The incorporation of strategic alliances into an integrated model of foreign direct investment and international trade : a reconsideration of proximity and concentration advantages as the sole determinants of international business organisation, orientation and transaction

Ferguson, Ben. (1997). The incorporation of strategic alliances into an integrated model of foreign direct investment and international trade : a reconsideration of proximity and concentration advantages as the sole determinants of international business organisation, orientation and transaction Honours Thesis, School of Economics, University of Queensland.

       
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Author Ferguson, Ben.
Thesis Title The incorporation of strategic alliances into an integrated model of foreign direct investment and international trade : a reconsideration of proximity and concentration advantages as the sole determinants of international business organisation, orientation and transaction
School, Centre or Institute School of Economics
Institution University of Queensland
Publication date 1997
Thesis type Honours Thesis
Supervisor Dr Kartik Roy
Assoc/Prof Neil Karunaratne
Total pages 166
Language eng
Subjects 14 Economics
Formatted abstract Capitalism is an evolutionary process. Patterns of international business organisation, orientation and transaction are a response by firms to the world economic environment in which they exist.

This thesis proposes that present models of international business organisation, orientation and transaction, which attempt to integrate the theories of foreign direct investment and international trade, whilst providing more relevant predictions of the determinants and patterns of international business organisation, orientation and transaction than their traditional international trade predecessors, are increasingly inappropriate for determining such patterns in the present world economy. More precisely, they fail to acknowledge the growing incidence of strategic alliance formation between firms.

It is argued that such alliances are responses by firms to recent changes in the world economic environment, which has resulted in increased globalised competition. An environment, it is argued, that present models of international business organisation, orientation and transaction fail to accurately depict in their assumptions.

This thesis attempts to incorporate strategic alliances into present integrated models of foreign direct investment and international trade, in order to create a more comprehensive model of international business organisation, orientation and transaction.

This is achieved by relaxing the assumption of uniqueness of production technology between firms, that exists in present models. Such an assumption is replaced by the more realistic variables of generism and complementarily of production technology, and administrative costs of managing joint activities.

The result of such a model is the creation of endogenous market structures which may exhibit horizontal 50:50 equity joint ventures in equilibrium.

The model concludes that international business organisation orientation and transaction patterns are no longer solely determined by proximity and concentration advantages, as suggested by present models. Instead, the model concludes that such patterns are determined by the simultaneous dual trade-offs of concentration and proximity advantages, and economies of scale advantages and disadvantages of joint venture formation.

 
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