competitors along with mitigating the effects of their transaction frequency (Stuckey & White1993). It is true that applying transaction cost theory can help decision-makers to determine whetherthe firms should perform in an open market or hierarchyby comparing transaction costs withinternal production costs (William 1979). This is because while some firms can minimisetheir costs when performing in integrating hierarchy, others can maximise their possible addedvalue when the transactions occur in the open market (Greve & Argote 2015). Morespecifically, in order to select the best entry mode from variable choices to provide the mostefficient form of governance in term of the internationalisation process, the transaction costtheory is suggested to be seen as the most frequently used tool to determinesuch a decision aseachmode ofmarketentry has bothadvantages and disadvantage(Williamson 1979). Forexample, business organisations can achieve greater return but higher risk when applying ahigh control entry mode. In contrast, a low control entry mode results in decreasing theresources allocated and lower risks. It also increases the degree of flexibility, but less
profitable because returns often result in expense (Ulrich et al. 2012). In general, there arethree critical components of transaction cost theory which are used todescribe characteristicsof any transaction including Asset Specificity, Uncertainty and Frequency (Greysken et al.2006).2.1 Asset Specificity Asset Specificity (or relationship-specificasset) can be described as an attribute of agiventransaction which is made to achieveahigher value than theywouldhave in term ofbeing redeployed for any other purpose (De Vita, Tekaya & Wang 2011). This means a firm’smanager needs to consider the specific degree of given transactions to choose the businessstrategy that is best suited to safeguarding investments against potential opportunists(Maekelburger 2012).2.2 UncertaintyAccording to Williamson (1979), Uncertainty is defined as an imperfect understanding ofspecific activities and their outcome; for example, about a product's price and its quality. It isalso considered as the source of disturbances to which transactions are subject. In the sense ofbusiness activity, the Uncertainty to make transactions in a chosen entry mode canstemmingfrom Bounded Rationality, Information Asymmetries and the Opportunists (Williamson1979). These variable degrees of Uncertainty also affect to the decisions of businessorganisations in moving a transaction out of the market into their firms (Moschandrea 1997). Bounded Rationality is often considered as a particularly significant constraint on decision-makers who are “bounded” orlimitedbecause of inadequate information, cognitive
limitations inherent in the limited memories, computational skills, time constraints and othermental tools (Anon 2009). Under such conditions, the managers responsible fordecisionmaking are unable to handle all possible information consequences in order to fully assess the
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Transaction cost, joint venture, Theory of the firm, Williamson