You are on page 1of 17

The International Challenge. Transaction Cost Economics(TCE). . Survival. Past Research. Moral Hazard.           Introduction. The Hybrid Relationship. Adverse Selection. Information Asymmetry. TCE as a framework for IEE. Conclusion.

even for smaller entrepreneurial firms. d) Strategic Alliances. c) Joint Ventures. Export Agent is different from all the other three strategies. This article focuses completely on Foreign Export Agents. They are. Partnership includes HYBRID Entry Strategies. . b) Licensing.      The best opportunity for growth is often overseas. a) Export Agent. Transaction Cost Economics(TCE) plays a role of ideal lens. when entering the international environment. Small entrepreneurial organization finds more difficult potentially.

The paper proceeds as follows. 1) A review of past research into entrepreneurial entry strategies. and impacts of these problems in smaller businesses. 4) Agent theory. 5) Implication for the entrepreneur. . 3) Problems that firms face in international markets. 2) Why firms are motivated to expand internationally. which is closely related to TCE.

. Researches are basically regarding the following. 3) variation in behaviour. 2) Motivating Factors. 1) Success factors.

a) Politically instability in target market expropriation. g) Differing languages. c) fluctuating exchange rates. e) host government regulations.  . h) Norms.International expansion involves risks which includes. d) poor infrastructure. i) Religion. b) Social unrest. j) Legal System.  MNE have Strong n/w. and entrepreneur don’t have the same.

1) Information Discrepancy. . 2) Information Asymmetry.  Problems in getting ally with other parties are. TCE provides a framework on how entrepreneur should structure their expansion efforts.

   .It focuses on the structure for transactions between two parties.  Market governance structure – transaction in open market  Hierarchy governance structure – transaction within the firm Primary Assumptions People are opportunistic People are boundedly rational Asset specificity affects the nature of transaction. Asset Specificity – the two parties involved in the transaction each possess some attribute that makes them valuable to the other in regards to an international entry strategy.

 The cultural distance between the firm and target country is high  . Basic decision of choosing joint venture over FDI  Firm’s first entry into the country.  Firm need to gain control of complementary inputs.TCE used in studying international business. licensing). Whether the MNE’s should directly enter the target market as wholly owned subsidiary or pursue some other entry strategy (Joint Venture.

 Hybrid entry modes with special emphasis on foreign export agents. TCE as a framework for international expansion  Entrepreneur enter foreign markets by pure market and hierarchy (FDI) continuum. .  Pure market entry.entrepreneurs directly contacts foreign buyers and transaction based on the prevailing market price. TCE model fails to examine in small entrepreneurial firms.

 Entrepreneur assumes that they have access to the appropriate customers in target market. which is very tenuous.  Short term .  Small entrepreneurial firms use the hybrid entry strategies.  Hierarchy method is more suitable for small size entrepreneurs.pure hierarchy . Using a Export agent. Minimizes costs and threat of end  Longer perspective .

the export agent’s greater bargaining position shifts more transaction costs to the entrepreneur. . Proposition 3 : All else equal. opportunistic behavior on the part of either party is greater in an entrepreneur / export agent relationship than a MNE / export agent relationship.Proposition 1: All else equal . a hybrid economic transaction relationship between parties headquartered in different countries is established when the parties have complementary resources that have an intermediate level of specificity. Proposition 2 : All else equal.

the prevalence of misrepresentation by the agents in international hybrid relationships is greater when agents are dealing with entrepreneurial firms versus established MNEs. Proposition 4b :All else equal . the prevalence of misrepresentation by the entrepreneur in international hybrid relationships is greater among entrepreneurial firms going international than among established MNEs. .Proposition 4a :All else equal .

.Proposition 5a:  All else equal . Proposition 5b  All else equal . export agents entering international hybrid relationships with entrepreneurs are more inclined to incur ex ante costs to protect against moral hazard than when dealing with established MNEs. entrepreneurial firms entering international hybrid relationships with export agents are more inclined to minimize ex ante costs than are MNEs.

Proposition 6  The prevalence of outcome based contracts in international hybrid relationships is greater among entrepreneurial firms going international than among established MNEs Proposition 7  The prevalence of behavior based contracts in international hybrid relationships is greater among entrepreneurial firms going international than among established MNEs .

most contracts will include bonding stipulations which reconcile a behaviororiented contract with an outcome-oriented contract.Proposition 8  Since entrepreneurs and agents have different contract desires . .