intbus702 jmah021-assign 2- v3

INTBUS 702 | Research in International Management

Assignment Two | Multinational Corporations in International Business & Management

Semester Two | August 18, 2008

2 Conceptualisation of Multinational’s in International Business & Management

Jess Maher (3328773) | INTBUS702 Assignment Two

The Conceptualisation of Multinational’s within the field of International Business & International Management

Jess Maher (3328773)

1.0 Introduction

There is a wide ‘consensus that Multinational Corporations (MNCs) have been the

primary driver behind the trend toward globalisation’ (Dicken, 2007 as cited in Li, 2007),

which is largely influential to the fields of International Business and International

Management (IB&IM) research but also to the wider global community as a whole. The

approach taken to the way multinationals are understood, conceptualised and researched

within IB&IM varies as it is inherent in their nature that there are multiple dimensions and

perspectives which can be adopted (Kogut & Zander, 1993; Root, 1990).

The effect of developing countries continues to influence all areas of IB&IM and the

process of emerging economies internationalising their own operations provides a new

perspective within the field of multinational research. The varied perspective which is

achieved by considering multinationals within a context which differs from the predominate

context considered. The models which predominately contribute to the understanding of

how multinationals evolve includes internalisation theory and the eclectic paradigm

(Dunning, 1987; Rugman, 1986) have been widely criticised (Dunning, 1987; Verbeke, 2003),

yet contributions from these ‘extant MNC theories’ have been widely referred to within the

IB&IM fields of research (Li, 2007; Mathews, 2006).

There is evidence to suggest that value can be gained from the implementation of these

paradigms with caution from which MNCs are formed (Dunning, 1987; Li, 2007). In order for

research within IB&IM to accurately understand and theorise about the environment,

system, and operations of multinational’s within the increasingly tumultuous and dynamic

global economy, a variety of perspectives must be taken from a variety of dimensions.

Further studies attempted to integrate or adapt the OCI model (Dunning 1987) categorised

within the ‘extant MNC theories’ (Li, 2007). Alternative frameworks have also used this

model for the basis of concept (Kogut & Zander, 1993) and others have used the basic

Jess Maher3328773



understanding for model development (Mathews, 2006) or adopted an integrative approach

using the eclectic paradigm (Li, 2007).

2.0 Variety of Perspectives & Dimensions within the understanding of

Multinationals

There are varied understandings of what constitutes a multinational corporation, ‘this is

hardly surprising in view of the fact that “multinationality” has many dimensions and maybe

viewed from different perspectives’ (Root, 1990, p2). The variety of perspective within

which they study of MNC’s is divided commonly to include economic, organizational theory,

history & politics (Kogut & Zander, 1993). This consideration is inherently important when

reviewing the range of concepts within this field as the contextual reference taken by the

author may limit the applicability or transferability of such a model or paradigm.

Economic approaches to understanding of multinationals have been incredibly

influential within the fields of IB&IM (Dörrenbächer & Geppert, 2006), tendency to consider

the MNC from this perspective has been supported in this review. A large amount of the

literature considered in this review maintained a primarily economic view of multinationals

in their approach (Casson, 1986; Dunning, 1987; Johanson & Vahlne, 1977; Li, 2007;

Mucchielli & Mayer, 2004; Oviatt & McDougall, 1994; Rugman, 1986).

Alternatively a political perspective is also commonly utilised within the study of MNC’s,

predominately considering the influence of the host government within the MNC system

(Dörrenbächer & Gammelgaard, 2006; Luo, 2004). A dominant area of research within the

study of multinationals relates to the modes of entry taken in the internationalisation of

their operations, the majority of this research is undertaken from an economic or political

perspective (Agawal & Ramaswami, 1991; Dörrenbächer & Gammelgaard, 2006; Dunning,

1987; Johanson & Vahlne, 1977; Kim & Hwang, 1991; Luo, 2004; Mucchielli & Mayer, 2004;

Wells, 2000). There is however a considerable stream of research which considers the

characteristics of national culture and its influence on multinationals entry modes, Kogut &

Singh’s (1988) conceptualization of the effect of national culture on entry choice is widely

referenced (in July 2008 this article was rated as the second most highly cited article within

the Journal of International Business).



As structural changes occurred in the global economy (Casson, 1986), the approach in

understanding MNC’s started to reflect this change, Verbeke (2003) analysis of ‘Kogut &

Zanders (1993) view [of MNCs] was clearly informed by behavioural and evolutionary

theories of the firm’ (p499). Kogut & Zander (1993) took an evolutionary approach to the

study of multinationals, approaching the ‘firm as a social community whose knowledge

defines comparative advantage’ (p626). Rugman (1986) refers to the industrial

organisational approach taken by Hymer-Kindleberger-Caves*, whereby MNC’s use

hierarchical organisational structures as a substitute for inoperable/inefficient market

systems, which demonstrates the early recognition of the importance of the taking an

organisational perspective within the study of multinationals.

There still seems to be a short comings in the literature in terms of the understanding of

MNC’s from an organization-theoretical angle (Dörrenbächer & Geppert, 2006), some of the

literature considered adopted an economic approach in conjunction with considerations for

organisational theoretical perspective (Holm & Sharma, 2006), yet the selection of literature

from specifically an organisational or social perspective is limited. Becker-Ritterspach (2006)

draws theory from the field of sociology, with particular emphasis on Scandinavian

Institutionalism and Structuralism theory to produce an alternative perspective on

knowledge integration within MNCs. Becker-Ritterspach (2005) accredited the contribution

of Kristensen and Zeitlin’s (2005) book, Local Players in Global Games: The Strategic

Constitution of a Multinational Corporation, as a ‘much needed contribution to an emerging

body of work focusing on the social constitution of the MNC’ (p383).

The study of multinationals from the perspective of knowledge management,

integration and transfer are hugely influential on the field of IB&IM research, Holm &

Sharma (2006) state that ‘the accumulation or transfer of knowledge or competence across

nations & subsidiaries are important activities for the survival and success of MNC’s’(p48).

The lack of literature with study of MNC’s within the organisational or social perspectives is

possibly of most determent to the research and understanding of knowledge transfer as this

is the most apparent field to have the closest cross over within the fields of IB&IM,

organisational behaviour, anthropology, sociology and psychology among others.



2.1 Multinationals & Developing Countries

Traditionally mainstream multinational research has focused on large established

MNC’s from developed nations, however there is recent trend within IB&IM to

consider multinationals within the context of developing nations (Li, 2007). The

current global economic and social conditions ‘link countries more effectively than we

have seen in the past’ (Oviatt & McDougall, 1994, p52) and the opportunity now

presents itself to explore new markets which have previously been unexplored. This

creates a different conceptualisation of how multinationals may institutionalise such

markets, the consideration of a lack of infrastructure in some developing markets,

demonstrates further considerations that firms make which make have not been

address by previous theories (Li, 2007; Luo, 2004, 2005).

Another influence of the study of multinationals when considering developing

countries is the additional perspective gained from analysing MNC’s within such

contexts. The approach taken and the reasons that compel organisations to

internationalize within emerging economies provide new insight and perspective

within varying elements of multinationals research. The opportunity for MNCs from

emerging economies to gain access to infrastructure, technology and knowledge from

developed nations is recognised as a compelling argument for foreign direct

investment (FDI) from developing countries (Li, 2007; Luo, 2004).

3.0 Varying Paradigms within the formation of Multinationals

3.1 Internalization Approach & Eclectic Paradigm

The internalization theory was first the work of Buckley & Casson, 1976, McManos,

1972 & Hennart, 1982*2, and along with the consideration of markets and hierarchies,

the development of Williamson’s (1975) organisational theory was identified as the

‘second genesis’ of internalization theory (Rugman, 1986). Williamson’s (1975)

‘Organisational Failure Framework’ had the key features of internalization and

Transaction-Cost-Economic (TCE) analysis and whilst his studies were not directly

Buckley & Casson, 1976, McManos, 1972 & Hennart, 1982*2 as cited in Rugman, 1986, p79



applied to MNCs at the time of conception (Rugman, 1986), references to the

‘Williamsonian-TCE approach’ have continued to permeate within research of

multinationals since (Johanson & Vahlne, 1977; Rugman, 1986; Verbeke, 2003).

Dunning (1987) also considered internalization in his conception of MNC’s within the

field of IB&IM as an explanation for the process of internationalising operations of

firms. Dunning (1987) initially developed the Ownership-Location-Internalisation (OLI)

Model framework in 1975, however he has continued to revise, analyse and apply this

framework in a number of the following articles and review (Dunning, 1987, 1988,

1995, 2001; Dunning & Bansal, 1997; Dunning & McQueen, 1981).

The dominant aspect of the research is highly debated analysed and criticized

within the field of IB&IM, Dunning (1987) made a restatement of his eclectic paradigm

after developing his initial model in 1975 which has also been widely criticised within

the IB&IM field of research (Li, 2007), numerous authors have accused Dunning of

being too vague. Despite criticisms of the approach the eclectic paradigm is still

referenced in a number of forms within the study of multinationals in the field of

IB&IM (Kim & Hwang, 1991).

Li (2007) highlights two key concerns which arose from the OLI model, firstly the

OLI models ‘primary focus on the reduction of transaction cost or exchange risk and

the exploitation of ex post new advantages via the mode of alliances’ (p298). Li (2007)

states focus should be on ‘the enhancement of transaction values or exchange

opportunity and exploration of ex post new advantages via the mode of alliances’

(p298), Secondly, Li (2007) criticises the OLI model for its ‘focus on stage of

equilibrium (p298), which underlies the model which a static basis. In the current

global economy, change is an integral part of the business environment, the

disadvantage of a static model is obvious and consideration needs to be made for a

dynamic process (Johanson & Vahlne, 1977).

The eclectic model has not only been utilised to understand the evolution of

multinationals but also crosses over a number of other areas, Agarwal & Ramasawi

(1991) assessed the independent and joint influences of the OLI model factors on the

choice of entry mode to be undertaken by multinationals. Despite criticisms of the



approach and eclectic paradigm is still referenced in a number of forms within the

study of multinationals in the field of IB&IM (Becker-Ritterspach, 2006; Kogut &

Zander, 1993).

3.2 LLL Model and Alternative Approaches

The tradition conditions recognised as the stages of evolution of multinationals

believe firms only evolve over a period of domestic maturation and home market

saturation (Caves, 1982; Oviatt & McDougall, 1994), this perspective however, fails to

recognise the alternative conditions under which multinationals evolve. The

environment within which these concepts were traditionally developed is considerably

different to the one within which organisations operate today, the influence of social,

economic and technological advances alone create a much more dynamic context

(Oviatt & McDougall, 1994). Johanson & Vahlne’s (1977) model presented

internalisation in a dynamic model, where the outcome of one decision constitutes

the input for the one next (p26).

Li (2007) refers to this area of research as ‘the extant MNE theories’ (p296), they

are still relevant within the study of multinationals in IB&IM, however they do not tell

the whole story as discussed above. Li (2007) recognised the value of the eclectic

model and states that ‘too little appreciation has been made of its strengths’, choosing

to refer to the model as incomplete (p297). The relevance of a difference between

latecomer (for example; firms from emerging economies) and newcomer

multinationals has been widely debated with some theorists believing the relevance is

critical (Mathews, 2006) and others argue the difference is irrelevant. In recent years

more theorist and researches have begun to question the validity of ‘extant MNE

theories’ for the overall study of MNCs as the environment and nature of them

continue to change (Covellio, 2006; Hill, Hwang, & Kim, 1990).

Mathews (2007) has attempted to develop an alternative framework to Dunning’s OLI

model which considers the context and perspective of firms from emerging economies

with he terms “Dragon Multinationals”. He argues that ‘international expansion is

driven by Resource Linkage, Leverage and Learning’ providing a basis for the LLL



framework (Mathews, 2006, p18). The LLL framework’s outward orientation is the

polar opposite of Dunning’s OLI framework with an internal focus; Li (2007) argues

that an integrated framework is required (p296).

4.0 Discussion

The recent trend to consider multinationals from varying perspectives is a positive

direction if researchers want to understand the complex and dynamic environment of MNCs

in the current global environment. As technological advance and globalisation of the world

markets continue to develop the requirements for conceptualizing this environment also

become more complicated. Continued contributions from emerging economies, such as

China and India, into the field of IM&IB research would be of particular benefit to

researchers of multinational’s, the field of IB&IM literature and the global economic

community as a whole.

5.0 Conclusions

The manner in which multinationals have been considered depends on the perspective

or approach adopted by the academic, considerations from both an economic and political

perspective appear to be the most widely adopted dimensions (Dunning, 1987; R. W.

Williamson, 1975). There is a limited amount of literature which had adopted a social or

organisational theoretical perspective and Dörrenbächer & Geppert (2006) article calls for

further contribution within these dimensions. The contribution made to this understanding

and research from the internationalisation of firms within emerging economies has

particular significance for the study of multinationals within the fields of IB&IM.

One of the predominate aspects of consideration within the study of MNC’s is the

conceptualisation of their origins and evolution, Internalisation theory (O. E. Williamson,

1975) and eclectic paradigm (Dunning, 1987) are methodology commonly referred to within

this area of study. Both have been widely criticised for a number of reasons within the fields

of IB&IM and considered ‘extant MNC theories’ (Li, 2007), yet their relevance on some level

has remained and have been utilised in a number of reanalyses and review in current



literature (Johanson & Vahlne, 1977; Mathews, 2006; Rugman, 1986; Verbeke, 2003). In

order to ensure that the environment presented within which multinationals operate is

accurately considered in IB&IM research and literature, the continued contributions from

nations which differ to those commonly conceptualised, needs to be encouraged and

appreciated (Li, 2007; Luo, 2004, 2005).

References

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