The Penrose Effect: 'Excess' Expatriates in Multinational Enterprises

Zusammenfassung

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Penrose's (1959) theory of firm growth argues that firm knowledge and experience gives rise to "excess" resources which can be (re)deployed to explore and exploit productive opportunities leading, ultimately, to the achievement of firm goals. This key insight on organizational slack in the context of expatriate managers within multinational enterprises (MNE) was examined. Expatriates are not only a viable way of examining the Penrosian concept of slack but, as an unique element of MNE management, expatriates also provide an opportunity to develop new insights into international business theory. Using a large sample of MNE subsidiaries, it was found that when host country experience is comparatively low, subsidiaries with "excess" expatriate managers are more likely to experience inferior performance. Alternatively, expatriate slack is associated with a higher likelihood of superior performance in the context of comparatively high host country experience.

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Auszug

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The Penrose Effect: 'Excess' Expatriates in Multinational Enterprises

Penrose (1959) has become a central source of emerging ideas in the study of strategic management. While the debate as to her intended versus ascribed views continues (cf. e.g., Kor/Mahoney 2004, Lockett/Thompson 2004, Rugman/Verbeke 2004), there is a consensus that Penrose (1959) has inspired a powerful set of concepts on the relationship between intrafirm learning, the source(s) of competitive advantage, and firm performance that are useful in the analysis of MNEs (Pitelis 2002).

One of Penrose's (1959) key insights is that learning through experience causes managers to become more efficient at what they do. Thus, rising efficiency causes previously utilized managerial resources to become "slack," although not idle, and these "unused productive services are, for the enterprising firm, at the same time a challenge to innovate, an incentive to expand, and a source of competitive advantage" (Penrose 1959, p. 85). In fact, Penrose (1959, p. 45) argued that the "capacities of the existing managerial personnel of the firm necessarily set a limit to the expansion of the firm" in any given period - a bottleneck sometimes referred to as the "Penrose effect."

Kor and Mahoney (2000) provide an extensive unbundling of Penrose's model of firm growth, suggesting that firm growth is a function of firm-specific experiences in teams, that managerial capability is the binding constraint that limits the growth rate of the firm, and that excess capacity of productive services are drivers of firm growth. More specifically, these authors suggest several key questions, inspired by Penrose's work, that relate to the ways in which human resources influence a firm's growth and competitive advantage, the conditions under whi...

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