Critically assess theories of Transaction Cost Economics and Resource Essay - 1

Critically assess theories of Transaction Cost Economics and Resource Based View in terms of their usefulness in explaining firm - Essay Example This is a theory that tries to explain why companies exist, why they outsource activities to the external environment, and why they expand.The theory argues that companies try to minimize the bureaucratic costs of exchanges within the company, and that companies try to minimize the cost of exchanging resources with the environment.In their operations, the companies therefore, analyse the bureaucratic costs of conducting in-house activities, and the costs of exchanging resources with the environment (Williamson, 2010; Boneta, Peris-Ortizb & Gil-Pechuanb, 2010; McIvor, 2009). The market and the institutions are considered different forms of coordinating, and organizing economic transactions. The firm makes a decision basing an analysis on this theory to find out an appropriate move; whether to outsource or use internal resources. If such an analysis reveals high external costs, the firm will not outsource since it will have determined that it has the capability to perform its operation s cheaply. This means the firm will grow. When the external costs are lower than the internal bureaucratic costs, it is advisable to outsource the activities to be performed in the market. Such acts lead to minimized transaction and bureaucratic costs. Using the internal bureaucratic means of operation when the cost is higher than the transaction costs in the market reduces the firm’s growth rate or intentions.... After creation of the competitive advantage, a firm is able to sustain it over longer periods of time. The firm will then be able to protect itself against resource transfer, imitation, or substitution (Revilla, Cordeiro & Sarkis, 2011; Flynn, Morita & Machuca, 2010). When firms in a specific industry are competing in a market, these respective firms must have some unique resources that improve performance more that other companies. This creates the competitive advantage of a firm. If for example a firm has a unique strategy of acquiring customers, it will beat the other firms in the market, and gain more market share. This will be its competitive advantage. Not all firms therefore, should have the same resources that give a certain firm a competitive advantage. Such a resource or resources must be difficult to duplicate or imitate through other means (Flynn, Morita & Machuca, 2010). Usefulness in Explaining Firms’ Internationalising Strategies The transaction cost economics t heory explains why firms exist, expand and outsource certain activities. Internationalising a strategy means using the same strategy internationally. A firm may have its headquarters in Atlanta, but has found ready market in various other states, and countries outside United States. If this firm analysed its strategies, and found out that using one type of strategy, or by using certain strategies, the transaction costs and the internal bureaucratic costs are minimized, it will continue to use the same strategies internationally. Specific strategies therefore, ensure a new firm exists in a region; a firm expands to certain regions and survives or outsources to survive in the market. Analysing this considering the Resource Based