| Summary: | This study is concerned with recent developments in international investment and the theory of the firm. The proposition that markets and hierarchies are alternative governance structures for completing related sets of transactions is less contentious. However, the view that foreign direct investment is the most efficient governance structure, in transaction-cost economizing terms, remains controversial. This research identifies with this contention. The premise of the study is that the governance structure of foreign transactions cannot be confined to or decided within the framework of hierarchy alone. The study presents a number of market mechanisms firms use to accomplish foreign transactions. Termed "New Forms of International Investment", these strategies involve non-equity (i.e. contractual/cooperative) and minority-equity arrangements. Hypotheses concerning the transaction cost nature and the impact of managerial perceptions of several explanatory factors were developed and tested using data gathered from a questionnaire survey of, and interviews with, executives from 66 MNCs and 31 MNBs. The results of the research provide evidence that while firm-specific characteristics offer firms opportunities to evaluate their strengths and weaknesses in relation to given overseas markets, host country-specific characteristics offer a complementary platform for assessing the optimum mode of entry. Also, managerial perceptions of the nature and importance of these factors and their impact on the diversification strategy of the firm were found to be significant in entry mode choices. The greater the perception of distortion propensities in a host country, the more likely resources, insofar as they would be transferred at all, would be transacted via new forms. There was no evidence to support the literature contention that the use of the new forms is a particular phenomenon of developing countries. These findings were reinforced by the interview results.
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