International Business Strategy

International business strategy

According to Anderson and Gatignon, 1986, the transaction costs are the costs sustained in
creating economic exchanges at the time of the procurement of the goods and services
(Anderson and Gatignon, 1986). The transaction costs undertake several areas like duties for
communication like telephones, internet, fees charged and the costs for maintaining cars and
recompensing for public transportation. The transaction costs result from the economic trade
in a market. The theory of the transaction costs is centered on the view that people are
swayed by the modest self-interest.
As per the views of Acquier, Valiorgue, and Daudigeos, 2017, only market exists at the
highest level and the people in the economy are permitted to enter into the contractual
agreements. In such a situation, the company exercises complete control over the contract, it
led economist to consider that the contracts can be violated by the several parties when an
opportunity is found and alike. The transaction cost is having aim of controlling the power of
the contractual relationships (Acquier, Valiorgue, and Daudigeos, 2017). The transaction cost
is having the aim of clarifying why some markets are able to accommodate several
organizations whereas others are conquered by only a few identified as hierarchies. The
development of the organisations is ruled by the hierarchies’ and it is an effective way to
construct relationships. The elements compromised by the transaction cost are:
 The uncertainty and unpredictability in the domain make up the transaction cost.
 The organizations entering into the transaction cost find costly to leave. It is made
possible with the bargaining and asset precisely.
 The individuals own limited rationality which means that they obtain and process
limited information and therefore have fewer options to choose from. The economic

transactions are based on the bounded rationality. The bounded rationality is a
situation in which decision making and rationality of a person is limited by the
amount of information obtainable to them and vast amount of time which is required
to decide.
 The integral opportunistic behaviour of the persons in an economy makes tougher
contractual agreements to be imposed after a long time period.
As per the views of Holmes Jr, et al. 2018, the transaction cost is linked to both regulator
device and market defectiveness. The transaction theory describes the situations in which
possessions can be attained. The theory explains how resources can be united and planned
within the strategic coalitions (Holmes Jr, et al. 2018). In the economic outlook of the
organizations, transaction cost theory endeavours to elucidate how it is significant to the
official structures and can be competent in prevailing economic activities. According to
Wacker, Yang, and Sheu, 2016, the transaction cost theory compacts with the economic
organization by evaluating the elements of a transaction. A transaction takes place when a
good or service is relocated over the technology detachable edge (Wacker, Yang, and Sheu,
2016). One stage of the activity dismisses whereas another initiate. Kolk, 2016, views that the
transaction costs theory accepts that precise form of the economic organization will assist in
the lessening of the transaction cost and such systems are stated to as governance edifices of
the economic organization (Kolk, 2016). The low levels of the transactions are managed by
the market. On the other side, it has been realised that strategic associations comprise various
kind of cooperation contracts and joint venture appearances is one of it. There are several
contractual forms adopted to be viewed under certain conditions and in coherent retort to the
transaction cost, joint venture characteristics solve to the moral hazard problems. The equity
joint ventures have been also exploited by the companies as a method of organisational
hybrid when two situations are encountered. If there is chance of the possibility of the market
failure then in such a condition participating firm is required to offer goods in the market
substance to failure. Such complaint makes market exchange a less practicable method of
systematizing trades. In the 2nd condition, if the attainment of the asset is not competent then
there is attainment of right to use the asset. The transaction cost is not only apprehensive with
the appearance of the specific organizations to accomplish the transaction costs but also a
method in which transaction cost is reliant on the mean of exchanging deeds.
As per the views of Li, et al. 2017, deciding different modes for expanding overseas is one of
the crucial decisions MNEs have to make while determining the internationalism strategy.

The transaction cost theory is the most frequently tool in deciding different modes of
international business organization (Li, et al. 2017). The globalisation process has altered the
opinion in which now days companies view international transactions. The international
markets do not seem too distant or unreachable. The multinational firms also pursue to offer
sufficient evidence to confirm that the companies also pursue to be involved in the
international activities such as MNEs. Add on, the foreign trade has also become a
considerable source of income whereas the local market economy suffers from recession.
When individual activities tend to be synchronise, the foreign activities can become
challenging and inadequate. This way, companies can go for the internationalisation as a tool
for the constant operations. The MNEs can freely choose from the wide range of the entry
modes with the liberalisation of the international trade. It even enables MNEs to redefine
their aims and strategies. Sometimes it also makes the process more challenging. It also
seems stimulating to differentiate and assess the factors which determine the company’s
decision. Due to the internal and external conditions, some specific factors can have impact
on the whole process.
Luo, and Bu, 2018, views that so much attention has been given to the international entry
modes but there is no specific approach for determining the set of critical entry mode factors.
The priority has been given to a particular variable deliberate to be decision maker in the
entry mode factors (Luo, and Bu, 2018). Consequently, the transaction cost theory is the most
recurrent and sometimes underestimated framework in terms of the internalisation process.
There are several models which has been introduced to expand the varied view for the
commonly issues faced. The transaction cost theory makes possible to understand the
economic theory. There is a debate also that it is not possible to comprehend the working of
the economic system, to evaluate problems in the useful way or to have a base for the
determining policy. The transaction cost puts additional burden of functioning in the specific
market. This cost is generally compared to the resistance which slows the smooth execution
of the contract (Thompson, Strickland, and Gamble, 2015).
According to Meyer, and Peng, 2016, the foremost issue faced in the international marketing
is the right method of entry mode in the global markets. The transaction cost framework have
great protagonist in probing the entry mode decision. An organisation pursuing to conduct a
business outside the local market is required to pick the best method of entry for the foreign
market (Meyer, and Peng, 2016). Such MNEs can confront a large group of choices
comprising a joint venture, a completely owned subsidiary or non-equity management like