Skip to main content
SpringerLink
Log in

Down with MNE-centric theories! Market entry and expansion as the bundling of MNE and local assets

  • Article
  • Published:
Journal of International Business Studies Aims and scope Submit manuscript

Abstract

Both Anderson and Gatignon and the Uppsala internationalization model see the initial mode of foreign market entry and subsequent modes of operation as unilaterally determined by multinational enterprises (MNEs) arbitraging control and risk and increasing their commitment as they gain experience in the target market. OLI and internalization models do recognize that foreign market entry requires the bundling of MNE and complementary local assets, which they call location or country-specific advantages, but implicitly assume that those assets are freely accessible to MNEs. In contrast to both of these MNE-centric views, I explicitly consider the transactional characteristics of complementary local assets and model foreign market entry as the optimal assignment of equity between their owners and MNEs. By looking at the relative efficiency of the different markets in which MNE and complementary local assets are traded, and at how these two categories of assets match, I am able to predict whether equity will be held by MNEs or by local firms, or shared between them, and whether MNEs will enter through greenfields, brownfields, or acquisitions. The bundling model I propose has interesting implications for the evolution of the MNE footprint in host countries, and for the reasons behind the emergence of Dragon MNEs.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Figure 1
Figure 2
Figure 3
Figure 4

Similar content being viewed by others

Notes

  1. This is not strictly true in the case of Rugman (1981), who models the evolution of entry modes on the relative cost of exporting, licensing, and running foreign operations. Owners of local complementary factors play a limited role in that model, since the cost of licensing is that of running the risk of having the licensee resell the licensor's knowledge to third parties.

  2. In the 1970s and 1980s a number of authors, such as Oman (1984), argued that contractual arrangements between MNEs and host countries could always advantageously substitute for equity control by MNEs. Hennart (1989) argues against this point of view.

  3. Bartlett and Ghoshal (1986) argue that EMI's over-centralized and UK-centric organizational structure explains why it was late in recognizing GE's threat and in setting up an adequate distribution system in the US.

  4. The reasoning is similar to the property rights theory of vertical integration, which discusses the allocation of residual rights of control (Grossman & Hart, 1986; Hart & Moore, 1990). In fact, it makes sense for residual claimancy and residual rights of control to be aligned. I thank an anonymous referee for help on this point.

  5. On the premise that “possession is nine-tenths of the law.”

  6. One could argue, however, that in an EJV both parents impose behavioral rules on each other, and that in that sense they are hybrids. I am indebted to an anonymous referee for this insight.

  7. Leasing a brand is also possible, but the lessee runs the risk that some of the goodwill investments it makes to build the brand will be held up by the lessor at contract renewal time.

  8. In contrast to Anderson and Gatignon (1986) and Johanson and Vahlne (1977), who model the switch from licensing to EJVs to WOSs, both Rugman (1981) and Buckley and Casson (1981) model the evolution from exports to licensing and to foreign production, but do not consider EJVs. For the sake of comparability I focus on the comparison between the first two theories and my model

  9. Morck et al. (2008) argue along similar lines, but for them equity ends up being vested in Chinese firms because their skills in manufacturing and cost control are less contractible and more crucial to creating value than the MNE's technology or brand names.

  10. Wal-Mart's initial entry into Germany was through the acquisition of 21 Wertkauf stores and 74 Interspar hypermarkets, but these acquisitions were insufficient to provide the volume Wal-Mart needed to be profitable (Verbeke, 2009).

References

  • Ahmed, Z., Mohamad, O., Tan, B., & Johnson, J. 2002. International risk perceptions and mode of entry: A case study of Malaysian multinational firms. Journal of Business Research, 55 (10): 805–814.

    Article  Google Scholar 

  • Alchian, A., & Allen, W. 1977. Exchange and production: Competition, coordination, and control, (2nd ed.) Belmont: Wadsworth.

    Google Scholar 

  • Anderson, E., & Coughlan, A. 1987. International market entry and expansion via independent or integrated channels of distribution. Journal of Marketing, 51 (1): 71–82.

    Article  Google Scholar 

  • Anderson, E., & Gatignon, H. 1986. Modes of foreign entry: A transaction cost analysis and propositions. Journal of International Business Studies, 17 (3): 1–26.

    Article  Google Scholar 

  • Arora, A., & Fosfuri, A. 2000. Wholly owned subsidiary vs technology licensing in the worldwide chemical industry. Journal of International Business Studies, 31 (4): 555–572.

    Article  Google Scholar 

  • Arora, A., & Gambardella, A. 1998. Evolution of industry structure in the chemical industry. In A. Arora, R. Landau & N. Rosenberg (Eds), Chemicals and long-term economic growth: 379–414. New York: John Wiley.

    Google Scholar 

  • Arora, A., Fosfuri, A., & Gambardella, A. 2001. Markets for technology and their implications for corporate strategy. Industrial and Corporate Change, 10 (2): 419–451.

    Article  Google Scholar 

  • Barkema, H., & Vermeulen, F. 1998. International expansion through start-up or acquisition: A learning perspective. Academy of Management Journal, 41 (1): 7–26.

    Article  Google Scholar 

  • Bartlett, C., & Ghoshal, S. 1986. Tap your subsidiaries for global reach. Harvard Business Review, 64 (6): 87–94.

    Google Scholar 

  • Barzel, Y. 1989. Economic analysis of property rights. Cambridge: Cambridge University Press.

    Google Scholar 

  • Boerner, C., & Macher, J. 2003. Transaction cost economics: An assessment of empirical work in the social sciences. Working Paper, Georgetown University.

  • Brannen, M., Liker, J., & Fruin, W. M. 1999. Recontextualization and factory-to-factory knowledge transfer from Japan to the United States: The case of NSK. In J. Liker, W. M. Fruin & P. Adler (Eds), Remade in America: 117–153. New York: Oxford University Press.

    Google Scholar 

  • Brickly, J., & Dark, F. 1987. The choice of organizational form: The case of franchising. Journal of Financial Economics, 18 (2): 401–420.

    Article  Google Scholar 

  • Brouthers, K. 1995. The influence of international risk on entry mode strategy. Management International Review, 35 (1): 7–28.

    Google Scholar 

  • Brouthers, K., & Hennart, J.-F. 2007. Boundaries of the firm: Insights from international entry mode research. Journal of Management, 33 (3): 395–425.

    Article  Google Scholar 

  • Brouthers, K., Brouthers, L., & Werner, S. 2003. Transaction cost-enhanced entry mode choices and firm performance. Strategic Management Journal, 24 (12): 1239–1248.

    Article  Google Scholar 

  • Buckley, P., & Casson, M. 1976. The future of the multinational enterprise. London: Macmillan.

    Book  Google Scholar 

  • Buckley, P., & Casson, M. 1981. The optimal timing of a foreign direct investment. Economic Journal, 91 (361): 75–87.

    Article  Google Scholar 

  • Caves, R., & Mehra, S. 1986. Entry of foreign multinationals into US manufacturing industries. In M. Porter (Ed.), Competition in global industries: 449–481. Boston: Harvard Business School Press.

    Google Scholar 

  • Chen, H., Qin, H., Ye, G., & Yin, G. 2001. A technology legend in China. Harvard Business School case 9-701-052.

    Google Scholar 

  • Chen, S.-F. 2005. Extending internalization theory: A new perspective on international technology transfer and its generalization. Journal of International Business Studies, 36 (2): 231–245.

    Article  Google Scholar 

  • Chen, S.-F. 2008. The motives for international acquisitions: Capability procurements, strategic considerations, and the role of ownership structures. Journal of International Business Studies, 39 (3): 454–471.

    Article  Google Scholar 

  • Chen, S.-F., & Hennart, J.-F. 1997. When is original equipment manufacture the most efficient way to source foreign-made products? Paper presented at the Academy of International Business Annual Meetings, Monterrey.

  • Chi, T. 1994. Trading in strategic resources: Necessary conditions, transaction cost problems, and choice of exchange structure. Strategic Management Journal, 15 (4): 271–290.

    Article  Google Scholar 

  • Chi, T. 1996. Performance verifiability and output sharing in collaborative ventures. Management Science, 42 (1): 93–109.

    Article  Google Scholar 

  • Das, T. K., & Teng, B. S. 2002. A social exchange theory of strategic alliances. In F. Contractor & P. Lorange (Eds), Cooperative strategies and alliances: 439–460. Amsterdam: Pergamon.

    Google Scholar 

  • Davidson, W., & McFetridge, D. 1984. International technology transactions and the theory of the firm. Journal of Industrial Economics, 32 (3): 253–264.

    Article  Google Scholar 

  • Delios, A., & Beamish, P. 1999. Ownership strategy of Japanese firms: Transactional, institutional, and experience influences. Strategic Management Journal, 20 (10): 915–933.

    Article  Google Scholar 

  • Dunning, J. 1988. The theory of international production. The International Trade Journal, 3 (1): 21–66.

    Article  Google Scholar 

  • Dunning, J., & Lundan, S. 2008. Multinational enterprises and the global economy. Cheltenham: Edward Elgar.

    Google Scholar 

  • Eapen, A. 2007. Essays on international market entry: Strategic alliance governance and product segment entry. PhD Dissertation, Tilburg University.

  • Erramilli, M., & Rao, C. 1993. Service firms’ international entry mode choice: A modified transaction-cost analysis approach. Journal of Marketing, 57 (3): 19–38.

    Article  Google Scholar 

  • Estrin, S., Hughes, K., & Todd, S. 1997. Foreign direct investment in Central and Eastern Europe. London: Pinter.

    Google Scholar 

  • Eswaran, M., & Kotwal, A. 1985. A theory of contractual structure in agriculture. American Economic Review, 75 (3): 352–367.

    Google Scholar 

  • Fan, J., Huang, J., Morck, R., & Yeung, B. 2007. Institutional determinants of vertical integration: Evidence from China, Unpublished manuscript.

  • Gatignon, H., & Anderson, E. 1988. The multinational corporation's degree of control over foreign subsidiaries: An empirical test of a transaction cost explanation. Journal of Law, Economics, and Organization, 4 (2): 305–336.

    Google Scholar 

  • Gaur, A., & Lu, J. 2007. Ownership strategies and survival of foreign subsidiaries: Impacts of institutional distance and experience. Journal of Management, 33 (1): 84–110.

    Article  Google Scholar 

  • Goldstein, A. 2007. Multinational companies from emerging economies. New York: Palgrave.

    Book  Google Scholar 

  • Gomes-Casseres, B. 1989. Ownership structures of foreign subsidiaries: Theory and evidence. Journal of Economic Behavior and Organization, 11 (1): 1–25.

    Article  Google Scholar 

  • Grossman, S., & Hart, O. 1986. The costs and benefits of ownership: A theory of vertical and lateral integration. Journal of Political Economy, 94 (4): 691–719.

    Article  Google Scholar 

  • Gulati, R., & Singh, H. 1998. The architecture of cooperation: Managing coordination costs and appropriation concerns in strategic alliances. Administrative Science Quarterly, 43 (4): 781–814.

    Article  Google Scholar 

  • Hart, O., & Moore, J. 1990. Property rights and the nature of the firm. Journal of Political Economy, 98 (6): 1119–1158.

    Article  Google Scholar 

  • Harzing, A. 2001. Acquisitions versus greenfield investments: International strategy and management of entry modes. Strategic Management Journal, 23 (3): 211–227.

    Article  Google Scholar 

  • Healy, P., & Palepu, K. 1993. International corporate equity acquisitions: Who, where and why? In K. Froot (Ed.), Foreign direct investment: 231–254. Chicago: University of Chicago Press.

    Google Scholar 

  • Hennart, J.-F. 1982. A theory of multinational enterprise. Ann Arbor: University of Michigan Press.

    Google Scholar 

  • Hennart, J.-F. 1988. A transaction costs theory of equity joint ventures. Strategic Management Journal, 9 (4): 361–374.

    Article  Google Scholar 

  • Hennart, J.-F. 1989. Can the ‘new forms of investment’ substitute for the ‘old forms’? A transaction costs perspective. Journal of International Business Studies, 20 (2): 211–233.

    Article  Google Scholar 

  • Hennart, J.-F. 1991. The transaction costs theory of joint ventures: An empirical study of Japanese subsidiaries in the United States. Management Science, 37 (4): 483–497.

    Article  Google Scholar 

  • Hennart, J.-F. 1993. Explaining the swollen middle: Why most transactions are a mix of ‘market’ and ‘hierarchy’. Organization Science, 4 (4): 529–548.

    Article  Google Scholar 

  • Hennart, J.-F. 2000. Transaction costs theory and the multinational enterprise. In C. Pitelis & R. Sugden (Eds), The nature of the transnational, (2nd ed.) 72–118. London: Routledge.

    Google Scholar 

  • Hennart, J.-F., & Park, Y. R. 1993. Greenfield vs. acquisition: The strategy of Japanese investors in the United States. Management Science, 39 (9): 1054–1070.

    Article  Google Scholar 

  • Hennart, J.-F., & Reddy, S. 1997. The choice between mergers/acquisitions and joint ventures: The case of Japanese investors in the United States. Strategic Management Journal, 18 (1): 1–12.

    Article  Google Scholar 

  • Ichikawa, T. 2009. Chairman, Toyo Cotton (Japan) Co. personal interview, Osaka, Japan, 23 March.

  • Ikeda, K. 2007. Deputy general manager, corporate marketing and development division. Sakata Inx, personal interview, Osaka, Japan, 17 May.

  • Inkpen, A., Sundaram, A., & Rockwood, K. 2000. Cross border acquisitions of US technology assets. California Management Review, 42 (3): 50–71.

    Article  Google Scholar 

  • Johanson, J., & Vahlne, J. 1977. The internationalization process of the firm: A model of knowledge development and increasing market commitments. Journal of International Business Studies, 8 (1): 23–32.

    Article  Google Scholar 

  • Johanson, J., & Vahlne, J. 1990. The mechanism of internationalization. International Marketing Review, 7 (4): 11–24.

    Article  Google Scholar 

  • Jones, K. 1991. The dilemma of foreign-affiliated companies: Surviving middle age in Japan. In J. Bleeke & D. Ernst (Eds), Collaborating to Compete: 145–163. New York: Wiley.

    Google Scholar 

  • Kay, N. 1999 (Ed.). Collaborative strategies of firms. The Boundaries of the Firm: 177–198. Basingstoke: Macmillan.

    Chapter  Google Scholar 

  • Kenney, M. 1999. Transplantation? A comparison of Japanese television assembly plants in Japan and the United States. In J. Liker, W. M. Fruin & P. Adler (Eds), Remade in America: 256–293. New York: Oxford University Press.

    Google Scholar 

  • Kenney, M., & Florida, R. 1993. Beyond mass production. New York: Oxford University Press.

    Google Scholar 

  • Kilburn, D. 1994. Borden's hopes melt in Japanese market. Advertising Age, 18 July.

  • Klein, S., Frazier, G., & Roth, V. 1990. A transaction cost analysis model of channel integration in international markets. Journal of Marketing Research, 27 (2): 196–208.

    Article  Google Scholar 

  • Kogut, B. 1988. Joint ventures: Theoretical and empirical perspectives. Strategic Management Journal, 9 (4): 319–332.

    Article  Google Scholar 

  • Kogut, B., & Singh, H. 1988. The effect of national culture on the choice of entry mode. Journal of International Business Studies, 19 (3): 411–432.

    Article  Google Scholar 

  • Kreps, D. 1990. A course in microeconomic theory. Princeton, NJ: Princeton University Press.

    Google Scholar 

  • Levin, R., Klevorick, R., Nelson, R., & Winter, S. 1987. Appropriating the results from industrial research and development. Brookings Papers on Economic Activity, 18 (3): 783–820.

    Article  Google Scholar 

  • Liker, J., Fruin, W. M., & Adler, P. 1999. Bringing Japanese management systems to the United States: Transplantation or transformation? In J. Liker, W. M. Fruin & P. Adler (Eds), Remade in America: 3–35. New York: Oxford University Press.

    Google Scholar 

  • Marinov, M., & Marinova, S. 1998. Investor strategy development and adaptation: The case of Interbrew. European Management Journal, 16 (4): 400–411.

    Article  Google Scholar 

  • Mathews, J. 2002. Competitive advantages of the latecomer firm: A resource-based account of industrial catch-up strategies. Asia Pacific Journal of Management, 19 (4): 467–488.

    Article  Google Scholar 

  • Mathews, J. 2006. Dragon multinationals: New players in 21st century globalization. Asia Pacific Journal of Management, 23 (1): 5–27.

    Article  Google Scholar 

  • Meyer, K., & Estrin, S. 2001. Brownfield entry in emerging markets. Journal of International Business Studies, 32 (3): 575–584.

    Article  Google Scholar 

  • Meyer, K., & Møller, I. 1998. Managing deep restructuring: Danish experiences in Eastern Germany. European Management Journal, 16 (4): 411–421.

    Article  Google Scholar 

  • Millington, A., & Bayliss, B. 1990. The process of internationalization: UK companies in the EC. Management International Review, 30 (2): 151–161.

    Google Scholar 

  • Morck, R., Yeung, B., & Zhao, M. 2008. Perspectives on China's outward foreign direct investment. Journal of International Business Studies, 39 (3): 337–350.

    Article  Google Scholar 

  • Narula, R. 2006. Globalization, new ecologies, new zoologies, and the purported death of the eclectic paradigm. Asia Pacific Journal of Management, 23 (2): 143–151.

    Article  Google Scholar 

  • Oman, C. 1984. New forms of international investment in developing countries. Paris: OECD.

    Google Scholar 

  • Ono, Y. 1991. Corporate divorce, Japanese style. The Globe and Mail, 23 February.

  • Oxley, J. 1997. Appropriability hazards and governance in strategic alliances: A transaction cost approach. Journal of Law, Economics and Organization, 13 (2): 387–409.

    Article  Google Scholar 

  • Padmanabhan, P., & Cho, K. 1996. Ownership strategy for a foreign affiliate: An empirical investigation of Japanese firms. Management International Review, 36 (1): 45–65.

    Google Scholar 

  • Padmanabhan, P., & Cho, K. 1999. Decision specific experience in foreign ownership and establishment strategies: Evidence from Japanese firms. Journal of International Business Studies, 30 (1): 25–44.

    Article  Google Scholar 

  • Pan, Y. 2005. Lenovo: Countering the Dell challenge. Asia Case Research Center case 905-020-1.

    Google Scholar 

  • Pedersen, T., & Thomsen, S. 1997. European patterns of corporate ownership: A twelve-country study. Journal of International Business Studies, 28 (4): 759–778.

    Article  Google Scholar 

  • Rugman, A. 1981. Inside the multinational: The economics of internal markets. New York: Columbia University Press.

    Google Scholar 

  • Rugman, A., & Collinson, S. 2006. International business, (4th ed.) Harlow: Prentice Hall.

    Google Scholar 

  • Rugman, A., & Verbeke, A. 1990. Global corporate strategy and trade policy. London: Routledge.

    Google Scholar 

  • Rui, H., & Yip, G. 2008. Foreign acquisitions by Chinese firms: A strategic intent perspective. Journal of World Business, 43 (2): 213–226.

    Article  Google Scholar 

  • Sanchez-Peinado, E., & Pla-Barber, J. 2006. A multidimensional concept of uncertainty and its influence on the entry mode choice: An empirical analysis in the service sector. International Business Review, 15 (3): 215–232.

    Article  Google Scholar 

  • Silver, M. 1984. Enterprise and the scope of the firm. Oxford: Martin Robertson.

    Google Scholar 

  • Slangen, A., & Hennart, J. F. 2007. Greenfield or acquisition entry: A review of the empirical foreign establishment mode literature. Journal of International Management, 13 (4): 404–429.

    Article  Google Scholar 

  • Teece, D. 1986. Profiting from technological innovation: Implications for integration, collaboration, and public policy. Research Policy, 15 (6): 285–305.

    Article  Google Scholar 

  • Verbeke, A. 2009. International business strategy. Cambridge: Cambridge University Press.

    Book  Google Scholar 

  • Vermeulen, F., & Barkema, H. 2001. Learning through acquisitions. Academy of Management Journal, 44 (3): 457–476.

    Article  Google Scholar 

  • Vernon, R. 1971. Sovereignty at bay. New York: Basic Books.

    Google Scholar 

  • Wei, Y., Liu, B., & Liu, X. 2005. Entry modes of foreign direct investment in China: A multinomial logit approach. Journal of Business Research, 58 (11): 1495–1505.

    Article  Google Scholar 

  • Williamson, O. 1985. The economic institutions of capitalism. New York: Free Press.

    Google Scholar 

  • Williamson, O. 1991. Comparative economic organization: The analysis of discrete structural alternatives. Administrative Science Quarterly, 36 (2): 269–296.

    Article  Google Scholar 

  • Williamson, O. 1996. Economic organization: The case for candor. Academy of Management Review, 21 (1): 48–57.

    Google Scholar 

  • Wright, M., Filatotchev, I., Hoskisson, R., & Peng, M. 2005. Strategy research in emerging economies. Journal of Management Studies, 42 (1): 1–33.

    Article  Google Scholar 

  • Xie, W., & White, S. 2004. Sequential learning in a Chinese spin-off: The case of Lenovo Group Limited. R&D Management, 34 (4): 407–422.

    Article  Google Scholar 

  • Yeung, B., & Mirus, R. 1989. On the mode of international expansion: The role of agency costs in an expanded framework, Unpublished manuscript.

  • Yuasa, K. 1990. Meiji Milk, Borden to end tie. Japan Economic Journal, 23 June.

  • Zeng, M., & Williamson, P. 2007. Dragons at your door: How Chinese cost innovation is disrupting global competition. Boston, MA: Harvard Business School Press.

    Google Scholar 

Download references

Acknowledgements

I owe special thanks to Departmental Editor Alain Verbeke for his guidance. I also thank the three anonymous JIBS referees, Alex Eapen, Tom Roehl, and Manuel Bueno for their useful comments. Valuable comments were also received at seminars at Baruch College, City University of New York, the University of Calgary, the University of Sydney, the University of Newcastle, Hong Kong University of Science and Technology, Keio Business School, and at the Graduate School of International Strategy at Hitotsubashi University. Financial support from the Japan Society for the Promotion of Science, Osaka City University, and the Japan Foundation is gratefully acknowledged.

Author information

Authors and Affiliations

  1. CentER and Department of Organization and Strategy, Tilburg University, The Netherlands

    Jean-François Hennart

Authors
  1. Jean-François Hennart
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Jean-François Hennart.

Additional information

Accepted by Alain Verbeke, Area Editor, 5 March 2009. This paper has been with the author for two revisions.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Hennart, JF. Down with MNE-centric theories! Market entry and expansion as the bundling of MNE and local assets. J Int Bus Stud 40, 1432–1454 (2009). https://doi.org/10.1057/jibs.2009.42

Download citation

  • Received:

  • Revised:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1057/jibs.2009.42

Keywords

Search

Navigation