Transaction costs are barriers for internationalisation processes.This paper investigates the practical relevance of transaction costs economics (TCE) for international supply chain management (SCM) in this era of globalization, which is characterized by splitting up the supply chain in more and more parts. The analysis is based on data from in-depth interviews with seven manufacturing companies in the Netherlands which are actually engaged in this modern way of organising production. It is shown that the balance between transaction costs and sheer production costs (transformation costs) plays a prominent role in the strategic decisions on how and where to organise production. Especially intangible (or “soft”) transaction costs are important in this respect. The analysis provides insight in practical experience in the manufacturing industry in the Netherlands with transaction costs and shows how transaction costs affect decisions on transaction management, personnel policy and internationalisation of R&D. This study is to our knowledge the first to confront the theory of TCE with practice of manufacturing firms in their internationalisation decisions using in depth interviews instead of survey data.