Equity Joint Ventures and the Theory of the Multinational Enterprise

This paper extends the internalization approach to the theory of the multinational enterprise (MNE) to include an expanded role for equity joint ventures. Using the transaction cost paradigm of Williamson, this paper explains why joint ventures may sometimes be preferred over wholly owned subsidiaries. Also presented is empirical work on joint-venture performance in developing countries which demonstrates that under certain conditions joint ventures can be the optimal mode of foreign direct investment.