The Contribution of Edith Penrose to International Business Scholarship

Abstract

Abstract * This article identifies Edith Penrose's many contributions to the study of international business. In particular it traces her scholarly writings from the 1950s to the 1990s; and pays especial attention to her work on the large international firm, and the political economy of foreign direct investment. Key Results * Mrs Penrose's incisive and original writings are highly relevant to international business scholarship; and her various contributions deserve to be widely read and studied by all those interested in the activities of multinational enterprises, and their impact on the economies in which they operate. Introduction In 1994, the Academy of International Business (AIB) honoured Edith Penrose by electing her an Emeritus Distinguished Fellow of the Academy. This honour, which had only been conferred once before--to Charles Kindleberger of MIT (2)--is awarded, by the Academy, to those individuals researching and teaching outside the mainstream of international business (IB) scholarship who, nevertheless, have had a significant and lasting influence over the direction, content and impact of that scholarship. While acknowledging the impressive array of Professor Penrose's writings, the Academy singled out her distinctive contribution to IB scholarship, in two main areas viz (i) the theory of the growth of the firm--and particularly the large diversified firm--, (ii) our understanding of the interface between the strategies and activities of international and/or multinational enterprises (MNEs) and the nation states--particularly developing nation states--in which they operated. And it is these two topics--the former of which mainly engaged Edith's attention in the 1950s and early 1960s, and the latter her interest in the later 1960s and 1970s, together with a third, viz the implications, both for firms and national governments of the emergence of a more liberalised and closely integrated global economy, which she addressed in the late 1980s and early 1990s, that we shall focus on in this paper. The Theory of the Growth of The Firm--As Applied to Understanding the Nature and Determinants of Multinational Enterprises (MNE) Activity Like Ronald Coase beforehand and like her contemporaries, Alfred Chandler, G. B. Richardson, and Oliver Williamson, Edith Penrose was not especially interested in the MNE qua MNE. Indeed, it is clear from several of her writings (notably Penrose 1956, 1968, and 1995) that she viewed the MNE primarily as an extension of the national multi-activity and/or multi-plant enterprise. Consider for example, the following two quotes from one of her first and one of her last works. "The establishment of foreign subsidiaries or branches is for the parent company not essentially different from the establishment of subsidiaries and branches in its own country" (Penrose 1956, p. 225); and then nearly forty years later, in reminiscing about her 1959 book, The Theory of the Growth of the Firm, ".... the analysis I have presented, it seems by and large to apply equally well to expansion by direct foreign investment in its modern form--the processes of growth, the role of learning, the theory of expansion based on internal human and other resources, the role of administration, the diversification of production, the role of merger and acquisition are all relevant" (Penrose 1995, p. xv). To be sure, in her analysis of the international petroleum industry (1988)--and much later in a paper on `unfair competition and MNEs (Penrose 1990), Mrs Penrose does identify some of the distinctive characteristics of the constituent firms which arise specifically from their multinationality, e.g. those to do with the integration of cross border markets; and the manipulation of intra corporate transfer prices. In her 1959 book, she acknowledges that "Once established, foreign subsidiaries are likely to require less administrative coordination that their domestic equivalents. …