Formal linkage mechanisms Essay

Formal linkage mechanisms such as mergers and joint ventures are supposed to reduce transaction costs in a business enterprise. However, sometimes companies can experience increased cost if the management fails to lay down proper strategies (Jones, 2006). It is worth noting that joint venture refers to two or more parties coming together to carry out business activities. In this case, these parties agree to share revenues and expenses.

On the other hand, mergers entail two or more companies joining but each maintains their identity. The likely causes of increased costs In both mergers and joint ventures, there is the possibility of “double running of the departments”(Jones, 2006). This comes about by failure of the companies to do away with similar operating departments. For instance, when the joined and merged companies each maintain their human resource department, the results are increased expenses in running the departments.

Increased company cost can also result from uncertainty about the future by the trading partners. In this regard, the resulting merger or joint venture has to cater for the associated risks. For instance, the possibility of one or more parties pulling out will result to increased cost since the ratio of sharing cost changes. Conclusion and Recommendations The above factors would contribute to an upward trend in the company’s transactions costs.

Therefore, it would be of significance for the computer company to consider the following recommendations. The companies should review their former organizational structure by joining departments that perform similar functions to avoid duplication. Moreover, the companies in the merger should work out a plan towards reducing uncertainty costs such as increasing the number of partners in the merger (Jones, 2006).

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