Handbook of Research on International Strategic Management
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Handbook of Research on International Strategic Management

Edited by Alain Verbeke and Hemant Merchant

The Handbook provides an impressive state-of-the-art overview of the international strategic management field as an area of scholarly inquiry. The great strength of the work is the thoughtfulness of the messages conveyed by the expert team of authors.
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Chapter 2: The end of the opportunism versus trust debate: bounded reliability as a new envelope concept in research on MNE governance

Alain Verbeke and Nathan Greidanus


Transaction cost economics (TCE) has fast become one of the most influential theories within the social sciences (Carroll and Teece, 1999; Carter and Hodgson, 2006). Its applications in the international business (IB) context have shown its relevance to explaining and predicting a wide variety of IB phenomena, including, inter alia, the existence of MNEs (Buckley and Casson, 1976; Rugman, 1980; Teece, 1981; Hennart, 1982), MNE foreign entry mode decisions and interactions with external parties (Beamish and Banks, 1987; Hennart, 1988; Buckley and Casson, 1998a; Chen, 2005; Hennart, 2009), but also MNE internal governance choices (Hennart, 1993; Verbeke and Kenworthy, 2008). TCE thinking as applied in the IB context (usually referred to as internalization theory or transaction cost internalization – TCI theory) relies heavily on Coase’s (1937) original analysis of the relative costs of external versus internal markets, and parallels to a large extent Williamson’s (1975, 1985, 1996a) development of TCE as a general theory of the firm (Safarian, 2003). However, Williamson’s TCE approach relies heavily on the behavioral assumptions of bounded rationality and opportunism, whereas other TCE- related theories do not appear to require the latter concept (North, 1990). In the IB field, a number of scholars have developed MNE theories that allow for opportunism, but do not assume it is necessarily the decisive factor in governance choices; see, inter alia, Casson’s (2000) information cost perspective and Rugman and Verbeke’s (2003) joint transaction cost and strategic management explanation of internal MNE functioning.

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