(MGMT8004) international business assignment analysing the Concept of Transaction Cost Economics (TCE)
Task: Write a critical international business assignment on the key ideas and concepts relating to transaction costs economics (TCE) and discuss the extent to which the TCE logic helps us to understand how born-global firms choose different strategies in their IB expansion.
One of the core aspects of international business (IB) expansion is that it yields a substantial range of advantages that includes witnessing maximum business growth and development. According to Nambisan et al. (2019), by extending the global footprint of businesses, it increases the exposure to the new range of products and services that are to be offered to a new target market that could eventually lead to even more business expansions. The discussion presented in theinternational business assignment is attributed to understanding the significance of transaction cost economies and the kind of aid it provides to popular born-global firms. The purpose of the international business assignment is to understand the factors of TCE influencing the choice of IB expansion strategies of the firm eventually facilitating a seamless supply chain management for suitable business purposes. Born global firms are also popularly known as international new ventures that are defined as the type of business organisations that from its inception strive to derive maximum competitive advantage from the utilisation of their resources and output sales in different countries (Bahoo et al., 2020). The aim of the discussion presented in the international business assignment is to effectively understand the role of TCE logic in the proper exploitation of different business opportunities available. The international business assignment would begin with understanding the concept of TCE, it’s role in enabling IB expansion, the utilisation of internet-based channels, studying different business models and even trying to understand the differences existing between the use of IB strategies.
The Concept of Transaction Cost Economics (TCE)explained in the international business assignment
The concept of TCE is also utilised as an economic theory that has pertained to the complete use of different trade relations of a company while expanding business in the overseas market. According to Akbar and Tracogna (2018), TCE posits the use of optimum organisational structure that enables one to achieve maximum economic efficiency by minimising the exchange costs. The theory presented in the international business assignment perpetuates the idea that each type of transaction manages to produce different coordination costs of monitoring, controlling and managing different trade transactions. Akbar and Tracogna (2018), has also identified that there are four types of transaction costs that are incrementally popular among different organisations for its usage and they comprise of bargaining costs, opportunity costs, search costs and enforcement costs. All of these costs mentioned in the international business assignment cover the financial spectrum of any market exchange and is an important enabler of deciding whether or not certain business expansion decisions can be sufficiently undertaken for the betterment of the market. It is found in this international business assignment that TCE is also responsible for running the entirety of a firm’s economics and are distinguished from production costs and is mostly utilised depending on the firm structure used by a prominent decision-maker in a market, in the most effective way possible. TCE eventually ends up being the key determinant of major decisions that are to be undertaken by the firm.
According to Argyres et al. (2019), the use of TCE is beneficial for majority of the firms willing to expand their firms internationally comprises of gaining knowledge intensity, knowledge segmentation, knowledge dispersion and addressing scarcity of knowledge. It is found in the international business assignment, additionally, TCE is also deemed important for a firm because they end up impacting the amount of net return a company can eventually accrue and low transaction costs can eventually ensure that a firm maximises significant amount of profit that can be earned using different goods and services. However, Sestu and Majocchi (2020), contradicts and mentions that the chances of uncertainty looming over a partnership can affect the implementation of the economic theory appropriately which is mostly behaviour in nature and can only be avoided when the transaction has been completely internalised. Some of the additional factors that end up being disadvantageous comprises of the communication quality established, level of project uncertainty, organisational efficiency of the owner, changes in order or level of trust and more (Argyres et al., 2019). As per the international business assignment findings, these were deemed as the five most common occurrences that influences the business expansion level along with the project transaction costs and collaboration level between different firms alike. Furthermore, its effects are something that cannot be ignored entirely because it results in diminishing returns, and often ends up reducing the amount of capital that is required to be invested which is almost similar to the impact of mutual fund ratios as well.
Role of TCE Logic in Helping Born-Global Firms’ IB Expansion
According to Verbeke and Ciravegna (2018), in terms of IB expansion the utilisation of TCE logic is mainly attributed to effectively structuring an exchange or multiple exchanges because a firm must be responsible for comparing the costs of negotiated contracts using the market with the costs involved in internalising the transactions taking place within the firm. As per the findings of the international business assignment the use of TCE has gained even better relevance in the market because it provides with a greater range of specificity of different assets that are required for the transaction to take place via hierarchal arrangement instead of focusing on market specifics.Additionally, Gabrielsson et al. (2021), has also clarified that transactional costs are also responsible for influencing the financial structure and the nature of intermediary networks because when the costs are low more complex intermediary networks emerge, making it immensely difficult for others to understand the prospects of IB expansion. Its maximum influence on financial structure of a firm eventually leads to gaining a preference towards causing a switch in different strategieswhile trying to expand business overseas.
Meanwhile, according to Richter and Hauff (2022) in the international business assignment, the application of transaction cost economics has been crucial in determining the attractiveness of a country’s economy and business. The level of competitiveness that a country has depends on its industry and the level of skills required for upgradation and innovation. The competitive advantage is eventually produced and sustained to the point of understanding differences in values, economic structures, culture, existence of institutions, history and other countless factors that can eventually contribute to maximum competitive success indicating that all companies would have to fight for a position in the market that centres around the availability of industrialisation of different products and services. It is found in the international business assignment that the application of TCE, as per Porter enables in identifying important factors that makes a country more competitive in nature and improves the research prospect of a firm into determining whether or not any form of international expansion would be appropriate.The factors as suggested by Porter comprise of the existence of national competitiveness, the type of domestic demand that persists and the factor advantages comprises of competitors of raw materials, climate change situation, educational prospects, telecommunication, educated workforce and more (Ipsmiller et al., 2021).
It is analysed in the international business assignment that the use of TCE in terms of born global firms are inclined towards establishing maximum international relations and leaving behind an intellectual legacy of a firm while trying to determine the valuable attributes of an organisation as effectively as possible. Additionally, the born global firms are benefitted with the intention of acquiring different range of information on market mechanisms incurring cost, being specific to the costs of searching for exchange partners and making or enforcing different contracts (Richter and Hauff, 2022). The cost of contract negotiations with that of the host country becomes more effective and clearer as more clarity is gained about the market positioning and economic propositions that would aid the firm’s vitality in the most effective way possible. Despite the advantages mentioned in the international business assignment it yields during the expansion of international businesses, it cannot be denied that it comes with a set of its own challenges when it comes to net gain. Ipsmiller et al. (2021), contradicts by saying that transactions cost economics include both monetary and non-monetary prospects that eventually ends up reducing net gain from the entire trading system. At the same time, it also manages to establish a secured relationship with opportunity costs leading to maximum beneficiaries witnessed by the firm trying to consider different factors while trying to expand to international market. TCE ensures that a firm is prepared to deal with a globalised market and a born global firm has the capacity to utilise different practices that would result in positive outcomes for their business operations.
Internet-based Channels Used for Global Supply Chain Management from TCE Perspective
According to Abdul-Talib and Teong (2019), the aspect of using extensive internet-based channels for supply chain management (SCM) for firms expanding their businesses has been extensively associated with TCE. As per the international business assignment findings, it eventually implies that the influence is getting equally intensive and extensive resulting in drastic structural changes around the world. With the use of internet-based channels and an aligned globalised perspective, it cannot be denied that the core idea has been involved with the idea of reducing transactions costs and its negative impact. It is important to reduce the negative impact because in a hugely globalised market where the companies are inclined towards initiating business expansion, more partnerships and collaborative opportunities would be explored in such a way that obstacles amounting to institutional differences have been reduced magnificently. As per the international business assignment the collaborative approach leads to association with companies that are inclined towards engaging in different partnerships with innovative companies and understand the situation of using internet-based channels to make the products accessible for all individuals existing in both host nation and home nation. However, Min et al. (2019), contradicts and mentions that companies are only inclined towards maintaining standard competitions with tis competitors in the overseas business markets because they aspire to dominate different creations. The three factors mentioned in the international business assignment that results in maximum improvements comprises of functions, usage periods and number of users in such a way that a differentiated approach has been undertaken to understand the scope of the market and align business objectives with a notable outlook. The human communication is subsequently improved as a resultant factor and the internet services provided becomes an important medium for exchanging information and products and services to reduce the hindrance of transaction cost in emitting necessary information.
Meanwhile, as addressed by Suematsu (2014), the use of global SCM is no different than an electronic ledger that manages to integrate all forms of conflicting data which had an important function, that had to be understood by every individual. With the reduction of unnecessary transaction costs, it gets much easier and effective to enrol the use of internet-based channels for the effective operations of SCM for a firm. One of the popular examples of a born global firm with a global SCM along with TCE based channels comprises of Amazon. The key contributing factors towards the success of Amazon as per the international business assignment has been mostly twofold in nature but has defined the concept of integrated TCE process and the engagement of a provider to make operations better and more refined. Some of the key components that have attributed to Amazon’s success comprises of having a universal procedure of transactions across all the products they sell, the existence of a highly efficient logistics system, merchandising of products all across the internet, different orders and acceptances, charges and payments, control over inventory, shipment, use of different range of data, existence of a call centre and more (Niemczyk et al., 2019). Thus, it is found in this international business assignment the role of internet-based channels has been extensively beneficial in boosting the presence of SCM of global born firms that have not only boosted their collaborative tendencies with companies from different countries but have accounted to reduced costs and better quality as well.
Use of TCE in Studying the Business Model of Born-Global Firms for the international business assignment
There are different types of business models that are used by born global firms and they comprise of retailer model, fee for service model, subscription model, bundling model, leasing model, franchise model and more (Maciejewski and Wach, 2019). All of these business models mentioned in the international business assignment have an extensively different financial structure which indicates that the influence of TCE would differ from one to the other exponentially. Given that TCE explains the needs for companies in the market, it also defines the structure that is required for ensuring the betterment of born-global firms in the market and economise on their existing operations accordingly. Additionally, Andreassen et al. (2018), addresses that majority of the companies operating in the foreign markets with transaction costs in useful in forming the bases of general laws of the organisation. The use of TCE would also understand the essence of firm boundaries and aims to answer the question of when activities would take place and must take place within the firm. Furthermore, the international business assignment study of the business model becomes crucial in understanding financial assets and use them in such a way that market differences are being addressed in terms of securities, foreign exchange, different commodity contracts and even gold.
One of the significant aspects of born global firms is that they are often acknowledged to have an abundance of resources, advanced technologies and a very high international orientation to be a part of the entrepreneurship programmes and often engage in cheaper internationalisation strategies (Del Sarto et al., 2021). One such example for the international business assignment can be witnessed in the form of Tesla Motors who are constantly engaging in internationalisation of their products and strategies in such a way that their costs are minimised and that they can appeal to different target markets. According to Zhao (2021), Tesla Motors is also one of those companies that have always been inclined towards reducing their TCE and using different internet-based channels to boost their supply chain management and marketing strategy to reach to a much wider audience. As per the international business assignment findings, the business model of Tesla is devoted to not spending any capital in marketing campaigns but rather utilising the complete potential of social media platforms to appeal to a much larger audience and ensure that enough attention has been paid towards the followers and their attentiveness to the attempts of Tesla and its CEO. The use of internationalisation strategies that relies on internet and other cheaper methods eventually reduces TCE. Some of the additional examples of companies that are born global comprises of Amazon, Zara and others.
On the other hand, Francis and Hoefel (2018), contradicts and specifies the perspective that one of the core aspects here is the idea that born-global firms cannot remain ethical at all times and often struggle with empathetic and sustainable outlooks. Recognized in this international business assignment that it is Being born-global is a business model in itself and often yields the results of revitalising the entire economy by different establishments and enhancements caused by different transaction infrastructures. Additionally, with the intention of minimising transaction costs, the purpose here becomes important in understanding zero-price business model that reduces the chances of extensive expenditure.
Differences in the Use of IB Strategies based on Country Markets
Some of the notable IB strategies that are used by different companies comprises of market penetration strategy, marketing strategy, expansion, franchising, leasing strategy and more (Tien et al., 2019). Furthermore, Tien (2019), explains the use of four types of expansion strategies that can take place through maximum concentration, diversification, integration, cooperation and even internationalisation. All of these strategies mentioned in the international business assignment would be inclined towards ensuring the market expansion of different companies. The IB strategies are used by different companies differently depending on the market stability of the country. For example, Dominos uses franchisingstrategy for its operations in majority of the countries but while expanding in India it engaged in a collaborative partnership with Jubilant Foodworks and then a franchising pattern was introduced to reach out to majority of the customers around the world (Manoj Kumar and Monica, 2019). Since then, it has been ensured that the company gains maximum relevance in the market and Dominos has ended up having more than 500 stores in India. This success mentioned in the international business assignment has attributed to Jubilant seeking partnership with companies like Dunkin Donuts and even Popeyes in India to ensure their maximum expansion. However, Dominos, Dunkin Donuts and Popeyes have engaged in direct franchising of their outlets in countries like the USA, the UK and others to improve their accessibility among the audiences in a maximised way possible.
Despite the consideration of TCE while expanding via using an appropriate market strategy, there are other factors mentioned in the international business assignment that have to be utilised for expanding businesses in the overseas markets. One of the effective ways of reducing transactions costs for the international business assignment is to understand the expectations and demands of the consumers of the host nation before finalising on the expansion of the products and engaging in development of different items. The use of Hofstede’s cultural dimensions theory for the international business assignment is one of the effective ways of engaging in market research and understanding the resultant element of whether or not which marketing strategy would be appropriate. The use of Hofstede’s cultural dimensions theory is mainly inclined towards the use of a framework that is used for understanding the differences existing between cultures across different countries and the six dimensions used comprises of power distance, uncertainty avoidance, individualism-collectivism, masculinity-femininity and short vs long-term orientation (Gallego-Álvarez and Pucheta-Martínez, 2021). The use of all these factors sheds light on how different countries and their citizens prefer different products and services or even how they spend their money for different brands. The analysis or consideration of these factors in the international business assignment enable different companies to make a selection of an appropriate strategy that would be suitable for their international expansion and then follow a financial structure that minimises costs accordingly. However, not all companies engage in franchising as a means of international expansion, there are different other strategies that are being used for maximum beneficiaries. One such example in the international business assignment can be witnessed in the form of McDonald’s opening up restaurants in Japan that is a part of horizontal foreign direct investment (O’Neill, 2020). This is an example of a company using different means of expanding its operations in different countries that would lead to minimisation of costs.
This international business assignment was inclined towards understanding the significance of transactions costs economies and its role in boosting the international business expansion of different organisations. One of the core learnings established from this international business assignment was that a company has to engage in extensive market research before initiating international expansion and understand the prospect of customer preferences. The international business assignment also shed importance on the significance of modern advancements and utilisation of internet-based channels for letting the role of supply chain management flourish in the market sufficiently. The entrepreneurial capacity of the born global firms is different and is further aided by TCE via cost-effective methods that maximises their success in the market.
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