This paper presents a transaction costs theory of equity joint ventures. It distinguishes between 'scale' and 'link' JVs. Scale JVs arise when parents seek to internalize a failing market, but indivisibilities due to scak or scope economies make full ownership of the relevant assets inejj'icient. Link JVs result f r o m the simultaneous failing of the markets for the services of two or more assets whenever these ussets are firm-specific public goods, and acquisition of the firm holding them would entail significant management costs.
Deciding on the boundaries of a firm as it expands abroad is a critical decision for managers. Despite the rapid growth in research addressing this issue, many questions remain unanswered. In this article, the authors review the international entry mode choice literature, identify weaknesses and shortcomings, and provide suggestions on how researchers can add to the knowledge of mode choice and help managers make better international boundary decisions.
This paper offers the first large sample empirical study of the factors which influence the choice of Japanese firms between full or partial ownership of their U.S. manufacturing subsidiaries. It studies for the first time the ownership policies of investors of a single home country in a single host country, thus keeping variations within home and host countries constant. One methodological improvement over previous studies is the use as independent variables of the relevant characteristics of the investing firms. These had been proxied in previous studies by data on U.S. industries entered. The results suggest that the degree of ownership taken by Japanese manufacturing investors in their American subsidiaries is driven by the same general transaction costs variables that determine the choices made by their U.S. counterparts: Japanese parents joint venture when they need to combine with other firms intermediate inputs which are subject to high market transaction costs. An intriguing result, however, is the lack of significance of two variables which, in the U.S. case, strongly push towards full control of foreign subsidiaries. In this study neither the Japanese parent's R&D nor its advertising intensities had any significant impact on their ownership policies.joint ventures, transaction cost theory, control, multinational enterprises
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