The results of the regression analyses showed that four out of five hypotheses were supported
9. DISCUSSION AND IMPLICATIONS
This final chapter contains four sections. After a brief summary of the study, Section 9.1 discusses the overall results of the empirical tests conducted. In Section 9.2 implications for research and practice are discussed. Section 9.3 addresses the study's strengths and limitations and suggestions for future research are provided. Finally, concluding remarks are presented.
9.1 Summary
The main purpose of this dissertation has been to extend the two perspectives addressed by developing a synthesis and to test that synthesis empirically. Consequently, we have combined insights from both perspectives and developed a unifying framework with consistent common assumptions. Particularly, the study has argued that many of the perceived shortcomings in earlier empirical and theoretical works of TCE and the competence perspective are in part attributable to inadequate specifications of the behavioral assumptions. We have illustrated how the behavioral assumptions can be extended to incorporate constructs and predictions from both perspectives in an integrated model. From this theoretical model, five testable hypotheses were derived. Using a correlational design, the hypotheses were tested empirically in the Norwegian power station industry. The summary in Table 9.1 shows that four out of five hypotheses were supported.
Table 9.1 Summary ofhypotheses
Constructs Hypothesized Findings Sign. level"
Effect on VI
H,. + + (p<O.OOl)
Buyers closeness to primary competence (CPC)
Hl' + + (p<O.OOl )
Buyers transaction specific competence (TSI)
H3• + + (p<O.OS)
Interaction effect between CPCand TSI
H4• (p<O.Ol )
Tacitness
Hs• O
Modification effect of Trust on TSI and VI
aOne tailed test
Several tests were conducted in order to secure a critical test of the theory. After testing the overall theoretical model, a test including control variables was conducted. Additionally, in order to prove that the proposed theory was a good approximation, rival predictors that may increase the explained variance of the dependent variable, were introduced in separate tests. All these tests indicated that the theory was a good approximation of the phenomenon studied.
Finally, we also found empirical support for the underlying mechanisms by which the influences from CPC and TSI are transmitted to the criterion ofvertical integration.
The discussion of the results below follows the same steps as the test procedure from Section 8.3. Thus, first, the test of the hypotheses is discussed (9.l.l). Next, Paragraph 9.1.2 discusses the results from the tests including control variables, rival predictors and explanatory mechanisms.
9.1.1 Hypotheses
Four out of five hypotheses were supported. The direct effects ofbuyers' closeness to primary competence (CPC) and buyers' transaction specific investments (TSI) as well as the interaction effect of CPC and TSI were all significant. Additionally, the hypothesis involving tacitness' effect on VI was supported. Hypothesis 5, containing the modification effect of trust on CPC and VI, was not supported. The information from the descriptive statistics and reliability analysis, respectively, showed that the concepts of trust had to be treated with caution (cf.
Section 8.1). Particularly, all the items representing trust have high mean values and low standard deviation. Consequently, these items seem to be items that are easy to agree with in the setting, and, thus do not entail a satisfactory variance and normal distnbution. Accordingly, it seems like the items representing the construct was poorly measured. This may be one reasonable explanation for the rejection of this hypothesis. The probability that the interpretability of this construct was obscured in the structural analysis is higher than for the other variables included in the model.
The support of four out of five hypotheses indicates the relevance of integrating competence-based and transaction cost economics explanations into a unified framework. The theoretical and practical implications of the findings will be returned to in the following sections.
9.1.2 Controls, rivals and explanatory mechanisms
Control variables. The result from the test including control variables indicated no spurious and masked effects for the relationship in the proposed model. Regarding vendor's transaction specific investments the results are interesting. Arguments have been offered that reciprocal assets may tend to moderate opportunistic behavior by serving as 'hostages' in a relationship (Williamson, 1983). However, no such motives are indicated by the results in the study. The results from the study follow previous research in that the correlation between the two constructs is high (cf. Buvik, 1995). However, the effect ofbuyer's investments on VI is still significant when introducing the vendor's specific investments in the model. Accordingly, there is no indication of a spurious effect between the buyer's transaction specific investments and vertical integration. Moreover, the analysis also shows clearly that TSI is the most powerful
variable within the TeE-framework. Uncertainty, however, is a part of the TeE-framework.
Because of the mixed results involving the uncertainty concept, we did not hypothesize any effect of the variable's impact on vertical integration. Absent asset specificity, however, TeE does not predict that uncertainty would itself lead to hierarchical governance (Williamson, 1985). Uncertainty depends on competitive conditions, and, thus, it is hypothesized to interact with asset specificity. According to Shelanski &Klein (1995) the failure of studies not to take this aspect into account may explain some of the conflicting results on the effect ofuncertainty.
Thus, further studies may include and test the interaction of environmental uncertainty and TSI on VI within the study' s framework.
Rivals predictors. The empirical analysis showed that the main factors explaining vertical integration are the three major variables derived from the two synthesized perspectives as well as the interaction effect between Cl'C and TSI. Other factors (dependency, technological economies, capacity utilization and formalization) that may have an influence on vertical integration are, except technological economies, not supported in the study. Empirically, the inclusion of technological economies as an additional predictor variable seerns relevant.
However, even though the variable increased the predictability of the criterion significantly, the
«specification of a model should be determined by theoretical considerations rather by rigidly following a rule of thumb based on an empirical measure of goodness-of-fit» (Berry &
Feldman, 1985: 16). The rationale for the variable's effect sterns from the literature ofindustrial organization, where technological possibilities are expected to increase the possibility of getting monopoly power. Following the arguments from Williamson (1975; 1985) and Argyres (1996), however, a theoretical rationale for its impact on vertical integration is difficult to find?'. Beside, the tests of the rival predictors were somewhat exploratory in nature. When testing four rival predictors in an exploratory way, I presume that the possibility of a chance effect is present (i.e. that one out of the four predictors will be significant by chance).
71 TCE rules out the traditional scale argument by stating that scale economies do not determine the make or buy decisions (Williamson, 1975: 16-19). The argument for this is that any scale economies available to e.g. a vendor should be similarly available to each of the buyers, except for the other buyers potential opportunism problems, in selling inputs to customers, i.e. competitors in the same industry. It is the potential costs of opportunism combined with the fact that all future contingencies cannot be foreseen, that prevent the buyers from realizing scale economies. Accordingly, "true production cost differences between firms due to scale economies are creatures of high transaction costs; they do not independently affect make-or-buy decisions" (Argyres, 1996:130). However, the efficiency due to different and unique competence, plays an independent role in the make or buy decision. This aspect, as opposed to the scale argument, however, is not ruled out by TCE considerations (Williamson, 1994).
Moreover, the variable was measured by only one item, and, thus, this fact may further increase the probability of a chance effect. We have previously indicated preferences toward the Williamsonian logic (i.e., ruling out the technological economies argument). Thus, following Williamson and the possibility of a chance effect, we do recommend the variable to be included in the framework of the study.
Explanatory mechanisms.
Theory and hypotheses should be rationalized by a set of mechanisms that transmit the influence from the predictor to the criterion (Mulaik
&James, 1995). As our confidence in a theory increases if the hypotheses are supported by the data, the confidence will further increase if the explanatory logic that connects the predictor to the criterion is empirically supported. Thus, the test of the explanatory mechanisms is a support of the explanatory logic underlying the predictions of the study.
9.2 Theoretical and managerial implications
Below, the theoretical implications of the study are addressed (9.2.1). Paragraph 9.2.2 discusses the managerial implications of the study.
9.2.1 Theoretical and empirical implications
In a recent review of transaction costs economics, Rindfleisch
&Heide (1997) summarize the
research needs within the transaction costs framework.
First,further research is needed to
clarify the role of production costs vs. transaction costs in determining appropriate governance
structures.
Second,research is needed to assess the costs of internal organization, i.e., to what
degree transaction costs may exist within firms.
Third,they ask for studies that address the
implications of deviations from opportunistic behavior. Additionally, Shelanski
&Klein (1995)
criticize empirical studies for not testing alternate hypotheses that may also fit the data as well
as the TCE-variables. Thus, they argue that there is a need for studies that explicitly compare
TCE derived hypotheses with hypotheses derived from other perspectives.
From a competence-based point of view, Bamey (1996) asks for studies that integrate a competence-based view with transaction cost economics. According to Barney (1996), such new knowledge or resource-based theories have to explain why firm organization is needed, which implies a discussion of the limitations and weaknesses of TCE theories of the firm. He continues by asserting that this to a lesser extent has been incorporated in previous knowledge theories of the firm.
This study has provided an answer to research needs addressed from TCE and the competence perspective. Consequently, the study may been seen as an extension of both the competence perspective as well as TCE. Accordingly, the main contnbution of the study lies in the consistent theoretical arguments for a synthesis of the two perspectives. However, arguments can be offered that the framework instead can be viewed as an extension of the TCE-program.
Related to Lakatos' (1978)72 terminology, we have to some extent kept in line with the hard-core of TCE. Moreover, we have extended the so-called protective belt or positive heuristics by introducing "new" explanation variables. One can argue that conducting this strategy is keeping in line with the research program of TCE. However, as should be evident from the discussion in the study, we have emphasized and argued in direction of a synthesis of the two perspectives. We have extended the content in the behavioral assumptions, which is in fact is a modification of the hard-core (Lakatos, 1978) of the TCE-program?3.
We have shown how important insight from the competence perspective can be incorporated into a model intended to explain vertical integration. The competence perspective, like TCE, assumes actors to be bounded rationally. This is explicitly discussed in Nelson & Winter's (1982) book. Moreover, the assumptions underlying the resource-based perspective are that firms are heterogeneous with respect to the resources they control, and that resources are not perfectly mobile across firms (Bamey, 1991). If the actors were perfectly rational, resources would be mobile and competitive advantage, because of heterogeneity (out of equihbrium), would only be temporary. Accordingly, the industry would in a short-term perspective be brought back to equilibrium. What we have done in this study is to incorporate and emphasize
72 According to Lakatos. a scientific research program consists of a "hard-core" (specifications of assumptions) that by definition is viewedas not falsifiable. and a "protective belt" of "auxiliary" hypotheses.