An internalization theory rationale for MNE regional strategy

Abstract

PurposeThis paper seeks to demonstrate that internalization theory, as a “complete” theory of the firm, is particularly well equipped to analyze multinational enterprise (MNE) regional strategies, thanks to its joint transaction cost economics and resource‐based foundations.Design/methodology/approachThis paper builds on recent work by Wolf, Egelhoff, and Dunemann to show that internalization theory's predictions on MNE regional strategy are superior to those suggested by several other conceptual frameworks. For each of the 11 hypotheses formulated by Wolf and his co‐authors, an alternative is proposed here that is consistent with internalization theory predictions.FindingsMNE regional strategy is an important empirical phenomenon. Internalization theory, as a powerful conceptual framework with general applicability, simplicity and accuracy, allows in‐depth analysis of MNE regional strategies.Research limitations/implicationsInternalization theory scholars need to find new ways of operationalizing MNE firm‐specific advantages (FSAs), as well as MNE resource recombination trajectories, to predict accurately when and how MNEs will pursue regional versus global strategies.Practical implicationsMNE senior management should rethink international expansion strategies and realize that most large MNEs actually pursue regional, not global strategies.Social implicationsEven the world's largest MNEs have great difficulty engaging in novel resource recombination across the globe, and their alleged market power should therefore not be overestimated.Originality/valueInternational business scholars should embrace internalization theory as the general theory of the MNE, rather than looking for insight from theories not intended – nor properly equipped – to study strategies of the world's most complex entrepreneurial organizations.