Under What Conditions Is an Equity Joint Venture the Optimal Choice? An Integrative Analysis Based on Two Different TCE Branches

Abstract

The international business literature based on transaction cost economics (TCE) provides two divergent sets of conditions for an equity joint venture (EJV) to be the optimal mode of foreign market entry. One specification is that, as a “hybrid” organizational form, the EJV mode tends to be optimal when the level of transaction costs is intermediate (Oxley, 1997; Williamson, 1999), and the other specification is that two exchange partners both face high transaction costs in purchasing the services of the other’s assets and in acquiring the other’s assets (Hennart, 1988). We argue that the two divergent specifications have resulted from scholars focusing on two different types of transaction costs – measurement costs and appropriation hazards. By explicating the differential effects of these two types of transaction costs on the choice among contracting, acquisition and EJV, this study reconciles the two seemingly divergent TCE views and provides a more precise analysis of entry mode choice in general and the conditions for EJV to be the optimal mode in particular.

Speaker Biography

Dr. Tailan Chi is Richard C. Notebaert Distinguished Professor of International Business & Global Studies the Lubar School of Business at University of Wisconsin-Milwaukee. He received his B.E. from the University of International Business & Economics (UIBE) and his PhD from the University of Washington.

Dr. Chi’s research conducts economic analysis under the constraints of information imperfections and potential cognitive biases and applies this approach to the study of international business. His current projects examine, inter alia, choice of market entry modes under differing types of transaction costs, expansion and governance decisions at multinational enterprises under uncertainty, and impact of geopolitical tension on knowledge flow between countries. He has published in journals such as Journal of International Business Studies, Management Science, Strategic Management Journal, Strategic Entrepreneurship Journal, Global Strategy Journal, and Journal of World Business. He has co-authored a major textbook, International Business, with Oded Shenkar and Yadong Luo.

Dr. Chi is a Reviewing Editor at the Journal of International Business Studies and serves on the editorial boards of Strategic Management Journal, Journal of World Business and Global Strategy Journal. He is an elected Fellow of the Academy of International Business.