Generic strategy and internationalization: The role of transaction cost and management philosophy

Abstract

Using transaction cost theory framework, this paper attempts to examine the influence of a domestic firm's generic strategy on its internationalization decision. It is initially proposed in this paper that a firm's vulnerability to opportunism is not uniform across all firms, but differs according to the firm's management philosophy, which is embedded in its generic strategy. Because of the philosophical differences, the threat of opportunism, a central source of transaction cost, may not be perceived as the same for firms pursuing different types of generic strategies. Furthermore, the strategic emphasis that each firms place on their various functions can moderate the above relationship. In order to show the moderating effect, an open systems perspective is adopted to derive a set of propositions regarding a firm’s international entry mode.