Ningyuan Zhang

Abstract

This paper applies Transaction Cost Economics to analyse how cross-border distribution transactions are arranged from the suppliers' perspective. Using 29 semi-structured interviews and comparative analysis of six cases spanning contract manufacturing, brand distribution, cross-border e-commerce (CBEC) platforms, and direct-to-consumer (D2C) company-owned websites, we develop the concept of Required Asset Specificity (RAS). RAS distinguishes between the minimum transaction-specific investment required for participation (Minimum Operational RAS) and the level at which the transaction can be conducted efficiently (Efficient RAS). Within the discriminating alignment framework, asset specificity remains the primary dimension for discriminating among governance structures; RAS refines the operationalisation of that dimension by recognising that transaction-specific investment is not always discretionary, and establishes two reference points for diagnosing investment distortion and consequent governance misalignment. We find that over-investment and under-investment relative to Efficient RAS are produced by bounded rationality — and can be amplified by cross-border conditions. Misaligned arrangements persist when sustained by motivations including commitment signalling, residual profit pursuit, brand protection, and escape from prior lock-in; conversely, aligned arrangements prove unstable when these motivations are unmet. The paper refines the discriminating alignment framework by enhancing its diagnostic precision for analysing the governance of cross-border distribution.