The Great Leap Forward: The Transition from Relation-Based Governance to Rule-Based Governance
Organizational Dynamics, Vol. 33, No. 1, pp. 63-78, 2003
16 Pages Posted: 25 May 2006
This paper introduces a cost-based, dichotomous theoretical framework of governance to the studies of strategic management and international business. Our paper compares the nature and dynamics of relation-based governance with those of rule-based governance. The framework is applied to provide new insights into international and firm-level differences in industry structure, management systems, strategic practices, innovation, and the international flow of capital, human assets, and trades. We also discuss the evolutionary transformation of relation-based systems of governance into rule-based systems of governance under conditions of economic development and intensified competition. Policy and strategic recommendations are made based on the theory.
Keywords: Rule-based, relation-based, governance
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