QUESTION

‘The internalization theory posits that firms would have a strong incentive to avoid joint venture agreements since they are viewed as second best alternatives in allowing the firms to expropriate the returns on it ownership specific advantages (Caves, 1982; Killing, 1983; Harrigan, 1985). Nevertheless, it may be argued that if a firm possesses a rent-yielding asset which enables it to compete in a foreign market and if joint venture agreements are superior to other modes for appropriating rents from the use of such asset in the foreign market, it may be possible to justify the use of joint ventures within the internalization framework'. Discuss in the light of the circumstances under which joint ventures may or may not be preferred to wholly owned subsidiaries as a mode of entry.