Inter organizational relationship and hold-up in the automotive sector: an analysis focused on the Economics of Transaction Costs

Abstract

Institutional changes since the decade of 1990 have forced parts suppliers for the Brazilian automotive industry to adjust to demands of a globalized market resulting in a more complex inter organizational relationship between suppliers and automotive assemblers. An analysis was made of this relationship from the perspective of the Transaction Costs Economics (TCE) theory. Based upon the relationship of an automotive assembly company with 12 suppliers, propositions were formulated about the perception of the risk of contract break-up (hold-up). Results demonstrate that the duration of this relationship, amount of detail specified in the contract preparation and only a modest monitoring of the supplier by the assembly company lessened the perception of hold-up risk. The structure of governance prevalent in this relationship was a hybrid model which allows for reduced transaction costs. Other more profound studies of this inter organizational relationship from the TCE point of view with a larger and more heterogeneous sample may contribute to the development and application of this theory.