Abstract
<p>This paper reviews the typology of the evolution of theories of multinational enterprises (MNEs) within the past century. Looking back at historical events and the development of theories of multinational enterprises (MNEs), we see that wartime economies contributed significantly to economic and social distress. Postwar devastation brought about technological setbacks. This paper observes the importance of technology and knowledge as the fundamental elements that revived the world’s economic state and firms’ competitive advantage. Through the acquisition and integration of technology and knowledge, the infrastructure for foreign direct investments created economic stabilization and reduced technological stagnation. This paper provides a conceptual framework that suggests that in order for MNEs to sustain profitability and competitive advantage and to survive, they must capitalize on foreign investments abroad. However, investing in an overseas market creates unfamiliarity that can be costly. This is known as the “liability of foreignness.” Therefore, this paper provides six criteria for MNEs to consider in minimizing the liability of foreignness. It also introduces the concept of “global intelligence,” defined as creating foreign subunits that are dynamically capable of intellectual understanding of the global economic, political, and cultural requirements of a foreign market. These requirements may include sensing, seizing, and transforming information in order to be aware of a country’s policies, trade regulations, and language, as well as geographic and resource acuity. Finally, the paper suggests that the combination of these six criteria and “global intelligence” may drive MNEs’ performance by overcoming the costs of doing business abroad, creating “globally intelligent subunits” within the home country and exporting them to a host-country market.</p>
Highlights
The past century witnessed devastation unlike any other, with two world wars spanning over ten years, three months and fifteen days, causing the loss of nearly 70 million lives and a disturbing U.S $2.3 billion in military spending
According to Zaheer (1995, p. 343), there are four costs in particular that multinational enterprises (MNEs) subunits are often subject to bear in an overseas market: “(1) costs directly associated with the degree of spatial distance such as the costs of travel, transportation, and coordination costs between home country and host-country; (2) firm-specific costs based on a particular company's unfamiliarity with and lack of roots in a local environment; (3) costs resulting from the host-country environment, such as the lack of legitimacy and citizenship of foreign firms and economic nationalism of domestic firms; (4) costs from the home country environment, such as the restrictions or regulations on importing high-technology assets to certain countries imposed on U.S.-owned MNEs.”
This paper provides evidence from literature that proves liability of foreignness can amount to significant risks for MNEs which include the inherent costs of transferring technology and knowledge across national boundaries and the survival of subsidiaries within a foreign market
Summary
The past century witnessed devastation unlike any other, with two world wars spanning over ten years, three months and fifteen days, causing the loss of nearly 70 million lives and a disturbing U.S $2.3 billion in military spending. Global intelligence, coined in this paper, refers to MNEs’ ability to acquire host-country information and synthesize that information according to six criteria in order to match them with firms’ capabilities, which can be used to assimilate to the host-country’s market while minimizing costs associated with unfamiliarity. This in turn will allow MNEs to limit the cost of foreignness and gain competitive advantage against both domestic and international competitors within the host-country market. Important historical events within the past century and shifts in theory caused by a shift in the dynamic arena of firms are explored It presents liability of foreignness as a means for MNEs to sustain superior firm performance by overcoming the costs of doing business abroad. The paper suggests ways to minimize the liability of foreignness by considering six criteria related to costs of unfamiliarity and the creation and exportation of “globally intelligent subunits”
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
