The Oxford Handbook of International Business

By Alan M. Rugman; Thomas L. Brewer | Go to book overview

can account for the introduction of behavior constraints in transactions where output constraints predominate. The resulting institutions are contracts, and we can model their benefits and costs. The model is useful in explaining the strengths and limitations of alliances.

Lastly, the model has been described in terms of interdependencies. The reason is that some authors have erroneously thought that the use of the word 'transaction' by transaction cost theorists meant that the model was limited to the analysis of existing transactions, and could not handle the creation of new capabilities. This mistaken view may have arisen from an earlier emphasis on exploitation of advantages. Almost by definition, a firm can only exploit advantages it already owns.

In reality, the process by which MNEs get established is always one of merging complementary capabilities. A firm located in country X has some assets which have potential value in country Y if successfully combined with some country Y factors. These factors can be available on the market, or embedded in some local firm. This is what I mean by 'interdependencies'. Agents located in two different countries have the potential, if they combine their capabilities through international markets or within MNEs, of creating rents. MNEs arise when they offer the most efficient way to realize these potentialities, when they are the most efficient method of combining local and foreign assets. The process of establishing MNEs (i.e. market entry) can thus be seen as one of creating new combinations. Transaction costs theory tries to explain the institutional forms they will take.

Thinking in terms of 'interdependencies' also underlines that when the complementary assets are embedded in firms A and B located in two different countries, the concept of who takes the initiative to combine the assets is irrelevant to the major question of why MNEs exist. MNEs exist because the combination of the assets is more efficiently done within an MNE than through spot markets or contracts, but the initiative can come from either A or B. A firm with a mineral deposit in a given country but no mining expertise can set up a joint venture with a mining firm in another country which has the expertise it lacks, it can sell its deposit to that firm, or it can acquire the mining firm to obtain the expertise. In all three cases, an MNE will result. A theory of why MNEs exist should be able to handle all three cases with the same model, as we can if we think in terms of interdependencies.


References

Ackerlof, G. (1970). 'The Market for “Lemons”: Qualitative Uncertainty and the Market Mechanism', Quarterly Journal of Economics, 74: 448-500.

-145-

Notes for this page

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this book

This book has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this book

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this page

Cited page

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited page

Bookmark this page
The Oxford Handbook of International Business
Table of contents

Table of contents

Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this book

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
/ 877

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.