Kogut and Zander's Theory of Evolutionary Theory Versus Internationalization Theory
Introduction
There are many theories given by different group of researchers about the existence of multinational enterprises or MNE's. According to John Cantwell, it was in the 1970's and 1980's that many theories on MNE's were proposed. These theories were either general theories of MNE's which were called the main institution for international production or the theories on foreign direct investment, the means by which international production is done ( Pitelis, Christos N. and Sugden, Roger, The nature of the Transnational firm, Pg 10). Amongst the most famous are the Hymer's theory of international production, the internalization theory put forward by Buckley and Casson, Dunning's Eclectic Paradigm, and the evolutionary theory given by Kogut and Zander. Hymer's theory is based on the assumption of market failure and market imperfection and he argues that firms internationalize to increase their market power. The internalization theory is based on transaction costs and market imperfection. Dunning's eclectic paradigm explains the nature of MNE's as to why and when firm decides internationalize or setup production abroad. Evolutionary theory is based on the knowledge and resource based view of the firm (Dr. Ramirez, Paulina, lecture 2, International Business Theories).
Here we will discuss the main issues of the internalization theory given by Buckley and Casson and the evolutionary theory given by Kogut and Zander and compare the two theories. To understand these theories lets first discuss what are MNE's?
Multinational Enterprises as the name suggests are firms that own assets and has operations in more than one country. An equity capital stake of 10% or more or voting power is the threshold for control of assets (UNCTAD WIR 2005, Pg 297). There are about 60,000 MNE's across the world as identified by United Nations but the biggest 500 of them account for 80% of the total foreign direct investment (Rugman, Alan M. and Hodgetts, Richard M.,
There are many theories given by different group of researchers about the existence of multinational enterprises or MNE's. According to John Cantwell, it was in the 1970's and 1980's that many theories on MNE's were proposed. These theories were either general theories of MNE's which were called the main institution for international production or the theories on foreign direct investment, the means by which international production is done ( Pitelis, Christos N. and Sugden, Roger, The nature of the Transnational firm, Pg 10). Amongst the most famous are the Hymer's theory of international production, the internalization theory put forward by Buckley and Casson, Dunning's Eclectic Paradigm, and the evolutionary theory given by Kogut and Zander. Hymer's theory is based on the assumption of market failure and market imperfection and he argues that firms internationalize to increase their market power. The internalization theory is based on transaction costs and market imperfection. Dunning's eclectic paradigm explains the nature of MNE's as to why and when firm decides internationalize or setup production abroad. Evolutionary theory is based on the knowledge and resource based view of the firm (Dr. Ramirez, Paulina, lecture 2, International Business Theories).
Here we will discuss the main issues of the internalization theory given by Buckley and Casson and the evolutionary theory given by Kogut and Zander and compare the two theories. To understand these theories lets first discuss what are MNE's?
Multinational Enterprises as the name suggests are firms that own assets and has operations in more than one country. An equity capital stake of 10% or more or voting power is the threshold for control of assets (UNCTAD WIR 2005, Pg 297). There are about 60,000 MNE's across the world as identified by United Nations but the biggest 500 of them account for 80% of the total foreign direct investment (Rugman, Alan M. and Hodgetts, Richard M.,
References: • Kogut, B and Zander U., Knowledge of the firm and evolutionary theory of multinational enterprises, Journal of International Business Studies, 2003. • Tallman, S., The significance of Bruce Kogut 's and Udo Zander 's article, 'Knowledge of the firm and evolutionary theory of the multinational corporation ', Journal of international business studies, Volume 34, No. 6, (Nov.2003). • McFetridge, Donald G., Knowledge, Market failure, and the multinational enterprise: A comment. Journal of international business studies, Volume 26, No. 2, (2nd quarter, 1995). • Love, James H., Knowledge, Market failure, and the multinational enterprise: A comment: A theoretical note. Journal of international business studies, Volume 26, No. 2, (2nd quarter, 1995).