Resource-Based View and Transaction Cost Economics

Resource-Based View and Transaction Cost Economics

The resource based view (RBV) is a method of firm analysis that considers the presence
of a set of valuable intangible and tangible resources that are required for the production process
of a firm to take place (Newbert, 2007). The firm that has a larger amount of these resources is
considered to be better placed in its industry. If, for example, a company has a better access to a
transport infrastructure, it would find operation costs much lower than another firm that has
difficulty transporting its raw materials and products.
On the other hand, transaction cost economics (TCE) questions the existence of firms.
According to this theory, it is sometimes easier for a company to perform in-house operations
rather than outsourcing them from another firm (Williamson, 2010). This way, a company is able
to save the transaction cost. This theory, therefore, argues that a business that conducts most of
its operations internally saves more in operations than another one that outsources.
Both TCE provide very valuable information in terms of the value of a firm. While RBV
explores the resources that are available to a firm, TCE explores the number of operations a
company conducts internally and those that are conducted outside the company (Macher &
Richman, 2008). A company that has access to all the resources that are required for it to conduct
business is definitely likely to have a lower cost of operations (Barney & Clark, 2007). However,
it is important to note that different firms exploit their resources differently. One organization
may find the proximity to raw materials more important to it than the proximity to the market,
while the other sees this problem differently. It is therefore difficult to come up with the exact set
of resources to use in the resources based view of a firm.
In the same way, while the cost of transaction may factor in, it is important to note that
other factors come into play when reviewing a firm. In terms of producing a certain raw material,

RESOURCE-BASED VIEW AND TRANSACTION COST ECONOMICS 3
for example, it may be more example to produce it than getting it from another firm. The
transaction cost is not always lower than the savings made when the raw materials are supplied
by another firm. It is, therefore, not always true that the cost of transaction is always worth
saving. In some cases, it is more important to explore the overall savings that are made in
exploiting external resources. In conclusion, while both RBV and TCE are important in
reviewing the value of a business, each of them has some weaknesses in terms of applying them
to a wide range of companies.

RESOURCE-BASED VIEW AND TRANSACTION COST ECONOMICS 4

References

Newbert, S. L. (2007). Empirical research on the resource‐based view of the firm: an assessment
and suggestions for future research. Strategic management journal, 28(2), 121-146.
Barney, J. B., & Clark, D. N. (2007). Resource-based theory: Creating and sustaining
competitive advantage. Oxford: Oxford University Press.
Macher, J. T., & Richman, B. D. (2008). Transaction cost economics: An assessment of
empirical research in the social sciences. Business and Politics, 10(1).
Williamson, O. E. (2010). Transaction cost economics: The natural progression. Journal of
Retailing, 86(3), 215-226.