Abstract

This study investigates the factors that lead managers to decide whether to internalize or externalize a new corporate venture (CV). Developing a CV, a company is faced with the problem of balancing between the autonomy of the CV and its control, and the type of organizational design. For this paper, we utilize both transaction-cost theory and resource-based theory, and analyze how entrepreneurial managers’ perceptions of the strategic relationship between firm and CV determine the choice of internalizing or externalizing the CV. The constructs to measure this strategic relationship are: the operational relatedness (product, market and technology relatedness) and the strategic importance (how the CV affects the strategic position of the parent firm, the importance of the new capabilities needed, the profitability, and risk).

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