Edith Penrose and a learning-based perspective on the MNE and OLI (1).
| Verfasser | Pitelis, Christos |
| Posten | Multinational enterprise, ownership, location, internalization |
Abstract and Key Results
* We apply insights from Edith Penrose's work to extant theory of the multinational enterprise (MNE) as enveloped by John Dunning's Ownership, Location, Internalization (OLI) Paradigm.
* We suggest that Penrose's knowledge/learning-based approach has important implications on the nature of, and the interactions between, O, L and I, and it helps endogenize and integrate the three elements of Dunning's triad in the context of a dynamic, and strategic perspective of the MNE.
* More importantly, a learning-based perspective adds a cognitive dimension to the MNE and OLI.
* This supports a forward looking, synchronic decision making view, that may lead to apparently sub-optimal decisions, taken in view of anticipated changes, alongside strategic behaviour, aiming to effect such change, once decisions have been reached.
* A Penrosean-inspired knowledge/learning-based perspective helps render the OLI more dynamic, strategic and forward looking.
Key Words
Penrose, Learning, MNE, OLI
Introduction
The purpose of this paper is to follow-up and apply insights from Edith Penrose's work to extant theory of the MNE, as enveloped, in particular, by John Dunning's (1977, 1988, 2000, 2003) Ownership, Location, Internalization (OLI) perspective. We claim that Penrose's insights have implications on the nature of O, L and I, and the interactions between the three. They serve as a means of endogenizing and integrating all three elements in the context of a dynamic and strategic perspective of the MNE. In so doing, the learning perspective responds to earlier critiques of the OLI as discussed by Dunning (2001). Moreover, it adds a cognitive dimension and leads to a more forward looking entrepreneurial perspective on the OLI and the MNE.
In the second section we cover briefly existing contributions to the MNE, focusing on the OLI as their envelope. The third section discusses Penrosean insights of relevance to extant theory, proposes a knowledge/learning-based interpretation of OLI, and discusses its implications on earlier critiques, and modern accounts of the OLI. The fourth section contains concluding remarks and implications for managerial practice.
Theory of the MNE and the OLI
The theory of the MNE dates back to Stephen Hymer's PhD dissertation, completed in 1960, and published in 1976. A reason Hymer is arguably the father-figure of the theory of the MNE is that he is the first scholar who posed the question why foreign direct investment (FDI), vis-a-vis alternative modalities of what he called 'foreign operations', like licensing, tacit collusion, joint ventures, etc (2). Accordingly, Hymer posed the questions 'why internalize', for the case of the MNE, much in line with Coase's (1937) similar question for the national firm (3).
Hymer attributed the benefits of FDI to the advantages of the control it conferred to firms. He proposed two major reasons for the choice of FDI, as well as a third, less important one. 'Removal of conflict' between firms in international markets, and the exploitation of the monopolistic advantages of firms were the two major reasons. 'Risk diversification' was the third (less important one because it did not confer control). Through FDI firms could both reduce the forces of rivalry in international markets, and exploit their monopolistic advantages better than through the open market. That was possible for numerous 'market failure' (or intra-firm success)-related reasons, to include the avoidance of bilateral oligopoly, difficulties of finding licensees in foreign countries, honest or dishonest differences in the perceptions of the value of the advantage, etc. All these have predated more recent literatures, as documented conclusively in Casson (1990), Horagushi and Toyne (1990), Pitelis (2002), and Dunning and Pitelis (2004).
While the Coasean question 'why internalize', was already present in 1960, Hymer pursued explicitly Coase's arguments in a 1968 article. He also quoted Coase in Hymer 1970 and 1972 (4). Post-Hymer developments of the MNE zeroed on down the 'why internalize the advantages' question. Various important contributions emphasized different reasons. Buckley and Casson (1976) focused on the public good character of 'intangible assets', which are susceptible to 'market failure' if they are not exploited internally, while Williamson (1981) stressed post-contract hold-ups, in the case of 'opportunistic' licensees and investments in specific assets.
Post-Hymer 'internalization' theorists did not address the issue of location. Dunning (1958) had done so, and indeed Hymer discussed locational factors under various guises, for example, exploitation of foreign assets, better demand conditions abroad etc., see Dunning and Pitelis (2004). Location is most crucial, indeed a sinequa-non or the theory of the MNE (Dunning 1998). One reason is that, in effect, most questions on the MNE are also applicable for the case of non-MNEs. Penrose (1987) criticized both Hymer-type and Coase-type application to the theory of the MNE, for failing to distinguish between intra-country and inter-national expansion. For inter-country expansion the crucial issue of course, is the investment in different countries. This is a locational issue. In addition, it is an issue that involves location under different regulatory jurisdictions. In this context, the whole debate on why MNEs can usefully be subdivided to three sub-questions. First, why internationalization. Second, why integration/internalization. Third, which location, to include which country.
In Hymer (1976, 1970, 1972) why internationalization (why foreign operations in his words) is explained in terms of push and pull factors, such as external market opportunity, product life cycle considerations, and differential demand conditions (e.g. mature domestic markets) (see Pitelis 2002a). Such considerations, especially when viewed in line with other 'locational' considerations by Hymer (see Dunning/ Pitelis 2004) also provide an indirect answer to the question 'which country' (in contrast to Penrose's critique). Instead, the 'internalization school' did not focus on the questions 'why internationalization' and 'which country/location'. It is John Dunning's OLI that envelopes all three aspects. In the OLI, O stand for Ownership advantages specific to the firm (which need not be monopolistic, but could also be due to efficiency). L stands for Locational advantages, and I for Internalization advantages. The main idea is that given O, L will explain the choice of location, and I the choice of modality. In terms of our questions, L explains 'which country' (and up to a point 'why internationalization') and I, why internalization. O is a necessary (but not sufficient) condition for both 'internationalization' and 'internalization'.
OLI has served and is serving an important role in the literature in part because of its paradigmatic nature, and in part because of the agility and ability of its proponents to incorporate new ideas and developments, as well as to propose new ones, see, for example, Dunning (2000, 2005) (5). As Dunning (2001) points out, it is arguable that in its early manifestation in the OLI, has paid limited attention to the endogeneity of advantages, in particular the link between intra-firm knowledge generation, O advantages and their relation to L, and I advantages--and thus (up to a point) the OLI underplayed the firm as a strategic actor (6). Moreover, and similar to the internalization theories, the quasi-exogeneity of O, L and I also implied that the framework could benefit from a more dynamic, strategic and intra-firm knowledge-based foundation. (7) We contend that Penrose's...
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