Academic journal article International Journal of Management

The Structure of the Multinational Firm: The Role of Ownership Characteristics and Technology Transfer

Academic journal article International Journal of Management

The Structure of the Multinational Firm: The Role of Ownership Characteristics and Technology Transfer

Article excerpt

This paper presents and estimates the models of the choices open to multinational corporations when they expand into foreign markets. Those choices include the amount of domestic output to export to foreign markets and amount of production capacity to site in foreign locations. Explanatory variables for these choices reflect ownership characteristics, firm size, financial conditions, technological change, and technology. Previous research has addressed concerning firm size and technology transfer. It has not addressed the roles of financial conditions and ownership characteristics in determining the mix of multinational firms' global activities. The empirical results presented here indicate that these conditions are important and, hence, they offer a new direction for future research in this field.

I. Introduction

At one time the field of industrial organization was dominated by research that concentrated on the performance implications of market structure. Domestic market characteristics such as firm size and market share were emphasized because they were seen to play key roles in determining the relative importance of economic efficiency and monopoly power in a market. In the last two decades the study of industrial organization has dramatically expanded beyond theses early areas of emphasis. The topics of organizational structure, ownership characteristics, producer signaling, transfer pricing, property rights, managerial shirking, gain-sharing, contracting, and foreign direct investment are indicative of new and exciting directions industrial organization has taken.

Multinational corporations comprise a segment of the economy that is closely associated with the new directions of modem industrial organization. Ownership characteristics, transfer pricing, vertical integration, and technology transfer are crucial parts of the study of multinationals. Predicated upon this view, this paper presents and estimates several models of the choices open to multinational corporations when they expand into foreign markets. These choices include the quantity of output to sell in foreign markets and the amount of production capacity to site in foreign locations. Explanatory variables for these choices will reflect ownership characteristics, firm size, financial conditions, technological change, and technology. The contribution of this paper has addressed the roles of financial conditions and ownership characteristics in determining the mix of multinational firms' global activities.

This study is divided into five sections: section one is introduction; section two is the literature review; section three is An Empirical Model of the Structure of Multinational Operations; chapter four is the results of the empirical result; and chapter five is the conclusion.

II. Literature Review

To date, research on multinational has focused mainly upon five theories of the multinational enterprise. These theories include the theory of intangible assets, location theory, the product life cycle model, the internalization theory, and the eclectic theory. The theory of intangible assets emphasizes the market structure implications when there are performance differentials among firms. Location theory emphasizes the advantages of locating production near the suppliers of key inputs or the consumers of the output. The product life cycle model emphasizes that the choice between exports or foreign production can change over time. The internalization theory emphasizes the role of the cost of using the market when firms choose between licensing and foreign production. Finally, the eclectic theory emphasizes the fact that these four theories are not mutually exclusive by drawing their elements together into a single framework. Each theory of the multinational enterprise has to answer one basic question. Why do multinational firms choose to produce in foreign markets instead of either increasing domestic production and exporting that additional output overseas or ,alternatively, entering into a licensing agreement. …

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