SME E-Cooperation: A Theoretical Team Contract Analysis Under Hidden Information

SME E-Cooperation: A Theoretical Team Contract Analysis Under Hidden Information

María Verónica Alderete (Universidad Nacional del Sur, Argentina)
Copyright: © 2012 |Pages: 12
DOI: 10.4018/jec.2012010104
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Abstract

Virtual Cooperation among SME firms can be analyzed from different theoretical perspectives. This paper considers e-cooperation among firms under asymmetric information. Firms cooperate jointly to produce some output or service, and they organize in teams whose firms’ characteristics are imperfectly observed. Suppose firms can observe their efforts or actions but they cannot observe the disutility of effort which they can discover after the contract is signed. The objective of this paper is to analyze virtual cooperation contracts under hidden information based on the original papers of Holmstrom (1982) and Rasmussen (1987). Some conditions are derived under which it is possible to implement an optimal sharing rule for a virtual team of SME under a hidden information frame.
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1. Introduction

Globalization and the increasing complexity of production processes have altered traditional operations’ management, leading to a new challenge for small and medium sized enterprises (SME). Inter-firm cooperation has emerged in response. Cooperation plays an important role in the survival of many small and medium sized businesses (Fuller-Love & Thomas, 2004; Rauch, 2001, Kosacoff & López, 2000; Oughton & Whittam, 1997).

Nowadays, since the evolution of network technologies and the decrease in transaction costs due to new Information and Communication Technologies (ICT), technology providers have developed innovative solutions for SME as regards communication and the management of business. The New Economy offers new opportunities for small businesses in terms of internationalization, access to external markets (Chong, 2008; Alderete, 2007) and achievement of further business goals (Aral et al., 2006). Besides, SME in local networks can accomplish a different way of doing business, where the advantages of the local embeddedness, such as informal exchanges, could be offset by the benefits of electronic marketplaces.

The adoption of common standards, exchange of information and shared use of common facilities are all examples of cooperation in which firms may increase their profits. Traditional theory pays little or no attention to the role of information, which evidently lies at the heart of organizations (Holmstrom, 1982).

The intensive application of the new information and communication technologies seeks to enhance the competitiveness of the partners of a specific network. However, SME do not just face advantages but also challenges. Awareness, confidence and competence in e-business play a significant role vis-à-vis e-business platform adoption (Braun, 2003). SME can display different abilities towards adoption of networked technologies; for instance, some firms may lack technology skills. Besides, the virtual enterprise requires flexibility and agility, which can be discovered once working in the team. Some authors (Cragg et al., 2002) express the concept of IT alignment which means ‘fit’, it expresses the idea that the object of design, e.g., an organisation’s structure or its information systems must match its context in order to be effective (Iivari, 1992).

The concept of a “team” is described as a small number of individuals with complementary skills, who are equally committed to a common purpose, goals, and a working approach for which they hold themselves mutually accountable. It is worth mentioning that virtual teams are often formed to overcome geographical or temporal separations (Cascio & Shurygailo, 2003). Virtual teams work across boundaries of time and space by utilizing modern computer-driven technologies. The term “virtual team” is used to cover a wide range of activities and forms of technology-supported working.

Organizations are shedding conventional work team structures in favor of virtual team structures that are increasing in popularity (Lee-Kelley, Crossman, & Cannings, 2004).

Pinsonneault and Caya (2005) review the extant empirical literature on virtual teams and present what we know and what we do not know about them. By stressing the variables affecting virtual teams, they assess the effects of virtual teamwork on group processes and outcomes.

E-collaboration enables collaboration between individuals not constrained by geographical distance or time. The emergence of the virtual team concept provides organizations with an alternative approach to manage work and individuals that are geographically separated (Gatlin-Watts, Carson, Horton, Maxwell, & Marltby, 2007).

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