Transnationality and Financial Performance in the Era of the Global Factory

Drawing on the core notions of knowledge augmentation and rational choice in internalization theory, the paper develops a theoretical framework to examine the relationship between transnationality and financial performance in the era of the global factory, and tests hypotheses against recent experience of leading transnational enterprises. The paper rejects a direct relationship between transnationality and financial performance, and supports a mediation model in which knowledge-based assets mediate the relationship between transnationality and financial performance conditional on R&D intensity. In making decisions on the transnationality of a firm, managers should not focus on whether it helps the firm achieve direct financial benefits because these are quickly offset by the costs in a competitive environment. Instead, they should focus on whether it helps the firm enhance knowledge-based assets and, through it, financial gains that can be long-lasting, and whether it is supported by R&D to augment such assets

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

The theory of international business: the role of economic models

This paper reviews the scope for economic modelling in international business studies. It argues for multi-level theory based on classic internalisation theory. It present a systems approach that encompasses both firm-level and industry-level analysis

Externalities in Global Value Chains: Firm Solutions for Regulation Challenges

Research summary Negative externalities in global value chains (GVCs) create challenges for regulation. We establish conditions under which firms are more likely to adapt their GVCs to rectify negative externalities that occur at global scale. Firms in GVCs vary in relation to their active involvement in attending to negative externalities in a predictable way, according to their awareness (A) of these externalities, motivation (M) to address them, and the capability (C) to do so. Firms in GVCs can self-correct imperfections by strategy changes, or new firms can be recruited into the GVC with the awareness, motivation, and the capability to attend to negative externalities. National governments may find these externalities to be a significant policy challenge, particularly when they extend across national jurisdictions. Managerial summary Private mechanisms, through firm strategy or new entrants into an industry, can address negative externalities created in GVCs. The agency of GVC members is crucial in self-correction via awareness, driven by GVC integration; motivation to act, driven by GVC accountability; and the capability to implement the necessary changes, driven by GVC leadership. GVCs with more exchanges of knowledge and information among members will be more aware of the costs they generate on third parties. GVCs with members who are more involved with stakeholders and who prioritize CSR will have greater motivation to attend to their externalities, and larger GVCs that span national borders, dominated by a strong member, may be more capable of having greater influence on the externalities the GVC creates

Host country risk and foreign ownership strategy: Meta-analysis and theory on the moderating role of home country institutions

Empirical evidence for the relationship between host country risk and a firm’s ownership level in its foreign entry strategy is inconclusive. We revisit this relationship by integrating the internalisation logic with an institution-based view to examine the moderating effects of formal and informal institutions in the home country. By meta-analysing 64 empirical studies involving 52,229 ownership decisions on foreign market entry, this study gives support to theoretical arguments that the focal relationship is positively moderated by institutional constraints on policymakers and risk-taking tendencies in the home country but is negatively moderated by the joint effect of these two institutional factors. These findings shed new light on the literature of host country risk and foreign ownership strategy. Besides describing the implications of the findings for theory and practice, we discuss the agenda for future theory development in international business

A retrospective and agenda for future research on Chinese outward foreign direct investment

Our original paper “The determinants of Chinese Outward Foreign Direct Investment” was the first theoretically based empirical analysis of the phenomenon. It utilised internalisation theory to show that Chinese state-owned firms reacted to home country market imperfections to surmount barriers to foreign entry arising from naivety and the lack of obvious ownership advantages, leveraging institutional factors including favourable policy stimuli. This special theory explained outward foreign direct investment (OFDI) but provided surprises. These included the apparent appetite for risk evinced by these early investors, causing us to conjecture that domestic market imperfections, particularly in the domestic capital market, might be responsible. The article stimulated a massive subsequent, largely successful, research effort on emerging country multinationals. In this Retrospective article we review some of the main strands of research that ensued, for the insight they offer for the theme of our commentary. Our theme is that theoretical development can only come through embracing yet more challenging, different, and new contexts, and we make suggestions for future research directions

Understanding the Processes underlying Inter-firm Collaboration: Mutual-forbearance and the Principle of Congruity

This paper makes a theoretical innovation by integrating two key principles – mutual forbearance and the principle of congruity – into one general process model. It examines the micro‐mechanisms underlying the formation of a mutual‐forbearance agreement and explicates the role of time and of individual actions. We further understanding of the process of cooperation building by drawing a parallel between early stages of the formation process of mutual forbearance and cooperation, and argue that mutual forbearance may, under certain conditions, lead to long‐term cooperation or, if mismanaged, completely smother any chances of it. A prospective agreement may be put at risk when potential contributions are evaluated differently by each party and no action to mitigate the consequences is taken; even more so in a mutual‐forbearance context when the parties can only observe their counterparts’ actions through the market. Our model takes into account the micro‐mechanisms associated with the time between the actions of one entity/individual (e.g. the top manager) and the reaction of another entity/individual, the boundary conditions of the background to those actions and the alternative actions available during this time. Propositions for further exploration and implications are drawn

Decision-making in international business

This paper distinguishes three domains of international business theory: the boundaries of the multinational enterprise, the external environment of the enterprise and its internal structure. The central concern of internalisation theory is the boundaries of the firm. Any general theory of international business must analyse the external environment and internal structure as well. Competition dominates the external environment whilst co-operation dominates internal structure. Different models of decision-making are required for each. Different theories of decision-making must therefore be integrated in order to transform internalisation theory into a general theory of international business. This paper examines how this can be done

Parks and Tourism

To protect biodiversity, parks agencies need political and financial support. Recreational visitors can bring both, but commercial tourism carries risks

Triggering micronovae through magnetically confined accretion flows in accreting white dwarfs

Rapid bursts at optical wavelengths have been reported for several accreting white dwarfs, where the optical luminosity can increase by up to a factor 30 in less than an hour fading on timescales of several hours, and where the energy release can reach ≈1039 erg (“micronovae”). Several systems have also shown these bursts to be semi-recurrent on timescales of days to months and the temporal profiles of these bursts strongly resemble those observed in Type-I X-ray bursts in accreting neutron stars. It has been suggested that the observed micronovae may be the result of localised thermonuclear runaways on the surface layers of accreting white dwarfs. Here we propose a model where magnetic confinement of the accretion stream on to accreting magnetic white dwarfs may trigger localised thermonuclear runaways. The proposed model to trigger micronovae appears to favour magnetic systems with both high white dwarf masses and high mass-transfer rates