COORDINATING STRATEGY DECISIONS IN SAO PAULO'S FRESH MARKETS: AN EMPIRICAL TEST OF THE PETERSON, WYSOCKI AND HARSH MODEL

Transaction cost economics revolutionized economists understanding of coordination strategy decisions, bringing into the economic equation questions of how the attributes of a transaction affect the governance decision, particularly given the reality of bounded rationality and possibility for opportunism among partners in an exchange. Despite the explanatory power of transaction cost models, they have been criticized on theoretical grounds and for operational shortcomings. Specifically, Dow points out that in order to compare transaction costs across different governance structures, the characteristics of the transaction must be constant regardless of the governance structure in question (Dow in Dietrich 1994 p 4). This is rarely the case in reality. In fact, the characteristics of both the transaction and production tend to shift between coordination strategies, which makes it more difficult to assign solely transaction cost explanations to governance structure decisions. Related to this is a further important criticism: implicit in the transaction cost framework is the assumption that costs are the primary driver of transaction cost decisions,. while benefits, particularly strategic benefits (which can not be written off merely as negative costs), playing an insignificant role. Several operational shortcomings of the transaction cost model have also been named. For one, transaction cost economics has been criticized as providing such a general explanation of coordination strategy decisions that one can always find what one is looking for, making it impossible to reject hypotheses related to their determinants. Another criticism concerns the lack of discussion in transaction cost literature of the cognitive process by which transaction costs are taken into account. Together, these criticisms point to the need for an approach to analyzing governance structures that is both theoretically consistent and operationally sound. The need for such an approach has been felt not only in economics but also in the strategic management fields, where there have been appeals for a business literature that not only offers insight into strategic decision-making but also offers general theoretical insights into coordination issues for use in research and hypothesis testing (e.g. Zylbersztajn 1996).In their 2001 article, Peterson Wysocki and Harsh (PWH) (2001) address these issues, offering a theoretical decision-making model of the firm's coordination strategy decisions. This paper applies the PWH model to the analysis of coordination strategy decisions among firms in Sao Paulo Brazil's fresh produce markets. The objective is to test the model's explicative power and to explore the unique contributions that it lends to research on firms' coordination strategy decisions. Data is drawn from case study analyses of the evolution of coordination strategy decisions of three retailers and one processor. The case study approach is a suitable method of analysis in situations where a small sample permits in-depth consideration of the complex and interdependent factors entering into a decision (Yin 2003). A survey of the firms' fresh produce marketing and procurement strategies was implemented and interviews with open and structured questions were conducted with each firm's management. A total of eight coordination strategy outcomes are analyzed.