Influence of Host Governance and Investment Environment on MNCs' Innovative Partnership Strategies: Insights From the Transaction Cost Perspective and a Behavioral Theory of the Firm

This study investigates how host-country governance and investment environment may impact multinational corporations' (MNCs') selection of innovative partners, an underexplored topic in existing IB literature. Drawing on the transaction cost perspective and a behavioral theory of the firm, we analyzed data from 1980 nonservice-sector MNCs in Taiwan (2007-2012), totaling 4921 observations. Results show that MNCs' satisfaction with host-country governance and investment conditions influences their technology sourcing and innovative partner selection. Higher governance satisfaction leads MNCs to choose partners within their value chain, while high investment environment satisfaction prompts the selection of third-party consultants or research centers as partners. Moreover, underperforming MNCs are less likely to source technology from their parent firms, preferring external consultants or research centers during underperforming periods. This research provides novel insights into MNCs' local partner selection and practical implications.