Nigel Wadeson

The Oxford Handbook of Entrepreneurship

Book review by William H. A. Johnson. Casson, Mark et al., eds. The Oxford Handbook of Entrepreneurship, New York, NY: Oxford University Press, 2006. ISBN 9780199288984

Communication Costs and the Boundaries of the Firm

Much has been written about where the boundaries of the firm are drawn, but little about what occurs at the boundaries themselves. When a firm subcontracts, does it inform its suppliers fully of what it requires, or is it willing to accept what they have available? In practice firms often engage in a dialogue, or conversation, with their suppliers, in which at first they set out their general requirements, and only when the supplier reports back on how these can be met are their more specific requirements set out. This paper models such conversations as a rational response to communication costs. The model is used to examine the impact of new information technology, such as CAD/CAM, on the conduct of subcontracting. It can also be used to examine its impact on the marketing activities of firms. The technique of analysis, which is based on the economic theory of teams, has more general applications too. It can be used to model all the forms of dialogue involved in the processes of coordination both within and between firms.

The economic theory of international business: a supply chain perspective

Purpose – This paper aims to propose a way of addressing unresolved issues in international business theory.Design/methodology/approach – A new model of the multinational enterprise as a coordinator of supply chains is presented.Findings – This paper identifies a new market‐seeking strategy that is an alternative to conventional strategies, such as exporting, licensing and foreign direct investment, and analyses the conditions under which it will be adopted by firms. The new strategy involves the offshoring of production and the out‐sourcing of research and development, and is implemented through co‐operation between a source country firm and a host country firm.Originality/value – This paper presents a new way of modelling international business as a supply chain system, which can be easily extended in various ways.

The Economic Theory of International Supply Chains: A Systems View

Abstract This paper offers an integrated analysis of outsourcing, offshoring, and foreign direct investment within a systems view of international business. This view takes the supply chain rather than the firm as the basic unit of analysis. It argues that competition in the global economy selects supply chains that maximise the joint profit of all the firms in the chain. The systems view is compared with the firm-centred view commonly used in strategy literature. The paper shows that a firm’s strategy must be embedded within an efficient supply-chain strategy, and that this strategy must be negotiated with, rather than imposed upon, other firms. The paper analyses the conditions under which various supply-chain strategies – and by implication various firm-level strategies – are efficient. Only by adopting a systems view of supply chains is it possible to determine which firm-level strategies will succeed in a volatile global economy.

Bounded Rationality, Meta-Rationality and the Theory of International Business

The concept of bounded rationality is often applied to international business behaviour (see for example Kogut and Zander, 1993). It is a key element in Williamson’s (1975) version of transaction cost theory, and underpins Hedlund’s (1993) arguments in favour of the ‘heterarchy’ — otherwise known as the ‘network firm’. There is, however, no consensus over what exactly ‘bounded rationality’ signifies. The term itself is a curious one. It indicates what it is not — namely full or substantive rationality — but not exactly what it is. There are a number of different views. As a result, a casual reference to bounded rationality is ambiguous, since it is not clear to which particular interpretation of bounded rationality it refers.

Two-way Communication Costs and the Boundaries of the Firm

Casson and Wadeson (International Journal of the Economics of Business, 1998, 5, pp. 5-27) have modelled the dialogue, or conversation, which customers have with their suppliers in order to convey their requirements, while taking production implications into account. They showed that this has important implications for the positioning of the boundaries of the firm. Unfortunately, their model has the restriction that communication is only costly in the direction of customer to supplier. This paper extends their model by introducing two-way communication costs. It shows that the level of communication cost in the direction of supplier to customer is a key additional factor in determining the nature of the dialogue that takes place. It also shows that this has important additional implications for the positioning of the boundaries of the firm. Custom computer software development is used as an example of an application of the theory.

Information strategies and the theory of the Firm

Information costs play a key role in determining the relative efficiency of alternative organisational structures. The choice of locations at which information is stored in a firm is an important determinant of its information costs. A specific example of information use is modelled in order to explore what factors determine whether information should be stored centrally or locally and if it should be replicated at different sites. This provides insights into why firms are structured hierarchically, with some decisions and tasks being performed centrally and others at different levels of decentralisation. The effects of new information technologies are also discussed. These can radically alter the patterns and levels of information costs within a firm and so can cause substantial changes in organisational structure

The Division of Labour under Uncertainty

Reductions in the division of labour are a significant feature of modern developments in work organisation. It has been recognised that a reduced division of labour can have the advantages of job enrichment and lower coordination costs. In this paper it is shown how advantages from a lesser division of labour can stem from the flow of work between different sets of resources where the work rates of individual production stages are subject to uncertainties. Both process- and project-based work are considered. Implications for the boundaries of the firm and for innovation processes are noted.

Multi-dimensional search: choosing the right path

This article seeks to analyse processes of decision‐making where multiple costly observations can be made about individual decision outcomes. It presents a simple model of a decision in which information is collected sequentially. Most economic models of sequential collection of costly information have focused on price‐search. It is argued that this is a very specialized type of search. This has led such models to focus on the issue of when search should stop. The article attempts to show how the principles of sequential search can be applied to other types of problems, such as innovation, where the choice of path is also of central concern.

The Search for Entrepreneurial Opportunity

This paper presents a conceptual framework which can be used to analyse the process of entrepreneurial opportunity discovery. An opportunity can be considered as a project whose exploitation would be advantageous to the entrepreneur. The entrepreneur has to use judgment in deciding which projects are most worthwhile to put into operation. One important aspect of this is the question of how the entrepreneur is to apply judgment in deciding what information to gather, given the need to economise on the costs of doing so.