Understanding the Manufacturing Location Decision: The Case for the Transaction Cost and Capability Perspectives

This article highlights the value of employing the resource-based view (RBV) and transaction cost economics (TCE) to understand the manufacturing location decision. The RBV can assist with analyzing manufacturing capabilities, which can link the decision with performance and the competitive position of the organization. TCE provides a powerful theoretical lens to augment this analysis. Understanding transaction costs allows an organization to adopt a relationship strategy, which reduces the risks of outsourcing while at the same time leverages the specialist capabilities of suppliers. Moreover, further research is required to enhance our understanding of how the variables from the RBV and TCE interact in sourcing decisions. In particular, it is argued that employing these theories in the manufacturing location decision would contribute to the academic debate on the complementary and contradictory prescriptions of TCE and the RBV in outsourcing decision-making contexts.