A Study On The Impact Of Information Technology On The Firm Vertical Boundaries

Since1980’s, one of the most remarkable characteristics in the practice of firm management is the profound changes of inter-organizational relationships, more and more firms in the developed capitalist countries outsource the internal production process to the professional manufacturers, and focus on its own core ability.The firm boundary showes a tendency to shrink, the emergence of a the vertical disintegration of the vertically integrated firm, the trend in the IT industry was prominent.At the same time,with the rapid development of information technology, information system evolves from low-level to high-level, simple to complex, close to open, and isolated to cooperative. The components of information system become more dependent, the coupling degree among components gets lower, while the components interact and collaborate more flexibly. In a word, information system show more characters of complex system than before. It is especially truth when social network software(SNS) and web2.0are concerned.Then, in the virtual social network conditions, how to choose the business scope of the firm, how to determine the appropriate boundary of firm, which is related to the firm competitive advantage.Therefore, based on the perspective of the virtual embedded ties,the purpose of this paper is to explain the impact mechanism of Information Technology on the evolution of firm vertical boundaries by means of transaction cost theory and firm capacity theory, and to offer a basis for the enterprise adjusting firm boundary to get competitive advantage.The research conclusion and main points of this dissertation can summarized as follows:(l)The virtual embedded ties through dynamic capabilities based on knowledge in knowledge search, knowledge acquisition, knowledge creation, knowledge integration and transaction cost, ultimately affect the firm boundaries (2) The transaction costs and capabilities indeed have an important role in the choice and change of firm boundaries. But the change of firm boundaries is a dynamic process, we add the time factor into analysing the relation of capabilities, transaction costs, and firm boundaries. The result shows that there are distinct differences of the status of capabilities and transaction costs.;(3) The virtual embeddedness ties has the effects.on the dynamic capability based on knowledge;(4) On one hand, virtual embedded ties have the effect on the decrease of transaction cost through the trust mechanism and the information sharing mechanism of, at the same time virtual embedded ties also overcome the cognitive disorder of knowledge transfer and creation, so in the short term, the firm boundary will shrink; On the other hand, virtual embedded ties enhance the firm capacity through search ability, acquisition ability, creation ability and integration ability.So in the long term, the firm capacities ad vance,and transaction cost declines, the firm boundary will shrinks.Compared to other related research, this dissertation’s innovative contribution can be generalized The virtual embeddedness is introduced into the research of firm boundary. The dynamic firm boundary is explained through the fusion of transaction cost theory and firm capacity theory. That can be classified into three points in detail:(1) puts forward the concept of dynamic capabilities based on knowledge,and constructs its four discussion dimensions based on related literatures, which to "some extent provides reference for application of the theory of competence in firm boundaries’s studies;(2) constructs a discussion model of Virtual embedded-dynamic capabilities/transaction cost-firm boundary for firm boundary, which takes a preliminary attempt for combining the network theory with competence theory in discussing industrial organization. It provides relatively new discussion method and viewpoints for explaining the evolution of the firm boundary.