EFFECT OF TRANSACTION COSTS ECONOMICS ON INTER-FIRM COLLABORATION IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND TO THE STUDY

Inter-firm collaboration in becoming very common between organizations in recent times and ranges from the simplicity of a partnership and crowd funding to the complexity of a multinational corporation. Inter-firm collaboration depicts relationship between two or several organizations in which the participating parties agree to invest resources, mutually achieve goals, share information, resources, rewards and responsibilities, as well as jointly make decisions and solve problems (Chan and Prakash, 2012). Collaboration between firms can be effective in tackling complex policy problems, but may be handled more effectively by committed boundary-spanning teams and networks than by formal organizational structures (Fischer, 2013). Collaboration between team members of different firms allows for better communication between the organizations and throughout the supply chains. It is a way of coordinating different ideas from numerous people to generate a wide variety of knowledge which as proven to have a significant reduction on transactions costs. Collaboration with a selected few firms as opposed to collaboration with a large number of different firms has been shown to positively impact transaction costs and innovation outcomes (Eisingerich, Rubera and Seifert, 2009). The recent improvement in technology has provided the world with high speed internet, wireless connection, and web-based collaboration tools like blogs, and wikis, and has as such created a mass collaboration thereby reducing the cost of communication and knowledge. People from all over the world are efficiently able to communicate and share ideas through the internet, or even conferences, without any geographical barriers. The power of social networks is beginning to permeate into business culture where many collaborative uses are being found including file sharing and knowledge transfer

Transaction cost economics seeks to explain why there are some markets with many organizations in them and why there are some industries dominated by just a few large organizations called hierarchies. Williamson (2009) sketched a historical argument that explains the transformation of an economy based on many small transactions into one based on large hierarchies that transact among themselves and into which individuals are absorbed. The organizational developments that characterize today’s economy, dominated as it is by such hierarchies, are seen as a more efficient way to organize economic relationships through inter-firm cooperation.

Inter-firm collaboration is the process of two or more organizations working together to realize or achieve something successfully (Marinez-Moyano, 2006). Inter-firm collaboration is very similar to, but more closely aligned than, inter-firm cooperation, and both are an opposite of inter-firm competition (Marinez-Moyano, 2007). Most inter-firm collaboration requires leadership, although the form of leadership can be social within a decentralized and business group. Teams that work collaboratively can obtain greater resources, recognition and reward when facing competition for finite resources through transaction costs reduction (Spence, 2006).

Structured methods of inter-firm collaboration encourage introspection of behavior and communication. These methods specifically aim to increase the success of firms as they engage in collaborative problem solving. Inter-firm collaboration towards minimizing transaction costs involves active participation in joint resources and development (R&D) and other innovation projects with other organizations (with other enterprises or non-commercial institutions). It does not necessarily imply that both partners derive immediate commercial benefit from the venture. Pure contracting out of work, where there is no active working together towards the same goal, is not regarded as collaboration.

1.2       STATEMENT OF THE PROBLEM

Effective inter-firm relationships are considered an essential component in creating and maintaining reasonable transaction costs and competitiveness. Even when other conditions are favorable, end market demand is strong, quality inputs are affordable, technologies are efficient, supporting markets function well, and so on—ineffective relationships can jeopardize the competitiveness of a value chain and its ability to generate economic growth, employment and incomes. In the light of the foregoing, the researcher is examining the effects of transaction costs economics on inter-firm collaboration in Nigeria.

1.3       OBJECTIVES OF THE STUDY

The following are the objectives of this study:

1. To examine the effects of transaction costs economics on inter-firm collaboration in Nigeria.
2. To examine the relationships between transaction costs and inter-firm collaboration in Nigeria.
3. To identify the factors affecting inter-firm collaborations in Nigeria.

1.4       RESEARCH QUESTIONS

1. What are the effects of transaction costs economics on inter-firm collaboration in Nigeria?
2. What are the relationships between transaction costs and inter-firm collaboration in Nigeria?
3. What are the factors affecting inter-firm collaborations in Nigeria?

1.5       HYPOTHESIS

HO: There is no significant relationship between transaction costs and inter-firm collaboration in Nigeria

HA: There is significant relationship between transaction costs and inter-firm collaboration in Nigeria

1.6       SIGNIFICANCE OF THE STUDY

The following are the significance of this study:

1. The findings from this study will educate entrepreneurs, business administrators in Nigeria and the general public on the effects of transaction costs economics on inter-firm collaboration in Nigeria.
2. This research will be a contribution to the body of literature in the area of the effects of transaction costs economics on inter-firm collaboration in Nigeria, thereby constituting the empirical literature for future research in the subject area.

1.7       SCOPE/LIMITATIONS OF THE STUDY

This study is limited to the manufacturing sector of the Nigerian economy. It will also cover the effects of transaction costs economics on inter-firm collaboration in Nigeria.

LIMITATION OF STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

 Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.