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Unformatted text preview: of specialized knowledge risky in the long run particularly
would limit the flexibility a fr has in adapting to future contingencies.
Since a flexible arrangement is difficult to achieve in a contractual setting,
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
the riskof dissipation falls, the opportunity for mutually beneficial contractual
arrangements increases at the expensean internal marketpugman 19813.
This opportunity also will be higher in countries where the cost of writing
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
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.
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- Summer '14