The Foundations of International Business: Cross‐Border Investment Activity and the Balance between Market‐Power and Efficiency Effects

We propose an orchestration theory of the (new) MNE as an envelope of internalisation theory and its variants. We first critically assess extant varieties of internalisation theory of the MNE. We then discuss their limitations and explain why it is important to move from internalisation to an orchestration theory of the MNE. Orchestration theory, rooted in and encompassing the dynamic capabilities framework, helps explain a number of MNE phenomena that challenge internalisation theory, including entrepreneurship, learning, co-opetition, open innovation, value capture and market and ecosystem co-creation. It entails much more than the make-or-buy decision of internalisation theory and it is more closely aligned to today's global environment, conceptual developments in cognate fields and the strategies and practices of MNEs. We also discuss prospects for further research using an orchestration approach. I.

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“…There are sufficient reasons and empirical evidence in favour of bringing rivalry and (market) power back in (Clougherty et al, 2017).…”

Section: Limitations Of Internalisation Theorymentioning

confidence: 99%

The New MNE: ‘Orchestration’ Theory as Envelope of ‘Internalisation’ Theory

Pitelis

Teece

2018

Manag Int Rev

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“…We have implicitly argued that one reason behind such neglect is the efficiency interpretation's hold on the literature. Indeed, the potential for MNEs to dominate markets and capture supra‐normal profits at the expense of competition has generally been neglected in the global business literature (Clougherty et al, 2017; Oxley et al, 2009; Pitelis & Teece, 2018).…”

Section: Discussionmentioning

confidence: 99%

“…A number of scholars (e.g., Globerman & Shapiro, 2003; Kobrin, 2005; Sethi, Guisinger, Phelan, & Berg, 2003) have found it important to differentiate between developed and emerging markets when considering FDI, as foreign investments undertaken by emerging‐market MNEs might be characterized by substantial efficiency effects. Indeed, the prior that emerging‐market MNEs generate substantial pro‐competitive benefits extends back to Hymer (1970) and finds recent empirical support (Clougherty, Kim, Skousen, & Szücs, 2017). Such contrasts are also in line with studies that highlight different expansion motives (e.g., exploiting vs. learning) for MNEs based in developed and emerging markets (Benito, 2015; Cuervo‐Cazurra, Narula, & Un, 2015).…”

Section: The Current Studymentioning

confidence: 97%

The efficiency and market‐power interpretations of the multinational enterprise: Two out of three ain't bad

Clougherty

Skousen

2019

Global Strategy Journal

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Research Summary We contend that contemporary scholarship must embrace the foundational approach in global business and strategy to consider the relevance of both efficiency and market‐power effects in factoring the implications of multinational activity. We empirically test the degree to which efficiency and market‐power effects manifest in a comprehensive sample of 4,370 cross‐border acquisitions materializing between 1986 and 2010. Specifically, we employ three different measurement approaches to distinguish efficiency enhancing from market‐power increasing cross‐border acquisitions. Empirical results indicate that efficiency enhancing transactions manifest in two‐thirds and market‐power increasing transactions manifest in one‐third of our sampled activities. Accordingly, our results affirm the literature's focus on efficiency effects, yet market‐power effects are sufficiently sizable to merit scholarly attention. Managerial Summary Contemporary wisdom generally considers multinational activities to be characterized by efficiency properties. While it is understood that market power may manifest in multinational activity, most observers implicitly assume that anti‐competitive effects are dominated by more‐healthy efficiency effects. Yet, the justification behind the prior that efficiency effects dominate market‐power effects is not evident, as multinational activities conceivably involve substantial market power. Accordingly, we test the received wisdom regarding the dominance of efficiency effects in an extensive sample of cross‐border investments. Our empirical results affirm prevailing assumptions as efficiency enhancing transactions constitute the majority of cross‐border investment activities. However, market‐power increasing transactions manifest as a sizable minority of cross‐border investments; thus, market‐power effects should not be neglected.

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“…Because of the limited market size in non-occidental countries, production facilities have effectively been forced to adhere to knowledge congruent with occidental cognition and culture. The raison d'être of multinational corporations has been seen in market power and efficiency effects (Clougherty et al, 2017). The strengthening of non-occidental economies will change this dynamics.…”

Section: Supply Of Innovationmentioning

confidence: 99%

Innovation management in the world under occidental dominance and in a new multi-polar world: a comparative perspective

Poesche¹,

Kauranen²,

Igel³

2019

IJCM

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This is a conceptual research study in the field of comparative management. For more than five centuries, the occident has been an economic, military, and cultural dominating force throughout the world, but now this long trend is reversing. Non-occidental countries are gaining momentum. China and India have become new world powers, anticipated to surpass the USA in economic might. The result will be global occidental dominance being replaced by a multi-polar world. The objective of this study is to conduct a comparisonfocusing on implications to innovation management -between the world under occidental dominance and the new multi-polar world. This approach is novel in comparative management. This study points out that multi-polarity will broaden the foundation for innovation, thus, giving rise to new and different innovation. Multi-polarity will enhance both the demand for and supply of innovation. An implication of multi-polarity for practice is that in multinational corporations operating in more than one major historical cultural sphere, it will be exceedingly difficult to maintain a uniform basis for the legitimation of innovation.

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The Foundations of International Business: Cross‐Border Investment Activity and the Balance between Market‐Power and Efficiency Effects

Cited by 13 publications

References 116 publications

The New MNE: ‘Orchestration’ Theory as Envelope of ‘Internalisation’ Theory

The New MNE: ‘Orchestration’ Theory as Envelope of ‘Internalisation’ Theory

The efficiency and market‐power interpretations of the multinational enterprise: Two out of three ain't bad

Innovation management in the world under occidental dominance and in a new multi-polar world: a comparative perspective

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