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Institutional reform and entry mode by foreign firms: The case of Jordan
El Said, H. McDonald, Frank
El Said, H.
McDonald, Frank
Publication Date
2002
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© 2002 UMAR IMAD [Slovenia]. Reproduced in accordance with the publisher's self-archiving policy.
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Abstract
This paper investigates the links
between institutional systems and the
entry mode of Multinational
Corporations (MNCs) in developing
and transition countries (DTCs). An
assessment is made of the reasons for
the continuing use of international joint
ventures (IJVs) in countries that have
undergone reforms intended to lead to
the development of wholly owned
subsidiaries. The paper argues that
formal and informal institutional
constraints in DTCs lead to high
transaction and uncertainty costs for
MNCs, and that the use of IJVs is a
rational response to attempt to lower
these high costs. The paper follows the
literature suggesting that IJVs are
normally a `second best¿ entry mode
in terms of the potential for foreign
direct investment (FDI) to contribute
to the development of DTCs. The
reform process in Jordan is used to
illustrate how institutional systems,
especially informal institutional
constraints, lead to high transaction
and uncertainty costs. In the case of
Jordan, this occurred despite a series
of four reform packages seeking to
reduce the institutional barriers to
effective business activities. Interviews
of 28 foreign companies provide the
basis for an empirical assessment of
the importance of both formal and
informal institutional constraints and
infrastructure problems. The paper
includes an outline of a future research
agenda that seeks to generalise and
develop the results from Jordan to other
DTCs.
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Published version
Citation
El Said, H. and McDonald, F. (2002). Institutional reform and entry mode by foreign firms: The case of Jordan. Journal For Institutional Innovation, Development and Transition. Vol. 6, pp. 76-88.
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Article