Organizational Efficiency, Firm Capabilities, and Economic Organization of MNEs

Peter Hwang, Ajai S. Gaur

Research output: Contribution to journalReview articlepeer-review

25 Scopus citations


We argue that multinational enterprises (MNEs) not only strive to minimize transaction costs but also attempt to maximize transaction values when interacting with local firms in foreign markets. We put forth our thesis regarding MNE governance structure, that it is contingent on the institutional environment of the host country and the characteristics of the transaction. Specifically, we suggest that MNEs’ choice of market, hierarchy or hybrid (joint ventures) form of governance, depends on the interplay between the costs and benefits of a transaction relationship. For high knowledge content products/services, MNEs choose hierarchy when the institutional environment is not well developed. As the institutional environment develops, hybrid replaces hierarchy. However, in a very strong institutional environment, hierarchy again turns out to be optimal for MNEs. For low or no knowledge content products/services, the presence of market is possible in a very advanced institutional environment.

Original languageEnglish (US)
Pages (from-to)143-162
Number of pages20
JournalMultinational Business Review
Issue number3
StatePublished - Aug 19 2009

All Science Journal Classification (ASJC) codes

  • General Business, Management and Accounting


  • Hierarchy
  • Joint venturesm
  • Multinational enterprises (MNEs)
  • Organizational efficiency
  • Transaction relationship


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