Considering the Local Partner. A Two-Sided Perspective on Transaction Costs During Market Entry

Abstract

Purpose

Building on transaction cost economics (TCE) and recent critique on international business (IB) research, we intend to sharpen our knowledge on the application of TCE in entry mode studies.

Methodology/approach

We develop a two-sided model of transaction costs by considering the multinational corporation (MNC) and the local partner.

Findings

Overall, we illustrate that the decisions firms undertake are not always in line with traditional MNC-centric TCE reasoning. Specifically, we identify three situations when “traditional” TCE predicts transaction costs lower than they actually are. Based on our findings we derive implications for future TCE studies.

Originality/value

Our study is among the first to highlight the relevance of potential partners’ transaction costs during market entry. Our model of dually impinged transaction costs is supposed to guide future research and can be of direct use to firms assessing costs of entry.

Citation

Wisgickl, A.H. and Puck, J. (2014), "Considering the Local Partner. A Two-Sided Perspective on Transaction Costs During Market Entry", Multinational Enterprises, Markets and Institutional Diversity (Progress in International Business Research, Vol. 9), Emerald Group Publishing Limited, Leeds, pp. 49-69. https://doi.org/10.1108/S1745-886220140000009002