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Some antecedents of internalization theory

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Abstract

This article reviews the main antecedents to Buckley and Casson's seminal volume The Future of the Multinational Enterprise (1976). In particular it considers and evaluates two main approaches to understanding the nature and function of firms viz the exchange approach and the value-added approach.

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Notes

  1. By related to, we mean support functions, such as auditing, advertising or market research, that might be undertaken internally or purchased from the open market.

  2. For example, well-known texts on the theory of the firm in the 1960s and 1970s (e.g. Baumol, 1959; Cohen and Cyert, 1965; Mansfield, 1970) made little or no mention of the classic 1937 article by Ronald Coase. Perhaps even more surprisingly, Coase was not cited by any of the contributors to my volume Economic Analysis and the Multinational Enterprise, published in 1974.

  3. FDI, unlike foreign portfolio investment, is cross-investment internal to the firm. It involves a package of resources and capabilities over which the investing firm has control and which it seeks to combine with local factor resources that it accesses or acquires.

  4. Although in some cases part of the growth might be as a substitute for activities undertaken in the home country.

  5. See, for example, a review of these alternative theories by CJ Hawkins (1973).

  6. As illustrated by several international business scholars, notably Anderson and Gatignon (1996).

  7. Notably those of N Kaldor (1934) and EAG Robinson (1934).

  8. In other words, firms were assumed to be selling their products in pure or perfectly competitive markets.

  9. The assumption being that each firm was at its coordinating function frontier – that is, was coordinating in an optimum way.

  10. One exception is the role of government intervention.

  11. As was (and is still) used to explain the determinants of foreign portfolio investment.

  12. Which Buckley and Casson (and other international and business scholars) were not aware of until the 1980s.

  13. See especially Hymer (1992), which includes selected parts of the two contributions.

  14. Here Hymer is referring to the competitive advantage enjoyed by the multinational firm.

  15. For a detailed view of the evolution of my own thoughts on the determinants of FDI and MNEs see Dunning (2002).

  16. Mrs Penrose never used the word ‘internalization’ in her early writings. Indeed, in conversations with me, it was clear that she could not understand why later scholars preferred the nomenclature ‘internalization’ in integration.

  17. Which he formalized in a later article (Caves (1980)).

  18. Caves (1971, pp. 8–9).

  19. Although I accept that this is the original interpretation by Ronald Coase.

  20. Since the time of The Future of the Multinational Enterprise, scholarly research on the economic and management theories of the firm has again proceeded on parallel lines, with the resource and evolutionary theories tending to dominate the value-added stream. For a suggestion of how the three channels of research identified in this paper might be better integrated.

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  1. Reading and Rutgers Universities, UK

    John H Dunning

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  1. John H Dunning
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Correspondence to John H Dunning.

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Accepted by Tom Brewer; outgoing Editor, February 2003

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Dunning, J. Some antecedents of internalization theory. J Int Bus Stud 34, 108–115 (2003). https://doi.org/10.1057/palgrave.jibs.8400010

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