战略经济学(四)
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l Which steps of the vertical chain to be outsourced?
l Choice between the “invisible hand” of the market and the “visible hand” of the organization (Make or Buy)
PPT文档演模板
战略经济学(四)
Reasons to Buy rather than Make
l Market firms (outside specialists) may have patents/proprietary information that makes low cost production possible
– the “completeness” of contracts – the body of contract law
PPT文档演模板
战略经济学(四)
Complete Contract
l A complete contract stipulates what each party should do for every possible contingency
PPT文档演模板
战略经济学(四)
Contracts
l Contracts protect each party to a transaction from opportunistic behavior of other(s)
l Contracts’ ability to provide this protection depends on
l Backward integration captures the profit margin of the supplier
l Backward integration insures against the risk of high input prices
l It makes sense to tie up the distribution channel in order to deny access to the rivals
l Some firms choose to outsource many of the vertical chain tasks and become vertically disintegrated. Example: Nike
PPT文档演模板
战略经济学(四)
Make versus Buy
l Decision depends on the costs and benefits of using the market as opposed to performing the task in-house
valuable private information l Transactions cost that can be avoided by
performing the task in-house l Each problem can be traced to difficulties in
contracting
l Outside specialists may perform a task better than the firm can
l Intermediate solutions are possible (Examples: Strategic alliances with suppliers, Joint ventures)
PPT文档演模板
战略经济学(四)
Defining Boundaries
l Firms need to define their vertical boundaries l Considerations
– Economies of scale achieved by market firms – Value of market discipline – Ease of coordination of production flows in-house – Transactions costs when dealing with market firms
PPT文档演模板
战略经济学(四)
Economies of Scale
PPT文档演模板
战略经济学(四)
Make-or-Buy in Insurance
l Buying insurance utilizes economies of scale available to insurers
l Large firms with sufficient capital can “selfinsure”
PPT文档演模板
战略经济学(四)
Fra Baidu bibliotek
上游下游
PPT文档演模板
战略经济学(四)
Support Services
l Accounting l Finance l Legal Support l Marketing l Planning l Human Resource Management
PPT文档演模板
l The incentives to be inefficient and innovative are weaker when a task is performed in-house
l Agency costs are particularly problematic if the task is performed by a “cost center” within an organization
l Market firms can achieve economies of scale that in-house units cannot
l Market firms are subject to market discipline, whereas in-house units may be able to hide their inefficiencies behind overall corporate success (Agency and influence costs)
l 忽视代理成本优于消除代理成本 l It is difficult to internally replicate the incentives
faced by market firms
PPT文档演模板
战略经济学(四)
Influence costs
l In addition to agency costs, performing a task in-house will lead to “influence costs” as well
PPT文档演模板
战略经济学(四)
Role of Contracts
l Firms often use contracts when certain tasks are performed outside the firm
l Contracts list
– the set of tasks that need to be performed – the remedies if one party fails to fulfill its obligation
PPT文档演模板
战略经济学(四)
案例：Self-Insurance by British Petroleum
l BP self-insures large losses but buys insurance for small losses
l Why
PPT文档演模板
战略经济学(四)
Agency and Influence Costs
l No party can exploit others’ weaknesses
l To create a compete contract one should be able to contemplate all possible contingencies
l One should be able to “map” from each possible contingency to a set of actions
marketing l Organizing the vertical chain is an important
part of business strategy
PPT文档演模板
战略经济学(四)
Vertical Boundaries of the Firm
l Which steps of the vertical chain are to be performed inside the firm?
l 为什么在过去几十年里，GM在拥有世界上最高生产量 的同时，它的许多零部件供应部门的成本也是最高的
PPT文档演模板
战略经济学(四)
Reasons to Make
l Costs imposed by poor coordination l Reluctance of partners to develop and share
PPT文档演模板
战略经济学(四)
Some Make-or-Buy Fallacies
l Firm should make rather than buy assets that provide competitive advantages
l Outsourcing an activity eliminates the cost of that activity
战略经济学(四)
Support Services
l Support services can be major sources of value creation
– UPS – Logistics – Toyota – Human Resource Manager – Nike - Marketing
战略经济学(四)
PPT文档演模板
2020/11/19
战略经济学(四)
Vertical Chain
l Begins with the acquisition of raw materials l Ends with the sale of finished goods/services l Includes support services such as finance and
– observe the contingency – observe the actions by the parties – impose the stated penalties for non-performance
l Real life contracts are usually incomplete contracts
l “Internal Capital Markets” allocates scarce capital
l Allocations can be favorably affected by influence activities
l Resources consumed by influence activities represent “influence costs”
PPT文档演模板
战略经济学(四)
Vertically Integrated Firms
l In a vertically integrated firm, many of the steps in the vertical chain are performed in-house. Example: UIBE
l One should be able to define and measure performances
l One should be able to enforce the contract
PPT文档演模板
战略经济学(四)
Complete Contract (Continued)
l To enforce a contract, an outside party (judge, arbitrator) should be able to
l Choice between the “invisible hand” of the market and the “visible hand” of the organization (Make or Buy)
PPT文档演模板
战略经济学(四)
Reasons to Buy rather than Make
l Market firms (outside specialists) may have patents/proprietary information that makes low cost production possible
– the “completeness” of contracts – the body of contract law
PPT文档演模板
战略经济学(四)
Complete Contract
l A complete contract stipulates what each party should do for every possible contingency
PPT文档演模板
战略经济学(四)
Contracts
l Contracts protect each party to a transaction from opportunistic behavior of other(s)
l Contracts’ ability to provide this protection depends on
l Backward integration captures the profit margin of the supplier
l Backward integration insures against the risk of high input prices
l It makes sense to tie up the distribution channel in order to deny access to the rivals
l Some firms choose to outsource many of the vertical chain tasks and become vertically disintegrated. Example: Nike
PPT文档演模板
战略经济学(四)
Make versus Buy
l Decision depends on the costs and benefits of using the market as opposed to performing the task in-house
valuable private information l Transactions cost that can be avoided by
performing the task in-house l Each problem can be traced to difficulties in
contracting
l Outside specialists may perform a task better than the firm can
l Intermediate solutions are possible (Examples: Strategic alliances with suppliers, Joint ventures)
PPT文档演模板
战略经济学(四)
Defining Boundaries
l Firms need to define their vertical boundaries l Considerations
– Economies of scale achieved by market firms – Value of market discipline – Ease of coordination of production flows in-house – Transactions costs when dealing with market firms
PPT文档演模板
战略经济学(四)
Economies of Scale
PPT文档演模板
战略经济学(四)
Make-or-Buy in Insurance
l Buying insurance utilizes economies of scale available to insurers
l Large firms with sufficient capital can “selfinsure”
PPT文档演模板
战略经济学(四)
Fra Baidu bibliotek
上游下游
PPT文档演模板
战略经济学(四)
Support Services
l Accounting l Finance l Legal Support l Marketing l Planning l Human Resource Management
PPT文档演模板
l The incentives to be inefficient and innovative are weaker when a task is performed in-house
l Agency costs are particularly problematic if the task is performed by a “cost center” within an organization
l Market firms can achieve economies of scale that in-house units cannot
l Market firms are subject to market discipline, whereas in-house units may be able to hide their inefficiencies behind overall corporate success (Agency and influence costs)
l 忽视代理成本优于消除代理成本 l It is difficult to internally replicate the incentives
faced by market firms
PPT文档演模板
战略经济学(四)
Influence costs
l In addition to agency costs, performing a task in-house will lead to “influence costs” as well
PPT文档演模板
战略经济学(四)
Role of Contracts
l Firms often use contracts when certain tasks are performed outside the firm
l Contracts list
– the set of tasks that need to be performed – the remedies if one party fails to fulfill its obligation
PPT文档演模板
战略经济学(四)
案例：Self-Insurance by British Petroleum
l BP self-insures large losses but buys insurance for small losses
l Why
PPT文档演模板
战略经济学(四)
Agency and Influence Costs
l No party can exploit others’ weaknesses
l To create a compete contract one should be able to contemplate all possible contingencies
l One should be able to “map” from each possible contingency to a set of actions
marketing l Organizing the vertical chain is an important
part of business strategy
PPT文档演模板
战略经济学(四)
Vertical Boundaries of the Firm
l Which steps of the vertical chain are to be performed inside the firm?
l 为什么在过去几十年里，GM在拥有世界上最高生产量 的同时，它的许多零部件供应部门的成本也是最高的
PPT文档演模板
战略经济学(四)
Reasons to Make
l Costs imposed by poor coordination l Reluctance of partners to develop and share
PPT文档演模板
战略经济学(四)
Some Make-or-Buy Fallacies
l Firm should make rather than buy assets that provide competitive advantages
l Outsourcing an activity eliminates the cost of that activity
战略经济学(四)
Support Services
l Support services can be major sources of value creation
– UPS – Logistics – Toyota – Human Resource Manager – Nike - Marketing
战略经济学(四)
PPT文档演模板
2020/11/19
战略经济学(四)
Vertical Chain
l Begins with the acquisition of raw materials l Ends with the sale of finished goods/services l Includes support services such as finance and
– observe the contingency – observe the actions by the parties – impose the stated penalties for non-performance
l Real life contracts are usually incomplete contracts
l “Internal Capital Markets” allocates scarce capital
l Allocations can be favorably affected by influence activities
l Resources consumed by influence activities represent “influence costs”
PPT文档演模板
战略经济学(四)
Vertically Integrated Firms
l In a vertically integrated firm, many of the steps in the vertical chain are performed in-house. Example: UIBE
l One should be able to define and measure performances
l One should be able to enforce the contract
PPT文档演模板
战略经济学(四)
Complete Contract (Continued)
l To enforce a contract, an outside party (judge, arbitrator) should be able to