Transaction Cost Economics and Resource-Based View in International Business Strategy

Running head: INTERNATIONAL BUSINESS STRATEGY
International business strategy
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INTERNATIONAL BUSINESS STRATEGY
The transaction cost economics (TCE) and the resource-based view (RBV) provide
two effective theoretical frameworks based on organisational theory. These two theories
define almost similar things relating to existence of a firm and its successful business
strategies (Gorovaia and Windsperger 2018). However, these two theories possess distinct
characteristics. The transaction cost economies helps a firm to prevent from negative
outcomes that may be occurred due to bounded rationality and opportunism. On the other
side, resource-based view exploits positive opportunities of the concerned company. These
positive opportunities can be occurred from resource configurations. Therefore, this contrast
statement of these two theories can encourage an ongoing debate regarding the relationship
between these two. Some researchers have stated that these two theories are completely
incompatible, as these theories highlight same aspect from distinct point of view. Therefore,
this debate defines the domains of transaction cost economies and resource-based view to
understand their importance in respective field. Some researchers argue that TCE has
overrated explanatory power compare to that of RBV. However, some other researchers state
the opposite as well. Therefore, this essay intends to critically analyse these two theories
based on their degree of usefulness depending upon internationalising strategies of firms. The
essay illustrates these two concepts with the help of company.
The transaction cost economies is a kind of theory of how the business transaction
have been structured for challenging decision environments. One of the fundamental
objective behind the formation of the transaction cost economies is to understand the
significance of the transaction which involves two exchange partners and the transactions. In
terms of economics, the transaction cost are the type of costs which s incurred while making
economic exchanges during the purchase of the good and services. The theory of the
transaction cost economics are also termed as the social cost theory which is a concept
developed by Ronald Coase. According to the theory of transaction costs economics there are

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INTERNATIONAL BUSINESS STRATEGY
basically there types of transaction costs which includes policing costs, bargaining costs and
the search costs(Becker 2017). According to the transaction cost economics, transaction can
be both internal and external to the organization. Therefore, it can be said that the transaction
cost economics generally focuses on the organization of the transaction which takes place
whenever a good or service is transferred from a provider to a user. The framework of the
transaction cost economics provides economic descriptions which is quite helpful for the
decision makers. There are various types of transaction costs which includes search cost,
bargaining costs, screening cost, transfer costs, enforcement cost and the monitoring cost.The
cost of transaction are the information cost which are incurred in identifying the size of the
firm. The transaction cost comprises of the incurred cost in searching for the best supplier or
customer (Moszoro and Spiller 2016). The transaction cost theorists states that the total cost
is incurred by firms which can be grouped into two components which includes transaction
cost and the production cost. The transaction cost is also known as the coordination cost. The
transaction cost economics states that the difficulties and the costs which are associated with
market transaction favour hierarchies. It also sometimes market as an economic governance
structure.
The transaction cost economics seeks to describe and understand the two kinds of
heterogeneity. One kind of heterogeneity is the diversity of transactions and the second
kind of heterogeneity is the diversity of organizations. One of the objective of the transaction
cost economics is understanding discriminating alignment. Some of the points which
examines the logic and applicability of the Transaction Cost Economics are:
 The TCE can also be described as a theory of constructive stakeholder whose
primary objective is ensuring the efficient transactions and avoidance of
waste.