First arguments for why these theories are chosen and how they can be combined

First arguments for why these theories are chosen and

This preview shows page 32 - 35 out of 61 pages.

First arguments for why these theories are chosen and how they can be combined are given. Second, the theories- Internationalization Theory, Olive r Williamson’s Transaction Cost Analysis, Barney’s Resources - based View, and John Roberts’s Complementarity are presented. The central matter in the Internationalization Theory is the firm’s aim to develop own internal markets whenever transactions can be made at a lower cost within the firm. The Internationalization process will continue until benefits and costs of further internationalization are equated to the margin. One of the major advantages of internationalization is the reduction of information monopoly Resource-based View Complementarity; a situation when one of the parties has more valuable information than the other one. Internationalization can involve a form of vertical integration bringing new operations and activities under governance of the firm, especially when natural markets are imperfect or missing (Buckely and Casson, 1993).
33 | P a g e Information monopoly: A situation then one of the parties has more valuable information then the other one. Foreign Direct Investment - A Tool for Internationalization: According to Hill the idea of Internationalization Theory can also be identified as market imperfections. He explains that market imperfections are factors that are hindering the markets from working perfectly. When there are impediments to the free flow of products between nations and impediments to the sale of know-how, and it will be expensive or difficult to execute export and sale of know-how, then exporting and licensing are often replaced by Foreign Direct Investment (FDI). FDI is investment in one firm by another firm to produce and/or market a product in a foreign country (Hill, 2007). In conclusion, the Internationalization Theory focuses on how a firm can develop its own internal markets through FDI. There are impediments to export and the sale of know-how and therefore horizontal FDI is used. Vertical FDI is also used when there are impediments to the sale of know-how as well as when a firm must invest in specialized assets. Exporting impediments are tariffs and quotas. Impediments to the sale of know-how are complications when it comes to protection of transferring the knowledge. Investments in specialized assets expose the investing firms to opportunistic behaviour. The trade off between exporting, licensing and FDI depends on the specific impediments that the firm faces. Transaction Cost Theory Transaction cost theory (TCT), or transaction cost economics (TCE), has been broadly used in the analysis of different strategic and organizational issues.
34 | P a g e The theory has been applied whe n studying firms’ vertical integration options, grounds for acquisition and choice of hybrid governance forms (Martins et al., 2010).

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