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What can Transaction Cost Theory contribute to International Business?

14 January 2021 at 12:00 PM - 1:00 PM

Room Luiss Research Seminars, Campus on Luiss

Speaker: Jean Francois Hennart , Tilburg University

Abstract

What can Transaction Cost Theory (TCT) contribute to International Business? After dispelling some common myths (TCT is about minimizing transaction cost, it needs the addition of a resource-base perspective, and asset specificity is key to it), I argue that two key features of TCT are its focus on the transaction, rather than the firm, and its comparative view. The first feature make it possible to develop a general theory of both asset exploiting and asset seeking foreign direct investment, provides a more realistic theory of modes of entry, and explains some empirical anomalies in the Born Globals and Export Process literatures. The second feature explains why there is no general relationship between multinationality and performance, why multinational enterprises are not optimal for arbitrage (pace Kogut), and why efforts to infuse them with creativity and agility seem to always come up short.