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Economics of International Business

A New Research Agenda

Mark Casson

Economics of International Business sets out a new agenda for international business research. Mark Casson asserts that it is time to move the subject on from sterile debates about transaction cost economies and resource-based theories of the firm. Instead of focusing on the individual firm, the new agenda focuses on the global systems view of international business. A static view of the firm’s environment is replaced by a dynamic view which highlights the volatility of the international business environment. Coping with volatility requires entrepreneurial skills, flexibility and the need to synthesize information on a global basis. To co-ordinate the global system properly, entrepreneurs must co-operate through social networks of trust, as well as competing. Constructing a network of joint ventures, it is argued, is simply not enough.
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Chapter 6: International Joint Ventures

Mark Casson


with Peter J. Buckley 6.1 INTRODUCTION In a global environment, participation in an international joint venture (IJV) is an important strategic option (Beamish and Banks, 1987). Explicit assumptions are particularly crucial when studying IJVs. No IJV, however configured, performs perfectly, and so to understand why an IJV is chosen it is necessary to understand the shortcomings of the alternatives. Moreover, IJVs are configured in many different ways, and different configurations are associated with different kinds of behaviour (Tallman, 1992). When the firm’s objective is profit-maximization, the choice of any strategy, such as an IJV, is driven by the structure of revenues and costs. This structure is determined by the firm’s environment. By identifying the key characteristics of this environment, the firm’s behaviour can be modelled in a very parsimonious way. The predictions of the model emerge jointly from the profit-maximization hypothesis and the restrictions imposed by the modeller on the structure of revenues and costs. Predictive failure of the model is addressed by re-examining these restrictions and not by discarding the maximization principle which is at the core of the theory (Buckley and Casson, 1988). The variables entering into the theory do not have to be of a strictly economic nature. The criterion for inclusion is that they can be analysed from a rational action point of view. The modelling of IJVs illustrates this very well. A wide range of factors impact upon IJVs (Geringer and Hebert, 1989): not just traditional economic factors, such as...

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