Contractual Learning to Bridge the Gap Between Contractual Needs and Capabilities

The gap between contracting need and capability exists in collaborative relationships because the transactional parties are bounded rationally, especially when firms coming from emerging economics start to deal with international transactions. However, the existing literature reveals little concerning systematic investigations into how firms learn to overcome the dilemma between contracting need and capability in international contexts. We conducted an in-depth case study to explore how a Taiwanese firm needed to contract with foreign partners but lacked the capability to design contracts at the initial collaborative stage. The firm developed a contracting capability through cross-border learning mechanisms (i.e., social interaction, problem-solving, team, and partner selection) to incrementally accumulate contracting knowledge (i.e., tacit knowledge includes what partners’ demand and how to design satisfactory contracts; explicit knowledge includes various contractual provisions). The findings provide implications for firms regarding how leverage contracts in their long-term international partnerships.