Effects of the General Contractor's Governance Capabilities and Project Goals on the Organizational Arrangement of Subcontracting

The organizational design of subcontracting in the construction industry has received limited attention. This article integrates transaction cost economics and resource-based view to investigate how the governance capabilities of the general contractor impact the organizational arrangement of subcontracting and how the goal orientation of project moderates these relationships. Regression analyses were conducted on information collected by a questionnaire survey administered to a sample of 279 respondents who were employed by Chinese general contractors and who were privy to strategy information in construction projects. The results showes that the general contractor with strong governance capabilities tends to increase the extent of the work to be subcontracted and the dispersion of subcontractors used in projects. Moreover, these relationships change when the goal orientation in projects differs. In projects that display an exploitative goal orientation, the positive impact of governance capabilities on the extent of subcontracting will be weakened while the impact on subcontractor dispersion will be strengthened. In contrast, the relationship between governance capabilities and the extent of subcontracting will be stronger, and the relationship between governance capabilities and the subcontractor dispersion will be weaker in projects that exhibit an explorative goal orientation. The findings contribute to the subcontracting literature by distinguishing between the extent of subcontracting and subcontractor dispersion and by highlighting the importance of the general contractor's governance capabilities and project goal orientation when setting up a subcontracting arrangement.