![]() ![]() This decision is mostly made with the assumption that such linkages will be influential in enhancing the relative position of the firm in the new foreign market. When the firms have such resources, they are more likely to opt for high control strategies for instance wholly owned subsidiaries. The bargaining theory was advocated by Fagre and other scholars and holds that the choice of entry is a function of the bargaining processes between the firm and the host countries (Ryans 2013). Therefore the firms will keep expanding for as long as they can perform their operations cheaply within the companies compared outsourcing them to external market providers. However, the firms should be downsized whenever the bureaucratic costs exceed the external transaction costs. Firms grow whenever the external costs exceed the internal bureaucratic costs because they are able to operate more cheaply compared to performing the same operations in the market (Seth & Randall 2011). It perceives institutions and markets as possible forms of organising and coordinating economic transactions. ![]() Therefore they weigh the costs of exchanging resources with the environment against the bureaucratic ones that arise from performing the same operations within the firm. The transaction cost theory holds that firms try to minimise the costs associated with exchanging resources with the environment and the bureaucratic costs of exchanges within the firm (Krafft & Mantrala 2010). According to this theory, the direct investor is often a monopolist or an oligopilist in product markets. ![]() These market imperfections are structural and are as a result of control ownership advantages like proprietary technology, economies of scale, special access to inputs, product differentiation and gathered managerial expertise. Therefore foreign direct investment was made possible by product and market imperfections. These advantages are things like superior technology, economies of scale, superior knowledge in finance, marketing or management (McLoughlin & Aaker 2010). ![]() Hymer argued that organisations could use their firm-specific advantages or monopolistic advantages that other organisations do not have to expand into foreign markets. The previous theories like that of Heckscher and Ohlin had restrictive assumptions on the immobility of the factors of production. The monopolistic advantage theory was proposed by Hymer and represented a major shift from the previous theories of capital investments and international trade (Sternquist & Witter 2011). ![]()
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