Transaction Cost and Resource-based Explanations of Joint Ventures: A Comparison and Synthesis

Organization Studies, Wntr, 2000 by Eric W.K. Tsang

To continue with the above example: Suppose now that the firm which has strong production expertise acquires the one with creative design skills. If the resources of the latter are not properly integrated into the former, there is a chance that the latter's creativity will be suffocated, resulting in a failure to generate the expected Ricardian rents. From the RB perspective, the serious concern of TC theory over ex ante distribution is somewhat unfounded, because the capabilities are difficult to price anyway. The distribution of rents is something that can be gradually adjusted once a governance structure has been decided upon. To work out a mutually satisfactory distribution, trust would be needed; the trust built up between the partners over time.

Development of Resources

The previous section discusses the exploitation of resources with the aim of generating rents. RB theory is concerned not only with the efficient utilization of a firm's resources, but also with their efficient development. This section explores those reasons for forming joint ventures that are related to the development of a firm's resources. In this case, rent generation is not an immediate objective. Rather, the objective is to manage resources in a rational manner -- to acquire resources that are needed and to dispose of those that do not fit into a firm's core competence (Prahalad and Hamel 1990). By so doing, a firm's long-term competitiveness is strengthened. A firm's whole portfolio of resources is taken into account when such joint ventures are formed. That is, within the constraint of bounded rationality, global efficiency has to be considered by the entrepreneur, who therefore plays an important role in RB theory. Firms may select a governance structure which is not efficient for the specific trans action in terms of TC consideration, but which is the best option for the firm as a whole (Kogut 1988; Osborn and Baughn 1990). By focusing on local efficiency (TC minimization with respect to a specific transaction) and evaluating each transaction in isolation (Gulati 1998; Johanson and Mattsson 1987), TC theory generally fails to recognize these reasons for joint venturing.

'Today's products rely on so many different critical technologies that most companies can no longer maintain cutting-edge sophistication in all of them' (Ohmae 1989: 145). Tapping external sources of know-how becomes a must. Suppose a firm wants to obtain a specific capability possessed by another firm. With all the problems of full internalization mentioned earlier, it is usually not wise for the former to acquire the latter just for the sake of obtaining that capability. The very essence of capabilities is that they cannot be readily acquired through markets (Teece 1986; Kogut and Zander 1992). It makes more sense to learn the capability from its owner. Organizational learning may usefully be considered a 'meta-skill' that directs the resource conversion activities of the firm (Mahoney 1995). Hamel et al. (1989) argue that strategic alliances provide firms with 'a window on their partners' broad capabilities'. Many firms enter into alliances with specific learning objectives in mind. For instance, in order to establish technology linkages for its consumer electronics, Sony has formed various alliances with computer and telecommunications firms (Hamilton 1995). These alliances offer Sony an opportunity to learn a great variety of skills and capabilities, which are very costly or difficult to develop in-house. Another example is the famous Toyota--GM joint venture, in which both partners have clear learning objectives (Adler and Cole 1993). Here the RB perspective may benefit from the concept of opportunism used in TC theory, because a joint venture partner may try to secretly learn and internalize the skills of the other partner more than what was stipulated in the joint venture agreement. In many Japanese-Western alliances, such opportunistic behaviour of Japanese partners has made them stronger, relative to their Western counterparts (Hamel 1991; Reich and Mankin 1986).