Institutions and joint ventures in the Middle East and North Africa

El-Said, Hamed and McDonald, Frank (2001) Institutions and joint ventures in the Middle East and North Africa. Journal of transnational management development, 6 (1). pp. 65-84. ISSN 1068-6061

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Abstract

Many Middle Eastern and North African (MENA) countries are making valiant efforts to reform their economic systems to boost growth and living standards. Multinational Companies (MNCs) are generally thought to have a major part to play in helping these countries to develop. The problems caused by governmental systems that placed legal and bureaucratic obstacles and prohibitions in the way of Foreign Direct Investment (FDI) activities are under attack in many countries. The World Bank (WB) and the International Monetary Fund (IMF) insist on the adoption of business-friendly policies for those countries that seek their aid. Moreover, membership of the World Trade Organization (WTO) also requires countries to reform their governmental systems. The prize at the end of the painful reform process is higher growth of ten driven by FDI activities. In recent years, FDI to developing and former communist countries has considerably increased. However, some developing countries (notably, Africa and large parts of the Middle East) have not benefited to the same extent as many Asian and Central and East European countries. Moreover, MNCs have focused on International Joint Ventures (IJVs) as the main means of entering these countries. This form of entry may not be the best method to transfer technology and to obtain the best results of the interaction between MNCs and host countries. This paper seeks to explore this issue by use of a qualitative study of IJVs in Jordan. The paper uses a new institutional economic framework that high lights the importance of informal institutional systems for the decision on mode of entry. The results of the study indicate that MNCs in Jordan would prefer to use fully-owned subsidiaries, but the characteristics of the in for malinstitutional system in Jordan results in high transaction costs that can best be reduced by the use of IJVs. Thus although Jordan has undergone significant reform to her economic system, the problems caused by the nature of informal institutional systems have limited the growth of what might have been more beneficial FDI.