Knowledge, Market Failure and the Multinational Enterprise: A Theoretical Note

Abstract

This article offers a critique and extension of recent work by Bruce Kogut and Udo Zander. Kogut and Zander are correct to argue that opportunism is unnecessary to explain the existence of the multinational, but wrong to infer that this indicates an absence of market failure. They have identified an important class of transaction costs and market failure which arises in the absence of opportunism, but do not cat doubt on the market failure approach to the theory of the multinational. Their argument that they have identified an important source of ‘ownership’ advantage is unconvincing and is not supported by the empirical evidence. However, Kogut and Zander's work is of considerable significance, but in areas different from those that they highlight.