Transaction costs play a major role in international trade and the internationalisation of production with fragmented supply chains. This paper relates the theory of transaction costs economics (TCE) and of international supply chain management to practical experiences of entrepreneurs. A survey among companies in the manufacturing industry and services sector in the Netherlands provides insight into the relative importance of various types of transaction costs when organising production internationally. The survey also provides information about which forms of government interventions in order to reduce transaction costs are to be considered useful and appropriate by the respondents. These answers are confronted with arguments from the theory of public sector economics and of economic diplomacy to reduce transaction costs, for instance by internalising externalities, by promoting knowledge spill-overs and by providing infrastructure with the character of a public good.