Key Characteristics of Tce and Tce Concepts Embedded in Vertical Chain

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Vertical Chain: The production of any goods or services involves a lot of activities. The hierarchy beginning with acquisition of raw materials to the distribution and sale of finished goods and services is called the vertical chain of the firm. Fig1: Simplified vertical chain of multibrand retailer Tesco. Vertical chain of Tesco shows that goods reach the import centres or main Distribution centre from suppliers. It is transported to regional distribution center and from there to respective stores. Support services are provided throughout the chain. Many modern firms use a no. of subcontractors and outsourcing agencies. These firms use external agencies to perform a variety of tasks and as such are dependent on market for exchange coordination over internal exchange coordination. As a result these firms are a network of relationships and contracts. Firms compare the cost of internal coordination to the cost of using markets in order to optimise the co-ordination of economic exchange. Most common examples of using the market as an exchange are rooted in the use of contract staff and outsourcing. Co-ordination: Markets and Organisations are most common exchange co-ordinators. In case of market consumers buy the quantity of goods or services they demand and producers sell the quantity they supply at market price. The price mechanism ensures efficiency and there are no shortages or surpluses. In case of organisation, authority is the co-ordinating mechanism as the decision makers allocate resources in organisation. Ronald Coase in 1937 suggested that the existence of transaction cost i.e. the costs of using markets would result in organisational hierarchies being more efficient when the costs of negotiating, monitoring and enforcing contracts are too high. The existence of high transaction cost is the reason that more economic activity is carried out within

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