Academic journal article Management International Review

Multinationals' Strategies and the Economic Development of Small Economies: A Tale of Two Transitions

Academic journal article Management International Review

Multinationals' Strategies and the Economic Development of Small Economies: A Tale of Two Transitions

Article excerpt

Abstract and Key Results:

* The processes of globalisation open up new potentials for MNE participation in the development of small economies. Thus the pursuit of global competitiveness by MNEs, operating through a range of strategic motivations, can be supported by different types of affiliates that can be based on the potentials of small economies.

* Efficiency seeking operations of MNEs can benefit from cost-effective inputs of small economies (as, for example, in export processing zones) and activate their export potentials.

* Knowledge seeking by MNEs can be generated interdependently with the creation of localised systems of innovation that support bases of sustainable development in small economies.

Keywords: Subsidiary Development. Export Processing Zones * Creative Transition * Dynamic Clusters


One important effect of the growth in economic liberalisation and internationalisation of markets in recent decades has been a significant impetus to the viability of self-sustaining development in the economies of small countries. The argument here draws together two elements of these processes. Firstly, the growing freedom in international trade has allowed an access to wider (regional or global) markets to facilitate development of a competitive industrial sector. Secondly, that liberalisation in domestic economies has allowed foreign direct investment (FDI) to provide vital inputs to the export-oriented industrialisation. Furthermore, it is then central to this argument that the freedoms and flexibilities facilitated by globalisation have led to MNEs generating networked strategies that allow them to pursue different aspects of a growing strategic heterogeneity in different locations worldwide. This, in turn, means that the strategic purpose of a MNE's operation in a particular location can evolve in ways that can embed it beneficially in the competitive progress of both the location and the firm. We here develop these themes in terms of the twin propositions that MNEs can find valid roles for operations in small-country economies and that these roles can evolve over time so as to be compatible with these countries' economic development.

It is innate to any development process that the competitive bases underpinning its achievement must change over time, normally in ways considered as an upgrading of capabilities. To relate this to the form of MNE involvement and its evolution over time we here elaborate two transitions that, firstly, secures the implementation of export-oriented industrialisation and, secondly, moves this towards a new more dynamic basis incorporating new knowledge and innovation. The next section, therefore, introduces the underlying view of the MNE as a dynamic differentiated network. Then the two transitions are described in detail, to emphasise how an increasingly embedded and self-sustaining development process can be derived from a creative interaction between MNE strategic diversity and the renewed sources of host-location competitiveness.

MNEs' Strategic Heterogeneity

The scope for international business to be involved, on a sustainable basis, in the development of small economies can be realistically found in the increased geographical dispersion and fragmentation of its operations over the past forty or so years, and the crucial interrelatedness of this with the growing internationalisation of most elements of MNEs' value-chains. Here we can discern this in a typology of three different strategic motivations that can be encompassed within particular affiliated operations. Also important in the emphasis on the economic development of individual locations is the scope for MNEs' operations to evolve through the different types of motivations, so as to play changing roles in companies' global networks and to expand (by encompassing emerging host-economy competitiveness) the parts of the value-chain embodied in their scopes. …

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