This is a complete summary of all literature regarding Week I: Core IB Theories for the course 'Theories of International Business'. The summary is designed to give an easy-to-read insight into the core aspects of each paper.
Papers covered include:
ARTICLE I: FIFTY YEARS OF INTERNATIONAL B...
TABLE OF CONTENTS
THEME I: CORE IB THEORIES...............................................................................................1
ARTICLE I: FIFTY YEARS OF INTERNATIONAL BUSINESS THEORY AND BEYOND (RUGMAN,
VERBEKE & NGUYEN)....................................................................................................................2
INTRODUCTION...............................................................................................................................................2
FROM COUNTRY LEVEL TO FIRM LEVEL ANALYSIS..........................................................................................2
FROM FIRM LEVEL TO SUBSIDIARY LEVEL ANALYSIS.......................................................................................3
THE CLASSIC FRAMEWORK FOR IB THEORY....................................................................................................5
THE FUTURE OF DISTANCE IN INTRA-FIRM AND INTER-FIRM NETWORKS.....................................................6
OTHER UNITS OF ANALYSIS AND THE ROLE OF DISTANCE IN IB.....................................................................7
CONCLUSION...................................................................................................................................................8
ARTICLE II: INTERNALIZATION THEORY OF THE MULTINATIONAL ENTERPRISE (BUCKLEY &
CASSON).......................................................................................................................................9
INTRODUCTION...............................................................................................................................................9
THE CONCEPT OF INTERNALIZATION............................................................................................................10
RATIONAL ACTION MODELLING....................................................................................................................11
THE COASIAN HERITAGE: INTERNALISATION AS A GENERAL THEORY OF THE FIRM....................................12
THE INTERNATIONAL DIVISION OF LABOUR IN A GLOBAL ECONOMY: A GLOBAL SYSTEMS VIEW..............13
THE PROGRESS OF THE RESEARCH AGENDA................................................................................................14
CONCLUSION.................................................................................................................................................15
ARTICLE III: THE ECLECTIC PARADIGM AS AN ENVELOPE FOR ECONOMIC AND BUSINESS
THEORIES OF MNE ACTIVITY (DUNNING)....................................................................................16
INTRODUCTION.............................................................................................................................................16
THE OWNERSHIP SUB-PARADIGM................................................................................................................17
THE LOCATIONAL SUB-PARADIGM OF COUNTRIES (AND REGIONS)............................................................17
THE INTERNALIZATION SUB-PARADIGM.......................................................................................................18
CONCLUSION.................................................................................................................................................18
ARTICLE IV: THE RESOURCE BASE VIEW AND INTERNATIONAL BUSINESS (PENG)........................20
INTRODUCTION.............................................................................................................................................20
MAPPING THE CONTRIBUTIONS...................................................................................................................20
THE DIFFUSION OF THEORETICAL INNOVATION...........................................................................................21
AN ORGANIZING FRAMEWORK....................................................................................................................21
MNC MANAGEMENT....................................................................................................................................21
MARKET ENTRIES..........................................................................................................................................22
EMERGING MARKET STRATEGIES..................................................................................................................24
CONCLUSION.................................................................................................................................................25
ARTICLE V: TOWARDS AN INSTITUTION-BASED VIEW OF BUSINESS STRATEGY (PENG)...............27
INTRODUCTION.............................................................................................................................................27
UNDERSTANDING INSTITUTIONS..................................................................................................................27
AN INSTITUTION BASED VIEW OF BUSINESS STRATEGY...............................................................................28
SUPPLIER STRATEGIES...................................................................................................................................28
ENTREPRENEURIAL STRATEGIES...................................................................................................................29
DIVERSIFICATION STRATEGIES.......................................................................................................................29
GROWTH STRATEGIES...................................................................................................................................30
CONTRIBUTIONS, CRITIQUES AND EXTENTIONS..........................................................................................31
CONCLUSION.................................................................................................................................................32
THEME I: CORE IB THEORIES
,ARTICLE I: FIFTY YEARS OF INTERNATIONAL BUSINESS
THEORY AND BEYOND (RUGMAN, VERBEKE & NGUYEN)
INTRODUCTION
This paper provides an overview of the literature on international business (IB) over the past
fifty years, highlighting shifts in the core unit of analysis. In the early years, the focus was on
national competitiveness at the country level, with economists examining trade and foreign
investment using national statistics. In the 1970s, attention shifted to foreign direct
investment by multinational enterprises (MNEs) and the transfer of firm-specific advantages
(FSAs) across borders. The 1980s saw more focus on MNE subsidiaries and entrepreneurial
growth within specific contexts. Later, there was a shift towards studying clusters and
networks of independent companies.
The paper discusses how different units of analysis have been used in IB literature.
Mainstream neoclassical international economics emphasized differences in factor
endowments between countries driving international transactions. However, scholars like
Vernon, Dunning, and Rugman recognized the importance of firms in this context,
particularly MNEs. They explored how country factors interacted with MNE activity,
transferring technology and generating economic benefits.
The paper also highlights the concept of the "liability of foreignness," which explains the
challenges MNEs face in foreign markets due to various forms of distance. The Uppsala
model of international expansion suggests that firms initially expand in nearby countries
with similar characteristics and gradually move to more distant markets as they learn to
overcome these challenges.
Recent work by Hennart blurs the line between CSAs and FSAs, emphasizing the need for
MNEs to develop relationships with local actors to access desired CSAs, known as location-
bound FSAs (LB FSAs).
The paper discusses different entry modes for MNEs, such as exporting, wholly-owned
subsidiaries, licensing, or joint ventures, and how these choices relate to the unit of analysis
in research. Finally, it highlights the shift in contemporary IB research towards the subsidiary
level, with a focus on subsidiary initiatives and innovative recombinations of CSAs and FSAs
across the MNE network.
In summary, the paper outlines the evolution of IB literature from a focus on separate CSAs
and FSAs to a nuanced understanding of their interplay and the changing unit of analysis,
moving from the country-level to the MNE and, more recently, to the subsidiary level within
the MNE network.
FROM COUNTRY LEVEL TO FIRM LEVEL ANALYSIS
This section provides a comprehensive review of several theoretical approaches used to
explain multinational enterprises' (MNEs) strategic investment decisions, foreign entry
,modes, ownership structures, and performance. It synthesizes the literature on both the
firm level and the interactions between country-level and firm-level factors.
1. Hymer's Theory: Hymer (1960) shifted the focus from the country level to the firm
level when explaining why firms engage in international operations. He emphasized
that MNEs are institutions for international production, with a distinction between
foreign direct investment (FDI) and portfolio investment. Hymer argued that FDI
occurs when foreign firms possess a competitive advantage over local firms and
when there are imperfections in the market for selling this advantage. This concept
of monopolistic advantages and entry barriers is crucial to understanding FDI.
2. Internalization Theory: Originating from scholars associated with the "Reading
School," including Buckley, Casson, Rugman, and Hennart, internalization theory
emphasizes the efficiency properties of MNEs. It suggests that firms engage in
international production to reduce transaction costs compared to arm's-length
transactions in the market. The central idea is that MNEs create internal markets for
resources and knowledge that are dispersed geographically. This theory highlights
the importance of efficiently coordinated transactions within the firm.
3. Eclectic Paradigm (OLI Model): Developed by Dunning, the eclectic paradigm
integrates ownership advantages (O), location advantages (L), and internalization
advantages (I) to explain FDI. Ownership advantages include assets and transactional
variables, location advantages refer to country-specific advantages, and
internalization advantages focus on the benefits of internalizing value-added
activities. This framework provides a comprehensive explanation for foreign entry
mode choices.
4. Internationalization Theory: The Scandinavian internationalization model, pioneered
by scholars like Johanson and Vahlne, suggests that internationalization is a
cumulative process based on experiential market knowledge. Firms start with
exporting, then establish sales subsidiaries, and eventually invest in production
facilities. The psychic distance concept is used to explain why firms initially target
culturally and geographically proximate markets.
Several critiques have been raised against internationalization theory. Rugman and
others argue that it overlooks the nature of MNE FSAs and the presence of market
imperfections. They emphasize that the mode of entry changes over time as relative
costs and benefits evolve.
Overall, these theories provide various perspectives on MNEs' internationalization strategies,
offering insights into why and how firms expand their operations across borders. The eclectic
paradigm, in particular, offers a comprehensive framework that integrates multiple factors
influencing these strategic decisions.
FROM FIRM LEVEL TO SUBSIDIARY LEVEL ANALYSIS
, The section from Birkinshaw and Pedersen's scholarly article discusses the evolution of
research in International Business (IB) and the shift towards focusing on subsidiary-level
analysis within Multinational Enterprises (MNEs). Here is a summary of the key points:
1. Relevance of Subsidiary-Level Analysis: The authors emphasize the importance of
analyzing subsidiaries within MNEs. While the MNE as a whole remains the primary
unit of analysis in IB theory due to its role in strategic decisions, there is a growing
recognition of the need to understand each subsidiary's unique characteristics,
including its resource base, strategy, role within the MNE, and relationships with
other subsidiaries.
2. Shift in Focus: The shift towards subsidiary-level analysis has several origins. Firstly,
research in Canada explored the autonomy of Canadian subsidiaries of foreign MNEs
with world product mandates (WPM). This research examined interactions between
host-country management and subsidiary management and their alignment with the
MNE's objectives.
3. Differentiated Network Perspective: The authors highlight a move away from the
traditional centralized and hierarchical organizational structure of MNEs, as seen in
the 1960s and 1970s, towards a differentiated network perspective. This perspective
emphasizes the relationships between the parent firm and its subsidiaries,
acknowledging that subsidiaries can develop Location-Bound (LB) Firm-Specific
Advantages (FSAs).
4. Subsidiary Initiatives: The text discusses the influential role of subsidiary managers,
particularly the concept of "subsidiary initiatives," in developing FSAs. Subsidiaries,
and even subsidiary managers, can be valuable units of analysis for understanding
innovation processes within MNEs.
5. Resource Recombination: The authors suggest that the resources and capabilities
between the subsidiary and the MNE can be "unbundled." Tangible resources, such
as physical assets and people, are primarily held at the subsidiary level, while
intangible resources, including financial and organizational aspects, are often at the
firm level. The process of recombining resources can lead to the development of
non-location bound (NLB) FSAs.
6. Evolution of IB Theories: The evolution of IB research reflects a shift from an
equilibrium-oriented theoretical focus to a more dynamic conceptualization. Despite
these shifts, the core concepts of IB theory remain connected to internalization
theory and its derivatives.
In summary, the section highlights the transition in IB research towards recognizing the
subsidiary as a key building block of the MNE and the significance of subsidiary-level
analysis. It also underscores the role of subsidiary managers in developing FSAs and the
importance of resource recombination in generating NLB FSAs. This evolution in IB theories
reflects a shift towards more dynamic perspectives.
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