, communicating with partners regarding transaction details, the costs of travel, offices for meetings, etc. (Lucking-Reiley and Reeves 2000). The underlying implication of e-commerce on TCE is transaction costs reduction which in turn can be significantly affected by e-commerce integration in the export business in several ways. First, a transaction’s intensity and efficiency – the number of contacts and associated costs between each agent in the transaction process – can be significantly reduced. Second, a reduction in transaction uncertainty – the cost of transaction specific tasks like ordering, valuing, and paying – can be minimized, especially if the transactions are highly standardised. Third, a reduction in asset specificity such as location specificity lowers search costs for all parties involved.
By integrating e-commerce in export operations, firms benefit from decreased marketing expenses, better control over product distribution, tighter quality control, prompt revision of production and distribution policies, better inventory control, and additional profit margins, or the ability to charge lower prices on final products. Even so, the emphasis of TCE on efficiency may divert attention from other fundamental sources of value, such as innovation and the reconfiguration of resources (Ghoshal and Moran 1996).
TCE also implies that the boundaries of the firm are set by the economics of exchanging information. Markets allow the exchange of thinner information among a large group of people, whereas organisations enable the internal exchange of rich information. The boundaries of the firm are determined at the point where one form of exchanging information becomes less cost-effective than the other (Evans and Wurster 1997). In addition, the costs of many kinds of market transactions have been dramatically reduced. In an e-commerce environment, the concept of a separate negotiated deal at each step of the value-creation cycle becomes a reasonable, often compelling, proposition (Tapscott et al. 2000).
In the context of this research, justifications of internal determinants relevant for this framework are drawn from RBV theory which explains that superior firm performance is regarded as increasingly dependent on the organisational resources, routines, replication and rent. External determinants are drawn from IO theory which argues that industry structure or business environment influences the conduct of firms within an industry and impacts industry performance. The implications of e-commerce on internationalisation processes are explained through fundamental findings in TI. E-commerce efficiency on export operations is observed through a prism of TCE.