A Transaction Cost Analysis Model of Channel Integration in International Markets

Abstract

The authors develop a transaction cost analysis model designed to explain the channel integration choices of firms in international markets. In a test with data collected from a group of Canadian export firms, the model receives significant support, suggesting that an important contingency when deciding on channel structure in a foreign country is the ability of the market to limit the opportunistic tendencies of outside intermediaries. When the enforcement of contractual arrangements cannot be relied upon in the market, different degrees of forward integration are feasible alternatives. Other empirical results suggest that the firm may prefer use of intermediaries in a foreign market with high environmental diversity in order to cope with its inherent complexity and maintain flexibility. Channel volume, the use of shared channels, and country destination also are shown to affect the nature of integration in channels in international markets.