Institutions and transaction costs in foreign-local hotel ventures: A grounded investigation in the developing Pacific

This research investigates how to develop a viable hotel venture where the barriers to both tourism and business development are substantial. To this end, 48 interviews were conducted in a Pacific Island country which lacks a viable tourism industry, while being ranked one of the most difficult places to do business on the planet. Data were collected and analyzed using grounded theory method in conjunction with transaction costs economics as meta-theoretical lens. The grounded theory developed is characterized by a process approach to hotel development called Insider-Outsider Connections and Partnerships (IOCP). As opposed to the status quo approach to foreign-local hotel ventures predicated on idealistic presumptions regarding formal institutions, the IOCP elucidates how transaction costs associated with such ventures can be economized by recognizing, valuing, and utilizing informal institutions. These findings regarding working within, rather than ignoring, the institutional reality provide a revitalized platform for hotel practitioners and researchers alike.