Suchergebnisse

In B2B markets, when firms sign contracts for transactions pertaining to the exchange of services that are delivered over a period of time, one critical decision they make is the length (or duration) of the contract. If the services are hired for a long project, companies often sign multiple, successively run contracts with the same vendor. This is prevalent in projects such as when multinational companies hire consulting firms like Accenture to streamline and digitize their business processes, when big banks in developing countries hire firms like Tata Consultancy Services to extend banking facilities into rural markets, and when oil companies hire rig firms to drill oil wells. From a traditional economic perspective, companies would decide on an optimal contract length that is not too long or too short; the former disables the firms from reacting to market changes while the latter makes negotiation costs expensive. However, when a company signs a series of successive contracts with a service-firm, both companies get to learn about the other company's goals and operations dynamically, which might influence the length of each contract in the series. Thus, determining the contract length in a series of successive contracts is more challenging. In this study, we build a contract length determination model that considers both the economic factors and the dynamic learning. The model provides managers with a theoretical yet practical tool to make optimal decisions on contract length. We use data from the oil-drilling industry to empirically test the proposed model.

PurposeCompanies in the B2B service sector often sign a series of successive contracts instead of one long contract with their vendors. Economic researchers have shown how the lengths of stand-alone contracts are influenced by economic factors such as asset specificity and economic volatility, but have not researched into contracts that are part of a continuous series. The purpose of this study was to explore if being a part of a series of contracts influences the length of the focal contract and the rental rate.Design/methodology/approachThe authors use data collected from the oil drilling industry to empirically test their hypotheses. The data set consists of 2,621 contracts involving jack-up rig hiring in the Gulf of Mexico region.FindingsThe authors empirically show that the series duration affects both the length and rental rate of each constituent contract, even after considering all other plausible economic factors. Specifically, the duration of a series has a positive effect on the length and a negative effect on the rental rate of the constituent contract.Originality/valueAlthough contract length is as vital as the rent in B2B service transactions, it is rather unfortunate that marketing scholars have not researched much into this topic. The findings offer a new insight into the forces that shape the B2B service contracts and thus help the B2B managers make a better decision in service contracts.