Reference no: EM133037376

You have been the owner of a grocery store in a small town for 3 decades. Your stakeholders include your customers, suppliers, a local bank, a few of your employees and the local government - you pay taxes and you're protected by the local police. Almost all of your stakeholders know you for more than 20 years. In fact, families in your town have lived there for many generations and they prefer to do business with people they know than with strangers.

Compare to a national convenience store chain in Los Angeles, how do you think will be the difference in the way they contract with their stakeholders?

1. Which store will rely more on standardized contracts that are protected by law? Which one will rely on personal relationships with its stakeholders?

2. What explains the choice of the type of contracting mechanisms for each store? Hint: what is the advantage of using relationships over law.

3. Given your answers to 1 and 2, which ownership structure - 100% owned by an entrepreneur or a chain store with a change in management every few years - is preferred for the grocery store in the small town?

4. In a country with very weak law and low trust in the market place, explain why the grocery stores in big cities are likely to be run by entrepreneurs rather than national chains.