chapter  1
19 Pages

Globalization of professional business services

Professional services are an increasingly important segment of the internationalization of the service sector. The delivery of professional services involves a classic bilateral trading relationship with high uncertainty and frequent interaction even after a contract for service is signed. Broadly, Tansactions Cost Analysis (TCA ) focuses on the costs of bargaining and negotiating and the resulting organizational choices by a firm. The frequency with which bargaining occurs in the contract execution stage affects the transaction costs and allows firms to use alternative governance approaches such as networks. This is true of the interactions between client and provider as well as the interactions between provider and manager. Professional services by nature must deal with high levels of uncertainty, incomplete contracts, information asymmetry, frequent bargaining and bilateral negotiating. The choice of governance structure is not a cut and dried issue and must be carefully chosen to facilitate the reduction of managerial uncertainty, client uncertainty and contractual uncertainty.