Theory Of Multinational Enterprise Research Articles

An internalization perspective on subsidiaries’ reputation and its impact on subsidiaries’ marketing advantage: The moderating roles of resources and autonomy

Internalization theory of Multinational Enterprises (MNEs) provides a paradigm in the international business field. Contemporary discussions consider MNEs as differentiated network with self-initiated subsidiaries. However, while moving away from pure hierarchy, internalization theory has not fully particularized the coordinating mechanism across MNEs’ networked subsidiaries. Accordingly, we propose a novel role of subsidiaries’ reputation within their MNEs. Based on primary data from subsidiaries’ perspective, our findings are threefold. First, we demonstrate that a subsidiary’s reputation within the MNE is a critical driver for subsidiary-specific advantages. Second, we examine how subsidiaries’ strategic actions can send signals to their headquarters and sister subsidiaries to build its reputation. Finally, along with the reputation-building process, we reveal the contingencies of subsidiaries’ autonomy and resources within the MNE. Our results show that internalization enables a differentiated network mechanism constituted by reputation, autonomy control, and resource allocation across MNEs’ networked subsidiaries.

The importance of being … transnational

PurposeThe paper takes the lead from Forsgren and Yamin (2022), “The MNE as the ‘crown of creation’?: A commentary on mainstream theories of multi-national enterprises”, and accepts that the MNE can, indeed, be seen as the “crown of creation” in the world of business. The purpose of the paper is to show that this is due to advantages of multi/transnationality that must be sought outside rather than within the firm itself.Design/methodology/approachThe paper argues that the advantages of multi-nationality derive from the differences in regulatory regimes between nation-states and, specifically, from laws and regulations regarding the following: labour and social security, industrial policy, taxation and environmental regulations. Some examples are given.FindingsIt is claimed that the transnational company (TNC) has the ability to operate as a unified centre of strategic decision-making, and this gives it an advantage compared to operators it bargains with who do not possess such ability. Three such operators are discussed: labour, governments of nation-states and suppliers. In TNCs’ operations with foreign countries, a distinction is made between the spatial dimension and the regulatory regimes dimension. The interaction between these two dimensions leads to discussions on: regions within nation-states and their regulatory regimes, global value chains (GVCs) and free/investment zones (F/IZs). The conclusions draw policy implications and research agenda implications touching also on issues of TNCs as creator/destructors of social values.Research limitations/implicationsThe paper refers to other published work by the author – solo or as co-author – where the arguments are further developed, including the finding of a detailed case study. There are policy implications regarding labour and its trade unions (TUs) as well governments and their taxation and industrial policies. Details of such policies need further development.Practical implicationsThere are implications for theory development, policies and for research agendas.Social implicationsGovernments of nation-states and institutions within them – such as TUs – should try to co-ordinate rather than compete with each other in their bargaining with transnational companies. The breakaway of regions within nation-states further increases the power of TNCs.Originality/valueIn the development of theories of the TNC, this work shifts the focus from internal characteristics within the firm and its markets to external ones: to the nation-states as jurisdictional loci. The distinction between spatial and regulatory regimes dimensions in dealing with transnational activities allows a novel viewpoint on: regions, GVCs and IZs. A novel viewpoint is also given in relation to the role of TNCs in social value.

The MNE as the “crown of creation”?: a commentary on mainstream theories of multinational enterprises

PurposeThe purpose of this paper is twofold: to analyse what theories assume about multinational enterprises (MNEs) when they claim these are superior and to discuss possible explanations for why MNE superiority seems to be dominant in the international business (IB) research field.Design/methodology/approachA common theme in mainstream IB theories is that multinational enterprises (MNEs) are superior in terms of cost efficiency and innovativeness compared with other types of organizations. A closer look at transaction cost economics (TCE)/internalization theory, evolutionary theory and dynamic capability theory reveal a bias toward MNE supremacy because of how MNEs are conceptualized as firms and therefore fail to explain the essence of “multinational advantage”. These revelations and the strong dependence on the benevolence to provide unbiased data means that MNE supremacy posited by mainstream IB theories is as much a rationalized myth as an empirical fact.FindingsAlthough mainstream theories differ when it comes to the building blocks that constitute MNE supremacy, they have one attribute in common: they are silent as to why MNEs are superior compared with, for example, domestic firms or other types of economic agents. Irrespective of whether the focus is the strength of the hierarchy, the skill of managers or a common identity, nothing in the theories tells us that these factors are more pronounced in MNEs than in other types of economic actors.Originality/valueThe paper deals with the issue of multinational advantage. It claims that mainstream theories of MNEs tend to assume, explicitly or implicitly, that MNEs are superior in terms of cost efficiency and innovativeness compared with other types of economic agents. The analysis demonstrates that this tendency is a consequence of how MNEs are conceptualized as firms in the different theories as well as of the strong dependence in IB research on the benevolence of MNEs to provide unbiased data. It is concluded that MNE supremacy posited by mainstream IB theories is as much a rationalized myth as an empirical fact.

The theory of multinational enterprises in the digital era: state-of-the-art and research priorities

PurposeDeglobalization and the coronavirus disease 2019 (COVID-19) pandemic have severely hindered multinational enterprise (MNE) investment. At the same time, digital technology is seriously challenging it with traditional production factor flows. Few studies have realized that the impact of digitalization is not limited to either transaction costs or the location-boundness of firm-specific advantages (FSAs), but extends to profound changes in the fundamental essence of MNEs. There is still limited understanding of this body of knowledge as a whole, including how its subtopics are interrelated. This study took the production factor change perspective to review MNE theory in the digital era. Therefore, this study aims to identify any upcoming and undeveloped themes in order to provide a platform suited to direct future research.Design/methodology/approachThis paper presents a summary and a review of 151 articles published between 2007 and 2020. Such review was conducted to systematically explain the connotations and influential mechanisms of digital empowerment on MNE theory. This was achieved by using the CiteSpace citation visualization tool to build a keyword co-occurrence network.FindingsThe research findings pertain to how digitalization expands, breaks through, and even reshapes traditional MNE theory from four distinctive angles: the influential factors of internationalization, the process of internationalization, competitive advantage, and location choice. The findings are followed by the presentation of future research directions.Originality/valueThis paper presents an examination of MNE theory in the digital era from the perspective of production factor change. In doing so, it identifies significant theoretical innovation opportunities for future scholarly research priorities.

Theories of Multinational Enterprises: Untested Assumptions

Theories of Multinational Enterprises: Untested Assumptions

Multinational orchestration: a meta-theoretical approach toward competitive advantage

PurposeThe purpose of this study is to critically evaluate the canonical contribution of the classical theories of multinational enterprises (MNE) and complement them with congruous multi-theoretical lenses to a propose a meta-theoretical view for competitive advantage. The proposed framework is applied to fundamental questions of MNE, and exploratory insights are revealed.Design/methodology/approachThis study sought to review the literature on various paradigms such as resource-based view, knowledge-based view, attention-based view, relational view, dynamic capability view and institution-based view to propose a meta-theoretical approach explicating the phenomenon of competitiveness.FindingsThis study proffers that the key to global competitiveness lies in building micro-foundational, multidimensional and multilevel multinational orchestration capabilities. The requisite orchestration capabilities are capabilities par excellence that explain: how organizational capabilities originate through the cognition of individual employees at the micro level; how individual-level abilities are amplified when they are harnessed through relational capabilities to form knowledge capabilities at the meso-level; and how the confluence of knowledge capabilities and higher order dynamic capabilities gives rise to heterogeneous firm-level knowledge-based dynamic capabilities that can be combined with institution capabilities to aggrandize the prediction of competitive advantage for MNEs.Originality/valueThe successful development of MNE competitiveness as a field of academic inquiry, brought about by an increasing amount of theoretical specialization, has come at the price of significant fragmentation of the overall scientific quest. The abovementioned paradigms and their underlying constructs have primarily been conceptualized in silos. The classical theories of MNE have been used a starting point to which complementary multidisciplinary views have been scaffolded to gain a more nuanced understanding of global competitiveness.

Reverse FDI and knowledge-and-physical-capital model: empirical evidence from emerging economies

PurposeThe main aim of this paper is to verify whether the modern mainstream economic theory of multinational enterprise that explains foreign direct investment (FDI) from developed countries is also able to account for investment decisions of multinational enterprises (MNEs) from emerging economies.Design/methodology/approachUsing Knowledge-And-Physical-Capital (KAPC) model as an analytical framework and Poisson-pseudo maximum likelihood estimation technique, the authors identify determinants of FDI flows from emerging economies. The data set consists of 38 home and 134 host countries during the period 2000–2012. Empirical evidence supports high explanatory power of KAPC model. Further, compared with the earlier Knowledge-Capital (KC) model, results confirm the importance of physical capital.FindingsThe estimation results confirm the hypothesis that mainstream economic theory can explain FDI flows from the emerging economies by highlighting the roles of total market size, skilled-labor abundance, investment and trade costs and geographical distance between two countries.Research limitations/implicationsThis study casts doubt on the alternative way that the KAPC model suggests to distinguish between horizontal and vertical FDI. The argument that horizontal MNE headquarters would be relatively more abundant than vertical MNE headquarters in countries that are abundant in physical capital relative to skilled labor seems reasonable but the idea of variable specification in the estimated equation should be revised.Practical implicationsFirms should be allowed to move their resources freely into and out of specific activities, both internally and internationally across border. To reach that goal, governments of potential host countries can adopt several measures, most importantly remove restrictions on payments, transfers and capital transactions and open previously closed industries to welcome foreign investment. In addition, to improve investment climate in general, governments need to pay attention to enhancing security of property rights, regulating internal taxation (i.e. corporate income tax), guaranteeing adequacy of infrastructure, efficient functioning of finance and labor markets and fighting against corruption.Social implicationsThe location choice of emerging investors set priority on similarity in economic size, geographical and cultural proximity. It is because shared borders or common official languages would reduce information costs and enhance information flows. Also, investors consider horizontal FDI (with motivation to expand market demand) as one of main modes of entry into a foreign market and a substitute for export. Likewise, distance is often understood as an important investment friction.Originality/valueThe outstanding contribution is that the research has uncovered the positive and statistically significant effect of physical capital on FDI activity, which has not been discussed in the earlier KC model. However, at the same time, the study casts doubt on the KAPC model's argument that relative abundance in physical capital to skilled labor between two countries determines FDI types and suggests that this argument and its empirical model specification should be carefully reviewed.

Do Chinese firms benefit from government ownership following cross-border acquisitions?

Chinese firms’ increasing cross-border acquisitions (CBAs) in recent years seem to challenge the explanatory power of received theories of multinational enterprise (MNE) due to their relatively unique characteristics and the active role of the Chinese government. In this study, we seek to revisit and contextualize the OLI paradigm in conjunction with the institution-based view and examine how Chinese firms’ post-CBA long term performance is associated with government ownership. Our study shows that Chinese firms with more government ownership demonstrate better post-CBA long term performance. However, the above relationship is differentially moderated by such firm-level boundary conditions as political connections and financial slack, and the country-level institutional boundary conditions (i.e., the host country formal institutions and the home-host country cultural distance). We discuss our findings in detail and explore theoretical and practical implications for both Chinese firms and other emerging economy (EE) firms.

Determinants of outward FDI from emerging economies

Research background: The last four decades have witnessed an upsurge of multi-nationals from emerging markets alongside a narrowed gap in growth prospects between developed and emerging economies. UNCTAD statistics show that FDI flows from emerging economies have gone steady since 1980 and occupied more than one fifth of global FDI stock in 2015. Japan led the reverse FDI trend when it started to invest abroad in the 1960s and 1970s. Two decades later, in the 1980s-1990s, the reverse FDI trend was continued by so-called Asian tigers, then recently by those rapidly-industrializing economies in Southeast Asia as well as China and India in East and South Asia.
 Purpose of the article: The main goal of this paper is to contribute empirically to the study of the determinants of FDI outflows from emerging economies.
 Methods: In order to derive empirically testable hypotheses this paper refers to theoretical Knowledge-Capital model developed by Markusen (2002). The model is estimated using the Poisson-Pseudo Maximum Likelihood estimation technique. The specific research hypotheses derived from the theory are verified using a panel dataset of 38 home emerging countries and 134 host countries over the period 2001?2012.
 Findings & Value added: In this paper, we distinguish between horizontal and vertical reasons for FDI. Our estimation results support the hypothesis that main-stream theory of multinational enterprise can explain FDI flows from emerging economies, implying the significant roles of total market size, skilled-labor abundance, investment cost, trade cost as well as geographical distance between two countries.

The Correlation between Foreign Direct Investment and Trade: Foreign Direct Investment Outflows, Gross Exports and Exports in Value Added

해외직접투자와 무역의 상관관계에 대한 연구는 적용되는 이론의 기반이 국제무역이론 또는 다국적기업 이론인지에 따라 상호 대체적 또는 상호 보완적으로 규명되어져 왔다. 하지만 1990년대 이후 글로벌 경영환경의 변화는 해외직접투자와 무역의 상관관계에 많은 영향을 미쳐왔고, 그 대표적인 변화가 기업들의 글로벌 가치사슬(Global Value Chain, GVC)의 확대와 부가가치 기준 무역(Trade in Value Added, TiVA) 데이터의 등장이라고 볼 수 있다. 글로벌 가치사슬의 확대는 해외직접투자와 무역을 동시에 증가시켰고, 부가가치 기준 무역 데이터의 등장은 전통적인 총무역(Gross Trade) 데이터를 사용한 기존의 해외직접투자와 무역의 상관관계 연구에 큰 변화를 예상했다. 한국 제조업의 해외직접투자 유출, 총수출 그리고 부가가치 수출 데이터를 사용한 본 연구의 실증분석에 의하면, 첫째, 해외직접투자 유출과 부가가치 수출의 상관관계가 해외직접투자 유출과 총수출의 상관관계보다 더 높게 나타났다. 둘째, 위 두 개의 상관관계는 전반기(2000-2005)보다 후반기(2006-2011)에서 그리고 선진국보다 개발도상국 에서 더 높게 나타났다.The study on the correlation between foreign direct investment(FDI) and trade have investigated the correlation as substitute or complementary according to the theoretical backgrounds: international trade theory or multinational enterprise theory. After 1990s, the changes on global business environment have impacted on the correlation. The important changes are the expansion of global value chain(GVC) and the introduction of trade in value added(TiVA). The expansion of global value chain stimulated FDI and trade simultaneously and the introduction of trade in value added(TiVA) expected to change the existing correlation studies based on the traditional Gross trade data. There are three findings by this study based on korean manufacturing FDI flows, gross exports and exports in value added. First, the correlation between FDI outflows and exports in value added is bigger than the correlation between FDI outflows and gross exports. Second, the above two correlations are more positive at the second time period(2006-2011) compared to the first(2000-2005). Third, the above two correlations are more positive in developing countries compared to those in advanced countries.

The Promises and Perils of Multinational Corporations: the Nigerian Experience

This article explores the concept of multinational corporations, their evolution and impact on the developing economies with Nigeria in focus. Several theories of multinational enterprises were reviewed and how these theories, as well as the activities of the multinational firms, relate to the development of the Nigerian economy. Arguments put forward by different scholars were also discussed. Finally, it was recommended that for the Nigerian economy to develop, conscious actions have to be taken to move the economy from an import dependent to an exporting economy.

Rights, governance, and foreign direct investment: an industry-level assessment

Theories of multinational enterprises emphasize that foreign direct investment (FDI) is undertaken in different industries for different reasons, yet studies of the effects of rights and governance on FDI generally rely on aggregate-level FDI data. This paper evaluates US FDI outflows to 15 industries (eight manufacturing, seven non-manufacturing) in 54 countries in a linear dynamic panel data gravity FDI model using a ‘system’ generalized method of moments estimator and several widely used rights and governance indexes. At the aggregate level, we estimate that stronger rights and governance have a positive effect on FDI, consistent with most prior studies. At the industry level, we estimate larger positive effects of rights and governance on FDI for service than manufacturing industries, particularly for the information and the finance and insurance industries.

The effects of regional trade agreements on FDI by its origin and type: Evidence from U.S. multinational enterprises activities

The effects of regional trade agreements (RTAs) on foreign direct investment (FDI) depend on both the origin and type of FDI. To estimate the various effects of RTAs, I differentiate between various types of FDI by using data on the sales destinations of foreign subsidiaries of U.S. multinational enterprises (MNEs), while also addressing the endogeneity of RTA formation. Consistent with the theory of MNEs, I find that RTAs reduce horizontal FDI from intra-RTA countries and increase export-platform and total FDI from extra-RTA countries. Moreover, the overall effects of RTAs are positive for extra-RTA FDI, but inconclusive for intra-RTA FDI. The results also support the effect of integrated markets’ economies of scale in inducing extra-RTA FDI.

The Evolution of Theories of MNEs: Minimizing the Liability of Foreignness through Globally Intelligent Subunits

<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>

The Theory of Multinational Enterprises: Revisiting Eclectic Paradigm and Uppsala Model

Globalization has been evolving through the growing trend of multinational enterprises (MNE) for a prolonged period. In this fierce competitive market, corporations are trying to spread out their operations in different geographic locations in order to gain different advantages. Based on past literatures, the goal of this paper is to explain the relevant theories of multinational enterprise through proven theories and scholars viewpoint. With the theoretical ground of ‘Uppsala model’—that explains the internationalization process and, ‘Eclectic Paradigm’—that explore the factual reasons behind internationalization, this paper would focus on the rationale and process of becoming MNE. Additionally, with many critics’ viewpoint, real life examples of successful MNEs, this paper found the foundations that embolden the new generation firms to spread its production and head office in different part of the world successfully as a process of turning into MNE.

Do Foreign Firms in China Incur a Liability of Foreignness? The Local Chinese Firms’ Perspective

Liability of foreignness (LOF) has been one of the building blocks of multinational enterprise theory development, but we have limited knowledge about the liability of foreignness in the context of multinationals operating in developing countries. This study suggests that in a developing country like China, foreignness may still exist, but its negative impact on foreign firms’ performance may have become insignificant. Local Chinese firms were found to enjoy significant location‐based advantages over their foreign counterparts, contributing to liability of foreignness. However, the adverse effects of liability of foreignness on foreign firms appear to be offset by the foreign firms’ superior firm‐specific and multinationality advantages over local Chinese firms. Further, the location‐based advantages that foreign firms have built up over time further serve to strengthen their overall competitive position in China. © 2014 Wiley Periodicals, Inc.

Democracy and foreign direct investment at the industry level: evidence for US multinationals

Theories of multinational enterprises emphasize that foreign direct investment (FDI) is undertaken in different industries for different reasons, yet studies of the effects of democracy on FDI most commonly use aggregate-level FDI data. This paper evaluates US FDI outflows to 15 industries (eight manufacturing, seven nonmanufacturing) in 54 countries in a linear dynamic panel-data gravity FDI model using a “system” generalized method of moments estimator and three widely used democracy indicators. At the aggregate-level, we estimate a positive effect of democracy on FDI, consistent with most prior studies. At the industry level, we estimate larger positive effects of democracy on FDI for service than manufacturing industries, particularly for finance and insurance and information, and negative effects for mining and oil and gas extraction.

International Entrepreneurship and the Theory of the (Long–Lived) International Firm: A Capabilities Perspective

This paper expands on the Oviatt–McDougall framework of sustainable international ventures. It does so by relating the elements of the framework to existing scholarship on the multinational enterprise (MNE), a category that encompasses foreign direct–invested new ventures (FDINVs). The paper then incorporates entrepreneurship and capabilities into MNE theory and applies them to the FDINV. Strong dynamic capabilities coupled with good strategy work together to generate and sustain superior enterprise performance in fast–moving global environments. The resulting framework is used to revisit key questions in MNE/FDINV research such as the timing and mode of FDI.

Revisiting international business theory: A capabilities-based theory of the MNE

An introduction to this issue of the Journal of International Business Studies, in which the author discusses a capabilities-based theory of multinational enterprises (MNE), is presented.

A Bibliometric Study of John Dunning’s Contribution to International Business Research

This article offers a review of John Dunning’s contribution to international business (IB) research, so as to assess the impact of Dunning and of the Eclectic paradigm on this discipline. The contribution of Dunning and of the Eclectic paradigm – usually referred to as OLI – are a core reference to current international business research, namely for studying location decisions, foreign investment, entry modes and internationalization, and for the multinational enterprise theory. First, we review the conceptual foundations of Dunning’s academic contribution. Second, methodologically, we carry out a bibliometric study of articles published in 14 respected academic business magazines over a period of 31 years, between 1980 and 2010. A sample of 697 published articles that refer