Internalisation Theory and outward direct investment by emerging market multinationals

The rise of multinational enterprises from emerging countries (EMNEs) poses an important test for theories of the multinational enterprise such as internalisation theory. It has been contended that new phenomena need new theory. This paper proposes that internalisation theory is appropriate to analyse EMNEs. This paper examines four approaches to EMNEs—international investment strategies, domestic market imperfections, international corporate networks and domestic institutions—and three case studies—Chinese outward FDI, Indian foreign acquisitions and investment in tax havens—to show the enduring relevance and predictive power of internalisation theory. This analysis encompasses many other approaches as special cases of internalisation theory. The use of internalisation theory to analyse EMNEs is to be commended, not only because of its theoretical inclusivity, but also because it has the ability to connect and to explain seemingly desperate phenomena

Responding to capital flows in a very small economy

Speculative capital inflows raised the exchange rate and stock prices in Iceland in the prelude to the financial turmoil that gripped the country in 2008. Speculators profited from the interest differential as well as the continued appreciation of the currency from 2004 to 2008 and the rise of stock prices. The inflow was not sustainable because domestic debt was increasing at an unsustainable pace, faster than the rate of interest. Investors attempted to leave the krona when international capital markets became unstable in 2008 and the foreign risk premium rose. The sudden stop of the inflows left most domestic businesses in technical default as well as many households, the banks collapsed and the currency lost half its value. Capital controls were imposed to stem the outflow. Now seven years later, capital controls are being relaxed and the inflow of speculative capital has started again. The paper describes the macroprudential regulations that have been passed in recent years and the possible ways the authorities could reduce the inflows or change their nature from short-term to long-term investment. The issue whether a very small economy can have a floating exchange rate and a free flow of capital is discussed

The internalisation theory of the multinational enterprise: a review of the progress of a research agenda after 30 years

This paper reviews the progress of the research agenda initiated by The Future of the Multinational Enterprise (1976). Focusing initially on the problem of explaining the existence of the multinational enterprise, the agenda soon broadened to encompass the analysis of alternative modes of foreign market entry, the role of international joint ventures, the impact of innovation on corporate growth, and the role of culture in international business. The core philosophy – based on the Coasian nature of the firm and on rational action modelling – has remained constant, while the widening range of applications has encouraged synthesis with theories developed in other fields of research. Success in answering any one question invariably generates new questions, which must in turn be answered through a further extension of the theory, and this dynamic continues to drive the development of the theory today. Internalisation theory has retained its validity and its vitality over the past 30 years, and is currently being extended into new fields of international business research