The purpose of this paper is to develop a theory based on transaction cost economics to help explain how firms venturing into different foreign markets should properly formulate and implement contractual governance mechanisms to create greater efficiency, lower costs, and minimize conflict with partners.
Defines and discusses a conceptual framework of the determinants regarding contracts and strategies used to manage conflict in foreign ventures through the integration of foreign venture conflict resolution, contract, and transaction cost economics literature.
Suggests that perceived transaction costs will predict which contractual governance mechanism and which conflict resolution strategy a partner firm will choose when resolving conflict in a foreign venture. Postulates that consistency of conflict resolution strategy with contract type will impact the performance of the foreign venture, and that cultural distance, relative power, and interest alignment will all play a moderating role in this process.
The model demonstrates the necessity of examining how coupling certain conflict resolution strategies and contract types will impact foreign venture performance.
