Academic journal article Management International Review

Edith Penrose and a Learning-Based Perspective on the MNE and OLI (1)

Academic journal article Management International Review

Edith Penrose and a Learning-Based Perspective on the MNE and OLI (1)

Article excerpt

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. …

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