A Comparative econometric analysis of South African and New Zealand wineries' grape sourcing strategies: "Towards a multi-paradigm exchange protection framework"

Abstract

The Transaction cost economics (TCE) incomplete contracting framework exposes exchange relationships to trading partner(s)’s opportunism (Williamson, 1985). Despite this limitation, incomplete contracts are still widely used (Dawes, Murota, Jera, Masara, & Sola, 2009; Fraser, 2005). However, TCE does not provide a theoretical reason why companies use contracts even though they expose transactions to exchange hazards. It is against this background that this research has developed an exchange protection framework that protects exchange relationships better than TCE incomplete contracts. The new framework is multi-paradigm in nature and integrates the exchange protection qualities of incomplete contracting (Transaction cost economics theory), monitoring and incentives (agency theory), relational norms (relational exchange theory) and the legal system. The framework has also been used to explain the use of contracts despite their vulnerability to opportunism. The explanation is that companies complement incomplete contracts with other exchange protection frameworks such as monitoring, incentives, norms and the contract enforcement mechanism of the legal system. These other exchange frameworks provide added safeguards to incomplete contracts and hence their continued use. Insights from the multi-paradigm exchange protection framework developed for this research have been used to make managerial and theoretical contributions. For example, managers have been advised to complete their contractual relationships by building norm based relationships with their trading partners and clients, providing necessary incentives and relying more on mutual obligation monitoring, and to consider giving priority to building exchange relationships with partners operating in strong legal systems if they happen to engage in cross-border trade. From a theoretical perspective, the research has developed a multi-paradigm theoretical framework that is believed to offer better exchange protection than any theory in isolation. This notwithstanding, the current research has some limitations. These include among others, the focus on only one part of the value chain (grower-winery) and the generalisation problems arising from the fact that the research focused on only one sector (wine industry). These limitations helped shape the direction of further research which includes applying the multi-theoretical framework to different industries.