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Summary Articles Theories of International Business
Summary of all the mandatory articles of Theories of International Business
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Voorbeeld 4 van de 68 pagina's
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Theories of International Business – Master BACompulsory articles
Victor Roos
Topic 1 Topic 2
Article Page Article Page
1.1 – Rugman et al., 2011 2 2.1 – Garrett, 2000 24
1.2 – Buckley & Casson, 2011 8 2.2 – Ghemawat, 2003 28
1.3 – Dunning, 2000 12 2.3 – Rugman & Verbeke, 2004 31
1.4 – Peng, 2001 16
1.5 – Peng, 2002 20
Topic 3 Topic 4
Article Page Article Page
3.1 – Dunning, 2009 34 4.1 – Hutzschenreuter et al., 2016 49
3.2 – Gao et al., 2010 37 4.2 – Moon et al., 1998 53
3.3 – Pan & Tse, 2000 41 4.3 – Hofstede, 1994 57
3.4 – Brouthers & Hennart, 2007 45
Topic 5
Article Page
5.1 – Luo & Tung, 2007 60
5.2 – Oviatt & McDouggall, 2005 65
,Theories of International Business – Master BA – Compulsory articles
1.1 – Rugman et al., 2011; Fifty years of international business theory and
beyond
Author: Alan M. Rugman, Alain Verbeke, Quyen T. K. Nguyen
Year: 2011
1. What is the main contribution/idea/conclusion of the article?
→ Abstract – Introduction – Conclusion– 3/4 sentences
The main contribution is that there have been shifts in the core unit of analysis in international business
theory: (1) analysis at country level, using natural statistics on trade and foreign direct investment
(FDI), (2) focus on the multinational enterprise (MNE) and the parent’s firm specific advantages (FSA’s),
and (3) analysis of the MNE as a network, making the subsidiary the unit of analysis. The authors have
developed a new framework, visualized in two matrices, to show how distance really matters and how
FSA’s function in international business.
2. What is the context and goal of this study?
→ Introduction – Conclusion
→ Goal of the study: go against a belief/add something new to it/put it in another context
→ Type of research: conceptual/empirical/literature review
The authors describe the literature on international business (IB) over the last fifty years. This makes
it a literature review
3. How are the authors trying to convince you?
→ Main part of the article – Discussion
3.1 (Methodology) and results
The field of IB has matured, and so has the core unit of analysis:
1. 1960’s: analysis at country level, using natural statistics on trade and foreign direct investment
(FDI).
2. 1970’s: analysis at the level of the multinational enterprise (MNE) and the parent’s firm specific
advantages (FSA’s).
3. 1980’s: analysis of the MNE as a network, making the subsidiary the unit of analysis.
Over the last fifty years, the literature of IB has developed from a ‘basic’ focus on country specific
advantages (CSA’s) and FSA’s that are clearly separate and distinguishable from each other towards a
more nuanced understanding of the linkages between them and the manner in which MNE managers
in the home and host economies will interact to develop novel recombinations of home and host CSA’s
and the FSA’s held by various MNE units, dispersed across borders. This means there have been two
shifts: country level to firm level (3.1a) and firm level to subsidiary level (3.1b). The three basic units of
analysis can be analyzed in the classic CSA/FSA matrix (3.1c). After that, the future role of distance
(3.1d) and other units of analysis and the role of distance in IB are described (3.1e).
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Victor Roos
,Theories of International Business – Master BA – Compulsory articles
3.1a – From country level to firm level analysis
This section provides a review and synthesis of the literature at firm level and the interactions between
country and firm level. There is Hymer, the internalization theory, electric paradigm, the Uppsala
model, psychic distance
Hymer shows that an MNE is an institution rather than international exchange. He distinguishes
between FDI and portfolio investment in terms of the presence of firm-level control in the first and the
absence in the latter. There are two conditions that need to be fulfilled to explain the existence of FDI:
1. Foreign firms must possess a compensating advantage over local firms to make such
investment viable.
2. The market for selling this advantage must be imperfect. Companies must possess some kind
of monopolistic advantages to outweigh the liability of foreignness (LOF) when competing
with indigenous firms in host country production.
Hymer focuses on imperfections in the markets, such as monopolistic advantages held by individual
MNE’s and entry barriers leading to reductions in consumer welfare. Hymer was the first to contrast
such firm-level FDI with the (thus far accepted) FDI as a country level financial (portfolio) investment
decision determined by interest rate differentials across national borders. He recognizes that FDI is a
firm-level strategy decision rather than a capital-market financial decision. Therefore, FDI will occur
mainly in imperfect markets.
MNE’s existence is not caused by monopolistic advantages, but by its efficiency properties (e.g. the
capacity reduce transaction costs). Internalization theory economists explain why firms become
involved in international production. The essential argument is that firms aim at maximizing profit by
internalizing their intermediate markets (typically the markets for intangible assets such as technology,
production, know how, brands) across national borders, in the face of various market imperfections
(such as public goods externality associated with pricing an intermediate product like knowledge,
government interventions in the form of trade barriers etc.). Rugman shows that MNE’s develop in
response to imperfections in the goods and factor markets. The CSA’s of a nation that provide a basic
level of comparative advantage are strengthened by FSA’s, internal to the MNE, and assure
competitive advantage.
Rugman apples the internalization theory on his own work by arguing that internalization theory is a
general theory of the MNE. Rugman makes two major contribution to internalization theory with this:
(1) the role in building the theory of internalization as a general theory of the MNE, and (2) bridging
the gap between internalization theory with strategic management thinking, by developing the
concepts of location bound (LB) and non-location bound (NLB) FSA’s. Rugman emphasizes that each
MNE needs a distinctive set of FSA’s, which gives it a competitive advantage relative to other firms.
This can be done if the company develops a sustained competitive advantage (value, rare, inimitable,
non-substitutable). This thinking anticipates the resource-based view (RBV) of the 1990’s. Such FSA’s
may arise from upstream R&D (most of the time) or at a downstream level. However, possessing FSA’s
is not enough for FDI to take place. An MNE objective may be to establish property rights over its FSA’s
so that these cannot be used by other firms.
Hennart has a slightly different version of internationalization theory: he argues that for international
expansion to take place, setting up facilities abroad must be more efficient than exporting to foreign
markets (which entails domestic internalization) and a firm must find it desirable to own the foreign
facilities. Three conditions must be satisfied: (1) interdependent actors must be located in different
3
Victor Roos
, Theories of International Business – Master BA – Compulsory articles
countries (otherwise there is only domestic activity), (2) the MNE must be the most efficient
governance system to organize these interdependencies, and (3) the costs incurred by MNE’s to
organize these interdependencies in the market must be higher than those of organizing them within
MNE’s. Managing interdependencies refers to: (1) accessing, (2) recombing, and (3) orchestrating the
productive usage of various sets of resources that are dispersed geographically. FDI takes place when
firms internalize markets for these resources.
The electric paradigm integrates several theory streams on cross border activities at the country and
firm levels to explain FDI. Dunning proposes that three types of advantages influence FDI:
1. Ownership advantages: can be divided into asset advantages (e.g. patented technology and
brand names) and transactional variables (e.g. strengths in coordinating a network of
geographically dispersed affiliates).
2. Location advantages: foreign countries that have some CSA’s. it also includes elements of the
cultural, legal, political, and broad environment in which the firm operates.
3. Internalization advantages: benefits of creating, transferring, deploying, recombining, and
exploiting FSA’s internally instead of via contractual arrangements with outside parties.
The OLI paradigm identifies the key location advantages of four types of international production:
natural resource seeking, market seeking, efficiency seeking, and strategic asset seeking. This
framework, however, struggles to integrate country and firm level interactions. It still is the most
comprehensive framework to explain foreign entry mode choices and the economic efficiency
implications thereof.
Based on this, the Uppsala model (Johanson & Vahlne, 1977) was developed. This proposes that
internationalization is a cumulative, path-dependent process whereby a firm’s international expansion
pattern is a function of its past international experience and knowledge base. A firm with no experience
will start with exporting, then open a sales subsidiary and eventually invest in production facilities. The
driving force is experiential market knowledge. Johanson & Vahlne also introduced psychic distance.
This refers to the degree to which a firm is uncertain of the characteristics of a foreign market. This
means that firms undertake international expansion in an incremental manner. Foreign markets that
are familiar will be entered first and building upon that.
Internationalization theory suggest that the mode of entry changes over time as the relative costs and
benefits associated with each of these strategies change: (1) licensing, (2) exporting, (3) establishment
of local warehouse and direct local sales, (4) local assembly and packaging, (5) formation of joint
venture, and (6) FDI.
The overall problem with the internationalization theory approach is that it largely neglects two critical
elements:
- The nature of MNE FSAs, which determines to a large extent the potential net benefits of
internalization in comparison to alternative modes of operating in foreign markets.
- The presence or absence of natural and government-imposed market imperfections.
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Victor Roos
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