Internalization of ijvs and institutions

Abstract

International Joint Ventures IJVs are temporary organizational forms They may evolve to become wholly owned subsidiaries Such internalization of the IJV by one of the parent firms is highly likely as they know about the joint venture more than the othe r firms in the market Thus the cost of due diligence and integration would be lesser for either parents compared to the other firms in the market However there has been very little research on who among the parents internalizes the IJV This thesis examines the impact of the institutional environment on which the parent foreign or local gets to internalize the IJV The thesis argues that in highly regulated environments the local parent firms are more likely to internalize the IJVs than the foreign ones The need to know all the regulations and handle their complexity increases the transaction costs for the foreign firms Such costs can be reduced with local expertise Hence in the more regulated environments the foreign firms prefer joint ventures with the local firms than to operate independently Moreover in highly regulated environments the host country has a higher bargaining power than the foreign firms Nationalist sentiments too may provide regulatory protection to the local firms Hence the likelihood of the local partner firm acquiring the IJV is higher when compared to that of the foreign partner newline newline