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Strategic Sourcing, Vertical Integration, and Transaction Costs

Author

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  • Gordon Walker

    (Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

Abstract

In managing strategic risk in sourcing relationships, an organization is assumed to order inputs and operations in terms of their value to accomplishing the firm's product market performance goals. Supplier relationships involving higher value inputs and operations have higher levels of strategic risk, since failure by the supplier leads to greater decline in the performance of the firm. Three types of risk are appropriation, technology diffusion, and end product degradation, which occur under different conditions. Vertical integration (or deintegration) may be undertaken as the level of strategic risk varies and the firm is more or less qualified to perform the operation relative to the best outside supplier.

Suggested Citation

  • Gordon Walker, 1988. "Strategic Sourcing, Vertical Integration, and Transaction Costs," Interfaces, INFORMS, vol. 18(3), pages 62-73, June.
    • Handle: RePEc:inm:orinte:v:18:y:1988:i:3:p:62-73
    DOI: 10.1287/inte.18.3.62
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    Cited by:

    1. Mandal, Prasenjit & Jain, Tarun, 2021. "Partial outsourcing from a rival: Quality decision under product differentiation and information asymmetry," European Journal of Operational Research, Elsevier, vol. 292(3), pages 886-908.
    2. Colbert, Gary J. & Spicer, Barry H., 1995. "A multi-case investigation of a theory of the transfer pricing process," Accounting, Organizations and Society, Elsevier, vol. 20(6), pages 423-456, August.
    3. Sean M. Handley & Corey M. Angst, 2015. "The impact of culture on the relationship between governance and opportunism in outsourcing relationships," Strategic Management Journal, Wiley Blackwell, vol. 36(9), pages 1412-1434, September.
    4. Lim, Wei Shi & Tan, Soo Jiuan, 2010. "Outsourcing suppliers as downstream competitors: Biting the hand that feeds," European Journal of Operational Research, Elsevier, vol. 203(2), pages 360-369, June.

    More about this item

    Keywords

    planning: corporate; risk analysis;

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