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Transaction Cost Analysis in New Product Development Process

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Nowadays, rapid technological development and global competition cause most organizations to emphasize New Product Development (NPD) to become more competitive and create business opportunities; however, this may pose challenges, especially for Small and Medium Enterprises (SMEs). NPD carries with it substantial costs, especially transaction costs. Various organizations have tried to decrease costs to increase profits. This study, therefore, investigates the transaction costs that arise in the new product development process to identify and categorize them and subsequently to influence effective capital planning and business management. This qualitative research project collected data through focus group and in-depth interviews with informants concerning multiple case studies (three SMEs receiving the Innovation Award in 2014 which continuously develop new products). The findings of this project divide the transaction costs of NPD into three phases: (1) the pre-development phase, (2) the development phase and (3) the post-development phase. Most of the transaction costs occur in the first two phases of NPD, including the costs of research and data collection; the cost of business process development including financing, marketing and technology; and the cost of product and process adjustments and improvements. Awareness of these findings should benefit those managing transaction costs, allowing better identification and fulfillment of market opportunities and other competitive advantages associated with NPD.
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Keywords: New Product Development; Product Innovation; SMEs; Transaction Costs

Document Type: Research Article

Affiliations: 1: Department of Business Administration, Kasetsart University, Bangkok 10900, Thailand 2: College of Innovation, Thammasat University Bangkok 10200, Thailand

Publication date: November 1, 2017

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