Skip to main content
SpringerLink
Log in
Book cover

Innovation, Growth and Competitiveness pp 221–234Cite as

A Knowledge: Learning-Based Perspective on Foreign Direct Investment and the Multinational Enterprise

  • Chapter
  • First Online:

Part of the book series: Advances in Spatial Science ((ADVSPATIAL))

Abstract

We apply insights from Edith Penrose’s work to extant theories of Foreign Direct Investment (FDI) and the multinational enterprise (MNE) as developed by John Dunning’s Ownership, Location, Internalization (OLI) Paradigm, to propose a novel knowledge-learning-based theory of FDI and the MNE. We suggest that the knowledge/learning-based approach has important implications with regard to the nature of, and the interactions between, O, L and I, and that it helps endogenize and integrate the three elements of Dunning’s triad in the context of a dynamic, strategic and entrepreneurial perspective of the MNE. The learning-based perspective adds a cognitive dimension to the MNE and OLI. It 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. It also helps explain new strategies of MNEs, which are harder to appreciate within the conventional paradigm.

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

Chapter
USD   29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD   129.00
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD   169.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD   169.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Learn about institutional subscriptions

Notes

  1. 1.

    Earlier contributions to the literature included both Edith Penrose (1956) and John Dunning (1958), indeed Hymer (1976) cites both Dunning and Penrose in his PhD thesis. However, neither Penrose, nor Dunning had posed the question why FDI (intra-firm) versus inter-firm foreign operations.

  2. 2.

    Indeed he even used the verb ‘internalize’ already at the PhD thesis “The firm is a practical devise which substitutes for the market. The firm internalizes or supersedes the market” (Hymer 1976, p. 48).

  3. 3.

    Hymer’s analysis and, even, terminology in this article incorporates most major contributions of the post-Coase transaction costs literature, see Dunning and Pitelis 2008.

  4. 4.

    Dunning (2005), for example, proposes institution-seeking FDI, an idea in line with the knowledge-based perspective.

  5. 5.

    In contrast to some critics, Hymer had examined the historical evolution of O advantages in the context of his “‘law’ of increasing firm size” (Hymer 1972), yet failed to see advantages as a process of endogenous knowledge generation and (thus) firm growth. That task was performed by Penrose (1959) and up to a point by evolutionary models of the MNE, such as Kogut and Zander’s (1993). Despite significant progress in dynamising and extending the OLI (e.g., Dunning 2001), an application of Penrose’s intra-firm knowledge generation dynamic to the OLI has not been attempted before.

  6. 6.

    No detailed explanation of intra-firm advantages generation has been provided in extant Hymer, transaction costs and (thus) early OLI-based theories. The intra-firm focus is specific to Penrose (and subsequent resource-based-view (RBV) scholarship, see, for example, Pitelis 2007a, for a recent account).

  7. 7.

    A way to visualize this possibility is by considering the world as fully integrated-flat. In such a world any restrictive practices by large firms, would tend to lead to monopolistic imperfections, in terms of reduced consumer surplus and innovation, therefore static and intertemporal efficiency (Baumol 1991, 2002). If large firms are tempted to pursue such practices in order to capture value, and if nation states try to help them through strategic trade policies and protectionism to include non-tariff barriers.

  8. 8.

    As discussed in Pitelis (2002a).

  9. 9.

    Although she explicitly distinguished between the firm and the market and discussed the boundaries issue, she went on to focus on growth, not on the issue of the existence per-se.

  10. 10.

    For a speculation as to why, see Kay (1999) and Pitelis (2000).

  11. 11.

    Notably, the observation that the use of managerial time has positive costs (Marris 1999) that TGF fails to deal with issues of intra-firm conflict (Pitelis 2000) and that a number of important assertions by Penrose have yet to be tested (Pitelis 2007a).

  12. 12.

    The nearest she comes in the book to discussing the MNE is the following: “Often the large firms organize their various types of business in separate divisions or subsidiaries” (p. 156).

  13. 13.

    In private discussions. Note also that Richardson (1972) too, pursued this approach. In essence the two terms are synonymous.

  14. 14.

    Also institution-seeking FDI, a more recent important addition to the OLI (Dunning 2005).

  15. 15.

    Being capabilities-based and very Penrosean in nature, this contribution has acquired prominence. Yet both the Penrosean view of vertical integration and Kogut and Zander’s view of the MNE, suffer from a failure to appreciate that differential firm capabilities are tantamount to relative firm superiority on the market (i.e. relative market failure). This also raises the question why - in which context the Hymer/Buckley/Casson/Williamson transaction costs-based explanation is of significance. It is interesting to note that in her case study on the Hercules Powder Company (Penrose 1960) she provides a reason for vertical non-integration of Hercules’ customers and of Hercules, in terms of ‘oligopolistic interaction’ arguments, but also in terms of the superior advantages of specialization of Hercules’.

  16. 16.

    “Firms not only alter the environmental conditions necessary for the success of their actions, even more important, they know that they can alter them and that the environment is not independent of their own activities” (Penrose 1959, p. 42)

  17. 17.

    Our support is consistent with Dunning’s most recent writings on MNEs as agent of institutional change (see Dunning and Lundan 2009).

References

  • Augier M, Teece DJ (2007) Dynamic capabilities and multinational enterprise: Penrosean insights and omission. Manag Int Rev 47:175–192

    Article  Google Scholar 

  • Bartlett CA, Ghoshal S (1993) Matrix management: not a structure, a frame of mind. In: Pucik V, Tichy NM, Barnett CK (eds) Globalizing management. Wiley, New York, pp 107–118

    Google Scholar 

  • Baumol WJ (1991) Perfect markets and easy virtue. Blackwell, Oxford

    Google Scholar 

  • Baumol WJ (2002) The free-market innovation machine: analyzing the growth miracle of capitalism. Princeton University Press, Princeton

    Google Scholar 

  • Buckley PJ, Casson MC (1976) The future of multinational enterprise. Macmillan, London

    Google Scholar 

  • Casson M (1990) ‘Introduction’ to the large multinational corporation by Stephen Hymer. In: Casson M (ed) Multinational corporations. Edward Elgar, Hants

    Google Scholar 

  • Chandler AD (1962) Strategy and structure: chapters in the history of the industrial enterprise. MIT, Cambridge, MA

    Google Scholar 

  • Chesbrough H (2003) Open innovation: the new imperative for creating and profiting from technology. Harvard Business School Press, Boston, MA

    Google Scholar 

  • Coase RH (1937) The Nature of the Firm. Economica 4:386–405

    Article  Google Scholar 

  • Cyert RM, March JG (1963/1992) A behavioral theory of the firm, 2nd edn. Prentice Hall, Englewood Cliffs, NJ

    Google Scholar 

  • Doz Y, Santos J, Williamson P (2001) From global to metanational: how companies win in the knowledge economy. Harvard Business School Press, Boston, MA

    Google Scholar 

  • Doz YL (2004) Toward a managerial theory of the MNC. In: Hitt M, Cheng J (eds) Theories of the multinational enterprise; diversity, complexity and relevance. Elsevier, Amsterdam

    Google Scholar 

  • Dunning JH (1958) American investment in British manufacturing industry. Allen and Unwin, London

    Google Scholar 

  • Dunning JH (1977) Trade, location of economic activity and the MNE: a search for an eclectic approach. In: Ohlin B, Hesselborn PO, Wijkman PM (eds) The international allocation of economic activity. Macmillan, London, pp 395–418

    Google Scholar 

  • Dunning JH (1988) The eclectic paradigm of international production: a restatement and some possible extensions. J Int Bus Stud 19:1–31

    Article  Google Scholar 

  • Dunning JH (1998) Location and the multinational enterprise: a neglected factor? J Int Bus Stud 29:45–66

    Article  Google Scholar 

  • Dunning JH (2000) The eclectic paradigm as an envelope for economic and business theories of MNE activity. Int Bus Rev 9:163–190

    Article  Google Scholar 

  • Dunning JH (2001) The key literature on IB activities:1996-2000. In: Rugman AC, Brewer TL (eds) Oxford handbook of international business. Oxford University Press, Oxford, pp 33–68

    Google Scholar 

  • Dunning JH (2003) The contribution of Edith Penrose to international business scholarship. Manag Int Rev 43:3–19

    Google Scholar 

  • Dunning JH (2005) Towards a New Paradigm of Development; Implications for the Determinants of International Business Activity. Mimeo, Universities of Reading and Rutgers

    Google Scholar 

  • Dunning JH, Lundan SM (2009) The MNE as a creator, fashioner and respondent to institutional change. In: Collinson S, Morgan G (eds) The multinational firm. Blackwell, Oxford

    Google Scholar 

  • Dunning JH, Pitelis CN (2008) Stephen Hymer’s contribution to international business scholarship: an assessment and extension. J Int Bus Stud 39:167–176

    Article  Google Scholar 

  • Horaguchi H, Toyne B (1990) Setting the record straight: Hymer, internalization theory and transaction cost economics. J Int Bus Stud 21:487–495

    Article  Google Scholar 

  • Hymer SH (1968) The large multinational ‘corporation’. In: Casson M (ed) Multinational corporations. Edward Elgar, Hants

    Google Scholar 

  • Hymer SH (1970) The efficiency (contradictions) of multinational corporations. Am Econ Rev Pap Proc 60:441–448

    Google Scholar 

  • Hymer SH (1972) The multinational corporation and the law of uneven development. In: Bhagwati JN (ed) Economics and world order. Macmillan, London

    Google Scholar 

  • Hymer SH (1976) The international operations of national firms: a study of foreign direct investment. MIT, Cambridge, MA

    Google Scholar 

  • Kay N (1997) Pattern in corporate evolution. Oxford University Press, Oxford

    Google Scholar 

  • Kay N (1999) Hercules and Penrose. Contrib Polit Econ 18:67–86

    Article  Google Scholar 

  • Kogut B, Zander U (1993) Knowledge of the firm and the evolutionary theory of the multinational corporation. J Int Bus Stud 24:625–645

    Article  Google Scholar 

  • Mahoney JT, McGahan A, Pitelis CN (2009) The Interdependence of Private and Public Interests. Organ Sci 20:1034–1052, Articles in Advance 1-19, 25 September, 2009

    Article  Google Scholar 

  • Marris R (1999) Edith Penrose and economics. Contrib Polit Econ 18:47–65

    Article  Google Scholar 

  • Nelson R, Winter S (1982) An evolutionary theory of economic change. Harvard University Press, Cambridge, MA

    Google Scholar 

  • Panagopoulos A, Pitelis CN (2009) Innovation governance for value capture – the problem and a simple model-based solution. Int J Strateg Change Manag 3:171–185

    Article  Google Scholar 

  • Penrose ET (1956) Foreign investment and the growth of the firm. Econ J 66:220–235

    Article  Google Scholar 

  • Penrose ET (1959/1995) The theory of the growth of the firm, 3rd edn. Oxford University Press, Oxford

    Google Scholar 

  • Penrose ET (1987) Multinational corporations. In: Eatwell J, Newman P, Milgate M (eds) The new Palgrave: a dictionary of economics. Macmillan, London, pp 562–564

    Google Scholar 

  • Pitelis CN (2000) A theory of the (growth of the) transnational firm: a Penrosean perspective. Contrib Polit Econ 19:71–89

    Article  Google Scholar 

  • Pitelis CN (ed) (2002a) The growth of the firm: the legacy of Edith Penrose. Oxford University Press, Oxford

    Google Scholar 

  • Pitelis CN (2002b) Stephen Hymer: life and the political economy of multinational corporate capital. Contrib Polit Econ 21:9–26

    Article  Google Scholar 

  • Pitelis CN (2004) Edith Penrose and the resource-based view of (international) business strategy. Int Bus Rev 13:523–532

    Article  Google Scholar 

  • Pitelis CN (2007a) Twenty years resource-based view (or is it fifty?): some (old and) new challenges and need for extensions. Int J Learn Intellect Cap 4:47–56

    Article  Google Scholar 

  • Pitelis CN (2007b) Edith Penrose and a Learning-based Perspective on the MNE and the OLI. Manag Int Rev 47:207–219

    Article  Google Scholar 

  • Pitelis CN (2009) The co-evolution of organizational value capture, value creation and sustainable advantage. Organ Stud 30:1115–1139

    Article  Google Scholar 

  • Pitelis CN, Wahl MW (1998) Edith Penrose: pioneer of stakeholder theory. Long Range Plan 31:252–261

    Article  Google Scholar 

  • Pitelis CN, Sugden R (2002) Preface. Contrib Polit Econ 21:1–4, Special Issue on Stephen Hymer

    Article  Google Scholar 

  • Pitelis CN, Boddewyn J (2009) Where is the “I” in “IB” Research? University of Cambridge and City University New York, Mimeo

    Google Scholar 

  • Research Policy (2006) Special Issue Commemorating the 20th Anniversary of David Teece's Article, ‘Profiting from Innovation’. In: Chesbrough H, Birkinshaw HJ, Teubal M (eds.) Res Policy 35

    Google Scholar 

  • Richardson GB (1972) The organisation of industry. Econ J 82:883–896

    Article  Google Scholar 

  • Rugman AM, Verbeke A (2002) Edith Penrose’s contribution to the resource-based view of strategic management. Strateg Manag J 23:69–78

    Article  Google Scholar 

  • Simon HA (1995) Organisations and markets. J Public Admin Res Theory 5:273–295

    Google Scholar 

  • Schumpeter J (1942) Capitalism, socialism and democracy. Harper and Row, New York

    Google Scholar 

  • Spender JC (1994) Organizational knowledge, collective practice and Penrose rents. Int Bus Rev 3:353–367

    Article  Google Scholar 

  • Teece DJ (1986) Transaction cost economics and the multinational enterprise: an assessment. J Econ Behav Organ 7:21–45

    Article  Google Scholar 

  • Teece DJ (2006) Reflections on the Hymer thesis and the multinational enterprise. Int Bus Rev 15:124–139

    Article  Google Scholar 

  • The Economist (2005) Face value: the master builder. Economist, 15th October 2005, 88

    Google Scholar 

  • Verbeke A (2003) The evolutionary view of the MNE and the future of internalization theory. J Int Bus Stud 34:498–504

    Article  Google Scholar 

  • Verbeke A, Yuan W (2007) Entrepreneurship in multinational enterprises: a Penrosean perspective. Manag Int Rev 47:241–258, Special Issue on Edith Penrose

    Article  Google Scholar 

  • Williamson OE (1981) The modern corporation: origins, evolution, attributes. J Econ Lit 19:1537–1569

    Google Scholar 

Download references

Acknowledgments

I am grateful to John Dunning, Roger Sugden and Alain Verbeke for useful comments and suggestions on earlier drafts. The paper draws on and develops an earlier paper published in Management International Review (Pitelis 2007b). Support by the EC through the DYNREG project is gratefully acknowledged. Errors are ours.

Author information

Authors and Affiliations

  1. Centre for International Business and Management, Judge Business School and Queens’ College, University of Cambridge, Trumpington Street, Cambridge, CB2 1AG, UK

    Christos N. Pitelis

Authors
  1. Christos N. Pitelis
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Editors and Affiliations

  1. VU University Amsterdam, De Boelelaan 1105, Amsterdam, 1081 HV, Netherlands

    Peter Nijkamp

  2. (ESRI), Economic and Social Research Institute, Whitaker Square, Sir John Rogerson's Quay, Dublin, 2, Ireland

    Iulia Siedschlag

Rights and permissions

Reprints and permissions

Copyright information

© 2011 Springer-Verlag Berlin Heidelberg

About this chapter

Cite this chapter

Pitelis, C.N. (2011). A Knowledge: Learning-Based Perspective on Foreign Direct Investment and the Multinational Enterprise. In: Nijkamp, P., Siedschlag, I. (eds) Innovation, Growth and Competitiveness. Advances in Spatial Science. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-14965-8_10

Download citation

  • DOI: https://doi.org/10.1007/978-3-642-14965-8_10

  • Published:

  • Publisher Name: Springer, Berlin, Heidelberg

  • Print ISBN: 978-3-642-14964-1

  • Online ISBN: 978-3-642-14965-8

  • eBook Packages: Business and EconomicsEconomics and Finance (R0)

Publish with us

Policies and ethics

Search

Navigation