When the three conditions outlined in this chapter exist—when a ﬁrm does not possess all the resources and capabilities it needs to be competitively successful, when it is very costly for ﬁrms without resources and capabilities to create them on their own, and when acquiring another ﬁrm to gain access to its resources and capabilities is very costly—the major predictions and prescriptions of TCE with regard to governance choices can change. It is not that problems of opportunism stemming from transaction-speciﬁc investment are unimportant when these three conditions exist. Rather, it is simply that additional considerations come into play—considerations that can lead ﬁrms to make very diﬀerent governance choices than would be expected if transaction-speciﬁc investment and opportunism were the only issues that were being considered.
Imagine a situation where one ﬁrm requires the resources and capabili- ties possessed by a second ﬁrm, where the threat of opportunism stemming from transaction-speciﬁc investment in an exchange between these ﬁrms is very high, and the three other conditions mentioned in this chapter exist. The threat of opportunism due to high transaction-speciﬁc investment suggests that, all things being equal, a ﬁrm would prefer to use hierarchical governance to manage this exchange rather than either intermediate forms of governance or market forms of governance.
As suggested earlier, there are two ways that a ﬁrm could use hierarchical governance to gain access to these valuable resources and capabilities. First, it could create these resources and capabilities within its own organiza- tional boundaries. However, if, for any of the reasons described above, the cost of creating these resources and capabilities is high, this governance option may not be available to a ﬁrm. Second, it could gain access to these resources and capabilities by acquiring a ﬁrm that already possesses them. However, if, for any of the reasons described above, the cost of acquiring this ﬁrm is high, this governance option also may not be available to a ﬁrm.
In this setting, a ﬁrm may ﬁnd it too costly to choose hierarchical forms of governance to gain access to a capability. If the value of gaining access to this capability is greater than the cost of any opportunism that might occur by using nonhierarchical forms of governance to manage this highly transaction-speciﬁc investment, this ﬁrm will opt for nonhierarchi- cal forms of governance, and accept any residual opportunism as simply part of the cost of obtaining access to a very valuable capability.
Put diﬀerently, rather than simply being driven by the value of gain- ing access to a capability and the threat of opportunism stemming from transaction-speciﬁc investments, governance choices in this setting are driven by: (a) the value of gaining access to a capability, (b) the cost of opportunism due to transaction-speciﬁc investment in an exchange, (c ) the cost of creating a capability, and (d) the cost of acquiring another ﬁrm to gain access to a capability. If the cost of creating a capability and the cost of acquiring another ﬁrm to gain access to a capability are greater than the cost of opportunism due to transaction-speciﬁc investment, but less than the value created by gaining access to a capability, ﬁrms will choose nonhierarchical forms of governance to gain access to this capability rather than hierarchical forms of governance. This is an example of a ﬁrm engaging in an exchange characterized by high levels of transaction-speciﬁc investment rationally choosing to manage this exchange with nonhierar- chical forms of governance.
Of course, even when a ﬁrm in this situation decides to choose nonhierarchical forms of governance to manage exchanges with high levels of transaction-speciﬁc investment, it will not abandon eﬀorts to minimize the threat of opportunism in this exchange. Assuming that both intermedi- ate and market forms of governance are available to this ﬁrm, and assuming (as does traditional TCE) that intermediate forms of governance are more eﬀective at controlling the threat of opportunism than market forms of governance, it seems reasonable to expect that a ﬁrm in this situation will prefer the use of intermediate forms of governance over market forms of governance.
Source: Barney Jay B., Clark Delwyn N. (2007), Resource-Based Theory: Creating and Sustaining Competitive Advantage, Oxford University Press; Illustrated edition.