Shaping supply chain governance

The production process is becoming more complex and involving multiple companies and countries. A lot of research has focused on how these activities are coordinated and how interfirm transactions are governed. However, the existing literature is neither complete nor clear enough to understand how external and internal factors influence the shaping of a firm’s choice of mechanisms to govern transactions along the supply chain. Building from the existing literature, this paper proposes a conceptual model with two dimensions. The dimension of determinants includes three components: institution environment, industry structure and transaction characteristics. The dimension of governance patterns consists of five mechanisms a firm may use to govern its economic transactions along the supply chain: market contract, production contract, relational contract, relational production contract, and hierarchy. The paper provides prescriptions for the firm’s choice among five supply chain governance patterns under different conditions of the above three components of determinants.