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Why do Internet commerce firms incorporate logistics service providers in their distribution channels?: The role of transaction costs and network strength
Abstract
The Internet has redefined information-sharing boundaries in distribution channels and opened new avenues for managing logistics services. In the process, firms have started to incorporate new service providers in their commercial interactions with customers over the Internet. This paper studies conceptually and empirically why Internet commerce firms (ICFs) have established relationships with these providers. Focusing on logistics services in outbound distribution channels, we rely on transaction cost theory to reveal that low levels of asset specificity and uncertainty drive Internet commerce firms to establish these relationships. Moreover, we apply strategic network theory to show that Internet commerce firms seek these providers because they offer access to relationship networks that bundle many complementary logistics services. In addition, logistics service providers make these services available across new and existing relationships between the Internet commerce firms, their customers, and their vendors.
1. Introduction
The growth of electronic commerce has driven Internet commerce firms (ICFs) – retailers and other organizations that market products over the Web – to increasingly share market demand data with other firms so as to enrich the order fulfillment services they offer to customers ( HYPERLINK /science/article/pii/S0272696306000672 \l bib31#bib31 Frohlich and Westbrook, 2002). Along these efforts, ICFs have started seeking logistics service providers to tap into resources and skills that could improve their fulfillment capabilities ( HYPERLINK /science/article/pii/S0272696306000672 \l bib24#bib24 Dutta and Segev, 1999).
These logistics service providers are not simply variants of transportation companies, and as such, they are not to be confused with what are known nowadays as third part
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