Internalization and the MNE: a note on the spread of ideas
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Internalization and the MNE: a note on the spread of ideas A Edward Safarian Joseph L Rotman School of Management, University of Toronto, Ontario, Canada Correspondence: Professor AE Safarian, Joseph L Rotman School of Management, University of Toronto, 105 St George Street, Toronto, Ontario, Canada M5S 3E6. Tel: +1 416 978 0508; Fax: +1 416 978 5433; E-mail: [email protected]
Abstract This paper examines the reasons for the impact of Buckley and Casson’s The Future of the Multinational Enterprise (1976) on research in international business (IB). Earlier work concentrated on ownership-specific advantages or locational determinants rather than the central concept of internalization. The few exceptions were incomplete or not well known. Internalization as applied to the MNE spread rapidly because of the appeal to IB researchers of an analytically powerful idea that was based on institutional economics and involved an accessible methodology. The spread was also helped by the parallel growth of transaction costs in the domestic theory of the firm, and the publication activity of the authors and their associates. Journal of International Business Studies (2003) 34, 116–124. doi:10.1057/ palgrave.jibs.8400011 Keywords: internalization; MNE; history of thought
Received: December 2002 Accepted: January 2003 Online publication date: 13 March 2003
Introduction The study by Peter Buckley and Mark Casson (1976) on The Future of the Multinational Enterprise was an important achievement. It developed a long-run theory of the MNE based centrally on the concept of internalization, particularly with regard to knowledge. It included a set of stylized facts on such firms, an econometric test of the theory, a discussion of alternative explanations, and a set of predictions on the future of MNEs and of policy development towards them. The study was the first comprehensive work on internalization as it applies to MNEs. It was followed by a rigorous extension in Casson (1979), which uses the concept of information rather than technology in order to include marketing and managerial skills. The study has had a considerable influence in the literature on international business (IB). Why this should have occurred is an interesting issue, given that there were antecedents, parallels, and alternative explanations for MNEs. Moreover, it was quickly qualified and even superseded in parts, not least by the authors themselves, in favour of a more dynamic approach to the MNE. There were several reasons why it succeeded. One was that, after two decades of experimentation with a variety of approaches, FDI theory was ripe for some consolidation into at least a temporary orthodoxy. Similar ideas were also taking hold in the domestic theory of the firm. Second, a critical mass of refinements quickly took place, in good part because of a group of researchers associated in one way or another with the University of Reading. Third, and
Internalization and MNE
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