Different theoretical attempts were made in the past to explain and predict a firm's integration strategies which is isomorphic to the theory of the firm. Transaction cost theory was the most dominant theory until recently. However, this position has been challenged by emerging theories that were developed in adjacent academic disciplines including resource and capability-based view of the firm. This paper examined the influence of both transaction cost and resource & capability view to explain exchange governance decision for different types of transactions under two different types of innovation changes. Three different transactions, i.e., generic transaction, strategic transaction without competition, and strategic transaction under competition, are identified. In addition, two different types of innovation – exogenous and endogenous – were considered as environmental contingency. Specific propositions are made for the choice of exchange governance by considering all the types of transactions and innovations.
Transaction Cost, Innovation, Strategy