Reconciling contracts and relational governance through strategic contracting

In an industrial marketing context of manufacturer–distributor collaboration, this law and economics paper aims to contrast two approaches to contracting: conventional and strategic.

Based on relational rent theory, this paper provides an analytical framework for juxtaposing conventional and strategic contracting. A contingency approach is applied to formulate propositions as to when conventional versus strategic contracting is preferable.

The distinction between conventional and strategic contracting has implications as to whether relational governance substitutes or complements formal contracts (the substitution versus complements perspectives). Strategic contracting results in complementarity (rather than substitutability) between formal contracts and relational governance.

This paper argues that a more nuanced view on contract types, such as strategic versus conventional, may reconcile the enduring research controversy between the substitution and complements perspectives.

Today, formal contracts with foreign distributors tend to resemble “prenuptial agreements”. The opportunity for relational rent (e.g. manifested in higher export revenues) grows if conventional contracts are superseded by contracts following strategic contracting principles.

This study is interdisciplinary, not only by its combination of marketing, management and contractual economics but also through its law and economics amalgamation.