Several theories has influced in internatinalization process of MNE. One of this is transaction cost, which is based on internalize companies´ownerships in a profitbly way.
In transaction cost economics, a firm’s ownership decision centers on minimizing the sum of transaction costs and production costs (Coase, 1937; Williamson, 1975). While transaction costs refer to costs that are incurred from activities necessary for an exchange (such as writing and enforcing a contract), production costs come from coordinating activities in-house, in terms of learning, organizing, and managing production. Since internalization (e.g., mergers, acquisitions, and internal development) controls transaction costs effectively, this will be preferred when transaction costs of an exchange are high.
In contrast, market exchanges bear transaction costs but avoid production costs, so that they will be used when transaction costs are low and production costs are high.
Strategic alliances combine the features of internalization and market exchanges, because they partially internalize an exchange (e.g., joint ventures). Contracts will still be needed, but since they are often incomplete, much of the activities will be left to joint coordination. As a result, researchers suggest that alliances will be preferred “when the transaction costs associated with an exchange are intermediate and not high enough to justify vertical integration . . .” (Gulati, 1995: 87).
If alliances are viewed as reflecting semi-internalization, a slightly different conception would hold that alliances can be justified when internalization is more cost efficient “but constraints of various kinds prohibit full internalization” (Ramanathan, Seth, & Thomas, 1997: 57).