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.