Equity Joint Ventures by Firms Seeking Technology from MNCs
As economies become increasingly market-based, and as international trade and investment barriers get pulled down with bilateral agreements and multilateral agreements such as GATT, the foundations of domestic competition become international in character. In order to improve their competitive position, it is essential that local firms acquire technology from MNCs so that they can effectively compete against new local and foreign firms. This chapter uses the transaction cost framework to explain that, under a given set of product-market conditions, it is more advantageous for firms in developing countries to choose the joint venture mode rather than the licensing mode for seeking technology from MNCs. The chapter therefore contributes to our understanding of the international joint venture phenomenon from the perspective of the local partner.
This chapter discusses two issues in firm strategy. First, under the new competitive patterns that are emerging as a result of changes in economic policy, how should existing local firms respond in order to retain their competitiveness? As economies become increasingly market-based, and countries reduce international trade and investment barriers, new local firms and foreign firms (multinational corporations--MNCs) intensify competition in the domestic market. In this highly complex competitive environment, it becomes increasingly difficult for existing firms with old technology to sustain their survival and growth. To retain competitiveness and successfully respond to these challenges, it is imperative for these firms to acquire new technology from MNCs. Here, the term technology is used broadly, and includes manufacturing, marketing and management skills and knowledge required to operate a business efficiently.