Value Creation and Value Claiming in Make-Or-Buy Decisions

Transaction value analysis (TVA) integrates the concepts of resource heterogeneity and transaction cost economics into a single framework, which emphasizes both value creation and value claiming in firms' vertical integration decisions. Using a TVA perspective, we develop hypotheses to explain the firm's intent to outsource application services. A sample of 178 firms in the publishing and printing industry in The Netherlands is used to test the hypotheses. This paper finds that firms take both value-creation and value-claiming motivations into consideration, with value creation having on average a dominating impact, thus substantiating the TVA framework. However, we also find that if the risks of opportunism in outsourcing contracting are high, value creation becomes the less important factor in make-or-buy decisions. Furthermore, the paper shows that the need for flexibility is a major driver of governance choice for value-creation as well as for value-claiming motivations. Implications and future research directions are discussed.