How do transaction costs, capabilities and networks influence the procurement strategies of small agri-food firms? Evidence from the wine industry

Abstract

Purpose – The purpose of this study is to disentangle the drivers of adoption of procurement strategies in situations where small agri-food firms deal with constrained organizational choices. More specifically, the authors investigate the role of transaction costs, capabilities and networks in the definition of feasible “make or-buy” choices in emerging wine regions. Design/methodology/approach – This article analyzes a unique dataset of small wineries from five US states: Illinois, Michigan, Missouri, New York and Vermont. The reported results derive from both a hurdle model (i.e. a probit model and a truncated regression model) and a tobit model. Findings – The results suggest the importance of trust as a replacement for formal governance structures whenever small firms deal with highly constrained sets of organizational choices. On the other hand, the level of dependence on a limited mix of winegrape varieties and the perception that these varieties are fundamental in building legitimacy help to explain higher rates of vertical integration. Originality/value – This study is important because it sheds light on organizational constraints that affect millions of farmers across the globe. The study of “make-or-buy” decisions in agri-food supply chains has mostly relied on the implicit assumption that all organizational choices are available to every firm. Nevertheless, limited capabilities and the participation in low-density networks may constrain the ability of a firm to adopt a governance mechanism. Stated organizational preferences and actual organizational choices may thus differ.