New Paper by Tan and Mahoney: Integrating TCE, RBV, and Agency Theory

17 July 2006 at 12:59 pm 1 comment

| Peter Klein |

Are transaction cost economics, the resource-based view of the firm, and agency theory substitutes or complements? Most applied studies in organizational economics use one or another framework to explain the phenomenon in question; relatively few studies incorporate multiple frameworks, and even fewer attempt to distinguish among them empirically.

A new paper by Danchi Tan and Joe Mahoney, “Why a Multinational Firm Chooses Expatriates: Integrating Resource-Based, Agency and Transaction Costs Perspectives” (Journal of Management Studies, May 2006), takes the middle approach, developing a new framework that incorporates key elements of TCE, RBV, and AT to explain multinational firms’ decisions to staff their foreign subsidiaries with expatriates or host country nationals.

Write Tan and Mahoney:

The three perspectives sometimes provide rival explanations for the same phenomena, but are often complementary in that they illuminate different issues and are potentially useful in addressing different aspects of the governance choice of foreign subsidiary managers.

Resource-based theory provides a theoretical underpinning for the discussion of how the comparative capabilities of expatriates and host country nationals influence a multinational firm’s human resource deployment decision. However, to identify comparative capabilities as the sole factor that influences human resource deployment within multinational firms would be to overlook the impact of one distinct characteristic of human resources on this strategic decision -– human resources are under only limited control by firms (Coff, 1997). When the firm has serious concerns as to whether particular employees are willing to do as they are required, firms may choose not to place these employees in particular managerial positions, even if they might be the more capable employees.

By facilitating discussion about how these concerns may influence the human resource deployment decision, agency and transaction costs theories complement resource-based theory. From the perspectives of agency and transaction costs theories, expatriates and host country nationals are two governance choices for providing managerial services in foreign operations, and this governance choice should be made with consideration for minimizing the economic costs of exercising ex ante and ex post control on managers of foreign operations.

This is a nice example of useful integration. Sometimes integration goes too far: do we really learn much from most meta-analyses, meta-frameworks, or frameworks of frameworks? (And don’t get my co-blogger started on theoretical eclecticism.)

Entry filed under: - Klein -, Management Theory, Strategic Management, Theory of the Firm.

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1 Comment Add your own

  • 1. JC's avatar JC  |  21 July 2006 at 5:03 pm

    Thanks for drawing this new piece to our attention. From one of the better sources indeed. Will read and respond.

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