Collaborative relationships for component development: The role of strategic issues, production costs, and transaction costs

Original equipment manufacturers (OEMs) increasingly rely an specialist vendors to develop the highly complex component parts needed for today's sophisticated industrial end products. However, rather than working closely together on the component development tasks, the OEM and vendor often perform their respective development activities autonomously. This article examines the role played by strategic and cost factors in determining whether component development is conducted as an arm's-length arrangement or as a highly collaborative partnership. An empirical test of 207 OEM-vendor relationships indicates the primacy of production and transaction costs in accounting for the shift to collaborative development of new industrial components. The article concludes by drawing implications for researchers as well as for managers responsible for developing components with an outside partner. (C) 1999 Elsevier Science Inc. All rights reserved.