Lack sharing of specialized knowledge risky in the

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Unformatted text preview: of specialized knowledge risky in the long run particularly since it would limit the flexibility a fr has in adapting to future contingencies. im Since a flexible arrangement is difficult to achieve in a contractual setting, im b an a f r that has specialized knowledge wille expected to opt for internal organization. On the other hand, when the contractual risks are low, a firm may be more willing to share its specialized knowledge. Thiss because as i the riskof dissipation falls, the opportunity for mutually beneficial contractual arrangements increases at the expensean internal marketpugman 19813. of This opportunity also will be higher in countries where the cost of writing s and enforcing contracts i low. For those firms that do not possess any specialized knowledge, the presenceof contractual risks may not be a critical issue. These firms may be willing to opt for contractual arrangements even when the contractual risks are high [Rugman 19823. Thus: H4: Firms that have higher ability to develop differentiated products are likelyo choose a sole venture mode in countries characterized t by high contractual risks; on the other hand, firms that do not have this ability may choose a contractual mode even when the risks are high. The contractu...
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