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COST, VALUE AND FOREIGN MARKET ENTRY MODE: THE TRANSACTION AND THE FIRM
Author(s) -
MADHOK ANOOP
Publication year - 1997
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/(sici)1097-0266(199701)18:1<39::aid-smj841>3.0.co;2-j
Subject(s) - opportunism , transaction cost , internalization theory , industrial organization , bounded rationality , corporate governance , competitive advantage , context (archaeology) , business , value (mathematics) , microeconomics , economics , database transaction , marketing , computer science , market economy , management , machine learning , programming language , paleontology , biology
This paper compares and contrasts the mode of foreign market entry decision from the transaction cost/internalization and organizational capability perspectives. Each of these perspectives operates at a different level of analysis, respectively the transaction and the firm, and consequently differs in the primary arena of attention, namely transaction characteristics and the capabilities of firms. In making the comparison, a key distinction is made between the cost and the value aspects in the management of know‐how, based on which issues pertaining to the transfer of knowledge within and across firm boundaries and the exploitation and enhancement of competitive advantage are closely examined. The main purpose of this paper is to demonstrate the implications of a shift in frame from cost to value in the analysis of decisions related to firm boundaries. Entry into foreign markets is used primarily as a vehicle for the accomplishment of this purpose. The paper shows how the value‐based framework of the organizational capability perspective radically and fundamentally shifts the approach towards the governance of firm boundaries and argues that, even though TC/internalization theory raises some valid concerns, the organizational capability framework may be more in tune with today’s business context. Some of the assumptions of the TC/internalization perspective, both direct—–opportunism, exploitation of existing advantage—and indirect—preservation of the value of know‐how across locational contexts, asymmetry between bounded rationality for transaction and production purposes—are critically examined and questioned. Implications of a shift from a cost to a value‐based framework are discussed and the need for a shift in research focus is emphasized. © 1997 by John Wiley & Sons, Ltd.