Network relationships and asset specificity in Pakistan's automotive industry

Jawaid Abdul Ghani and Jamshed Hassan Khan

Journal of the Asia Pacific Economy, 2004, vol. 9, issue 1, 84-100

Abstract: This study empirically examines linkages between suppliers and assemblers in the car and tractor segments of the Pakistan auto industry. It builds upon the literature on transaction cost theory and lean network systems to develop a framework for understanding the relationship between inter-firm linkages, asset specificity and transaction costs in the presence of uncertainty. Asset specificity was found to be significantly correlated with transaction costs and with inter-firm linkages. Suppliers who have invested in relationship-specific assets (site, equipment and human) tend to have stronger relationships with their main customer, but also incur higher trans­action costs. Results indicate that the auto supplier industry is characterized by low levels of assistance, trust, information sharing, poor performance in terms of inventory levels and other measures of network relationships, and yet by high levels of physical asset specificity. It is suggested that this high level of asset specificity is a result of historically stable growth, which when combined with recent market instability resulted in decreased trust, unused capacity and high transaction costs. The impact seems to have been particularly severe on tractor suppliers.

Date: 2004
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Citations: View citations in EconPapers (4)

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DOI: 10.1080/13547860310001628311

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