This article deals with the influence of transaction costs and organizational competences on the choice of governance structure for manufacturing stage in a productive system. The objective is to develop a conceptual model that explains the choice of supplier for manufacturing through transaction costs and organizational competences. Following earlier studies, the model proposes competences of the product´s owner influence the vertical scope in a relation moderated by transaction costs. The constructs in the model are: "governance structure", the dependent variable categorized as internal or external supplier, "transaction costs", measured by asset specificity of the product and bargain power of the firm in the manufacturing stage, and "competences on operations”, measured by experience and diversification of the firm. The study presents some methodological implications for applying the model in Brazilian pharmaceutical industry, through searching for secondary data on drugs and firms in a public database of the federal regulatory agency.