W1 Dunning (2000) The eclectic paradigm as an envelope for economic and business theories of
MNE activity.
Eclectic paradigm= a theory that provides a three tiered framework for a firm when determining if
it’s beneficial to pursue FDI. In order for a FDI in a foreign country to be beneficial, the following
advantages must be present.
Oa= Ownership Asset advantage. This is based on the possession or privileged access to a
specific asset.
Ot=Ownership Transactional advantage. This is based on capabilities to organize assets, both
internal and external to the investing firm, in the most efficient way (reducing transaction
costs)
L= Location specific advantages. Where the firm derives greater advantages through a
foreign establishment, accessing Country Specific Advantages.
I= Internalization, when it’s better for a firm to exploit a foreign opportunity itself, rather
than through an arrangement with a foreign firm (e.g. licensing)
Scholars have identified four main types of foreign-based MNE-activity
1) Market Seeking= To satisfy a particular foreign market, or set of foreign markets
2) Resource Seeking= To gain access to natural resources, e.g. minerals
3) Efficiency Seeking= To promote a more efficient division of labor or specialization of an
existing portfolio of foreign and domestic assets by MNE’s
4) Strategic Asset Seeking= To protect or augment the existing O advantages of the investing
firms to reduce those of their competitors.
W1 Peng (2000) Towards an Institution-Based View of Business Studies
Institution-based view= A perspective where strategy choices are not only driven by industry
conditions and firm specific resources that traditional strategy research emphasizes (Barney &
Porter), but are also a reflection of the formal and informal constraints of a particular institutional
framework that decision makers confront
Keiretsu networks are webs of interfirm relations that envelop many Japanese firms and now
increasingly involve Asian firms. Within such networks, independent suppliers are willing to site their
factories close to major manufacturers in the absence of long-term contracts. While there is a high
asset specificity and low transaction costs make them vulnerable they do flourish. This is due to the
cultural difference with the West. Japanese firms tend to place greater emphasis on informal
constraints.
In Asia, because of the weaknesses of formal institutions, informal constraints rise to play a larger
role in regulating economic exchanges in these countries during transitions. The main informal
constraints come from three sources:
- The interpersonal relations – among executives serve as a focal point for valuable managerial
networking and reduce uncertainty.
- External connections – crucial part of the informal institutional constraints. To reduce
uncertainty, managers link with government officials.
- The reputation of conglomerates – informal but strong device to reduce uncertainty for
customers and investors trust
,Three typical growth strategies
1) Generic Expansion – requires a staff of capable managersformal institutional framework
2) M & A – requires functioning strategic factor marketsformal institutional framework
3) Networks & Alliances – requires building trust and mutual understanding informal
institutional framework
Micro-Macro link= the link between managers at different firms are translated into inter-
organizational relations.
Institutions are commonly known as the “rules of the game” defined:
- By economist Douglass North (1990, p.3) as “the humanly devised constraints that structure
human interaction.
- By sociologist W. Richard Scott (1995, p.33) as “regulative, normative, and cognitive
structures and activities that provide stability and meaning to social behavior.”
‘”Broadly speaking, institutions reduce uncertainty for different actors by conditioning the ruling
norms of behaviors and defining the boundaries of what is legitimate. Actors, in turn, rationally
pursue their interests and make choices within a given institutional framework.”
- Institutions shape individual and firm behavior
- Bounded rational choices, reliability in interactions with other actors
- Formal and informal institutions as compensatory structures
W1 Buckley & Casson (2009) The internationalization theory of the MNE: A review of the progress
of a research agenda after 30 years.
Internalization = internal division of labor, marketing & R&D where a firm could operate different
plants with some plants specialized in one type of activity, while other plants in another. It can be
used to explain the boundaries of the firm
Gain of knowledge internalization can be substantial. Asymmetric information is the most important
of the gains. Buyer uncertainty problem means that licensees are reluctant to pay for technology that
might be flawed.
When internalization theory is combined with other theories there must be consistent rational action
principles
- Firm-specific: costs of R&D – reflects skills of the firms R&D department
- Industry-specific: costs of licensing – reflects nature of knowledge in the industry
- Location-specific: production costs in different regions
Coase: Entrepreneurs recognize opportunities, hire workers to exploit it (knowledge internalization),
coordinate the work with managers (operational internalization) and makes profit if the judgment is
correct. Understandings:
- Firms can be born global
- Advantages exploited by MNE’s are created, not endowed
Heckscher-Ohlin Trade Theory: Each country has fixed endowment of labor and capital. Each country
exports the products in which it is specialized.
- No room for MNE’s
, Hymer: Superior technology was a source of monopoly power. First firms operate at home and then
expand abroad. No room for global borns, like Vernon’s product lifecycle. Internalization theory only
important for international expansion, not domestic. Some firms were born with advantages that
would allow them to expand abroad and some not.
Buckley & Casson: Operational integration and knowledge integration explain growth of both
domestic and multinational firms. Domestic firms profit form operational integration, while MNE’s
profit more from knowledge due to their success of organizing R&D.
Operational internalization= involving intermediate products flowing through successive stages of
production and the distribution channel.
Knowledge internalization= the internalization of the flow of knowledge gained from R&D.
Globalization arose from:
- Policy changes
- Technological improvements
- Abolition of exchange control and deregulation
- Relaxation of border control
- Multilateral tariff reduction
- Intellectual property rights
Innovation and high trust are good for MNE’s.
W1 Peng (2001) The resource-based view and IB
TCE versus RBV
Entry modes: TCE: Entry modes are predicted because of failures in the external markets (e.g.
licensing) under the assumption of opportunism.
RBV: Failures in the external markets are due to the heterogeneity of firms
resources.
Time Entry M TCE: Focuses on one-time entries based on a set of relatively static conditions
RBV: Highlights dynamic, longitudal view in which multiple entries take place, each
building on capabilities and learning from previous experience.
FSA’s TCE: Focuses only on the exploitation of FSA’s.
RBV: Focuses on both exploitation and development of FSA’s.
Resource-based view:
- Focuses on organizational leaning
- Learning is a tacit resource underlying competitive advantage
- Learning from local partners strengthens foreign performance
- Local firms learn from MNE parents as well
Knowledge about global opportunities explains why SME’s succeed abroad rapidly without going
through the different stages explained by the stage model.
MNE activity.
Eclectic paradigm= a theory that provides a three tiered framework for a firm when determining if
it’s beneficial to pursue FDI. In order for a FDI in a foreign country to be beneficial, the following
advantages must be present.
Oa= Ownership Asset advantage. This is based on the possession or privileged access to a
specific asset.
Ot=Ownership Transactional advantage. This is based on capabilities to organize assets, both
internal and external to the investing firm, in the most efficient way (reducing transaction
costs)
L= Location specific advantages. Where the firm derives greater advantages through a
foreign establishment, accessing Country Specific Advantages.
I= Internalization, when it’s better for a firm to exploit a foreign opportunity itself, rather
than through an arrangement with a foreign firm (e.g. licensing)
Scholars have identified four main types of foreign-based MNE-activity
1) Market Seeking= To satisfy a particular foreign market, or set of foreign markets
2) Resource Seeking= To gain access to natural resources, e.g. minerals
3) Efficiency Seeking= To promote a more efficient division of labor or specialization of an
existing portfolio of foreign and domestic assets by MNE’s
4) Strategic Asset Seeking= To protect or augment the existing O advantages of the investing
firms to reduce those of their competitors.
W1 Peng (2000) Towards an Institution-Based View of Business Studies
Institution-based view= A perspective where strategy choices are not only driven by industry
conditions and firm specific resources that traditional strategy research emphasizes (Barney &
Porter), but are also a reflection of the formal and informal constraints of a particular institutional
framework that decision makers confront
Keiretsu networks are webs of interfirm relations that envelop many Japanese firms and now
increasingly involve Asian firms. Within such networks, independent suppliers are willing to site their
factories close to major manufacturers in the absence of long-term contracts. While there is a high
asset specificity and low transaction costs make them vulnerable they do flourish. This is due to the
cultural difference with the West. Japanese firms tend to place greater emphasis on informal
constraints.
In Asia, because of the weaknesses of formal institutions, informal constraints rise to play a larger
role in regulating economic exchanges in these countries during transitions. The main informal
constraints come from three sources:
- The interpersonal relations – among executives serve as a focal point for valuable managerial
networking and reduce uncertainty.
- External connections – crucial part of the informal institutional constraints. To reduce
uncertainty, managers link with government officials.
- The reputation of conglomerates – informal but strong device to reduce uncertainty for
customers and investors trust
,Three typical growth strategies
1) Generic Expansion – requires a staff of capable managersformal institutional framework
2) M & A – requires functioning strategic factor marketsformal institutional framework
3) Networks & Alliances – requires building trust and mutual understanding informal
institutional framework
Micro-Macro link= the link between managers at different firms are translated into inter-
organizational relations.
Institutions are commonly known as the “rules of the game” defined:
- By economist Douglass North (1990, p.3) as “the humanly devised constraints that structure
human interaction.
- By sociologist W. Richard Scott (1995, p.33) as “regulative, normative, and cognitive
structures and activities that provide stability and meaning to social behavior.”
‘”Broadly speaking, institutions reduce uncertainty for different actors by conditioning the ruling
norms of behaviors and defining the boundaries of what is legitimate. Actors, in turn, rationally
pursue their interests and make choices within a given institutional framework.”
- Institutions shape individual and firm behavior
- Bounded rational choices, reliability in interactions with other actors
- Formal and informal institutions as compensatory structures
W1 Buckley & Casson (2009) The internationalization theory of the MNE: A review of the progress
of a research agenda after 30 years.
Internalization = internal division of labor, marketing & R&D where a firm could operate different
plants with some plants specialized in one type of activity, while other plants in another. It can be
used to explain the boundaries of the firm
Gain of knowledge internalization can be substantial. Asymmetric information is the most important
of the gains. Buyer uncertainty problem means that licensees are reluctant to pay for technology that
might be flawed.
When internalization theory is combined with other theories there must be consistent rational action
principles
- Firm-specific: costs of R&D – reflects skills of the firms R&D department
- Industry-specific: costs of licensing – reflects nature of knowledge in the industry
- Location-specific: production costs in different regions
Coase: Entrepreneurs recognize opportunities, hire workers to exploit it (knowledge internalization),
coordinate the work with managers (operational internalization) and makes profit if the judgment is
correct. Understandings:
- Firms can be born global
- Advantages exploited by MNE’s are created, not endowed
Heckscher-Ohlin Trade Theory: Each country has fixed endowment of labor and capital. Each country
exports the products in which it is specialized.
- No room for MNE’s
, Hymer: Superior technology was a source of monopoly power. First firms operate at home and then
expand abroad. No room for global borns, like Vernon’s product lifecycle. Internalization theory only
important for international expansion, not domestic. Some firms were born with advantages that
would allow them to expand abroad and some not.
Buckley & Casson: Operational integration and knowledge integration explain growth of both
domestic and multinational firms. Domestic firms profit form operational integration, while MNE’s
profit more from knowledge due to their success of organizing R&D.
Operational internalization= involving intermediate products flowing through successive stages of
production and the distribution channel.
Knowledge internalization= the internalization of the flow of knowledge gained from R&D.
Globalization arose from:
- Policy changes
- Technological improvements
- Abolition of exchange control and deregulation
- Relaxation of border control
- Multilateral tariff reduction
- Intellectual property rights
Innovation and high trust are good for MNE’s.
W1 Peng (2001) The resource-based view and IB
TCE versus RBV
Entry modes: TCE: Entry modes are predicted because of failures in the external markets (e.g.
licensing) under the assumption of opportunism.
RBV: Failures in the external markets are due to the heterogeneity of firms
resources.
Time Entry M TCE: Focuses on one-time entries based on a set of relatively static conditions
RBV: Highlights dynamic, longitudal view in which multiple entries take place, each
building on capabilities and learning from previous experience.
FSA’s TCE: Focuses only on the exploitation of FSA’s.
RBV: Focuses on both exploitation and development of FSA’s.
Resource-based view:
- Focuses on organizational leaning
- Learning is a tacit resource underlying competitive advantage
- Learning from local partners strengthens foreign performance
- Local firms learn from MNE parents as well
Knowledge about global opportunities explains why SME’s succeed abroad rapidly without going
through the different stages explained by the stage model.
