Academic journal article Multinational Business Review

Growing New MNEs in New Zealand: The FSA/CSA Framework Revisited

Academic journal article Multinational Business Review

Growing New MNEs in New Zealand: The FSA/CSA Framework Revisited

Article excerpt


How SMEs grow and develop into MNEs through international expansion

Early international business theory developed from research around large corporations that invest directly in foreign countries ([47] Hymer, 1960). However, small and medium-sized enterprises (SMEs) have increasingly become the focus of international business (IB) research ([58] Miesenbock, 1988). [48] Hymer (1970) and others ([14] Buckley and Casson, 1976, [16] 2003; [72] Rugman, 1986) analyzed how the multinational enterprise/corporation (MNE/MNC) can overcome the imperfections of international markets. IB research addresses the questions why and how firms operate business activities across national boundaries ([93] Wright, 1970). A number of directions in IB research have developed from this ([26] Coviello and McAuley, 1999): foreign direct investment (FDI) ([15] Buckley and Casson, 1998; [34] Dunning, 2000; [72] Rugman, 1986); process models ([50] Johanson and Vahlne, 1977; [52] Johanson and Wiedersheim-Paul, 1975); the "born global" model ([23] Oviatt and McDougall, 1994; [89] Weerawardena et al. , 2007); the network model ([21] Chetty and Blankenburg Holm, 2000; [51] Johanson and Vahlne, 2009); and international entrepreneurship ([25] Coombs et al. , 2009; [68] Rialp et al. , 2005). The more recent research areas are approaches that extend or link back to older models, or which overlap with them. [51] Johanson and Vahlne (2009), for example, consider the network approach as a further development of the process model.

Research on FDI has been primarily been concerned with the MNE/MNC as the unit of analysis ([31] Dunning, 1980; [37] Dunning and Lundan, 2010), while more recent approaches analyze its role in the internationalization of SMEs ([21] Chetty and Blankenburg Holm, 2000; [55] Li et al. , 2004; [92] Wright et al. , 2006). [36] Dunning and Lundan (1993) define MNEs as enterprises that engage in FDI, which enables them to own and control value-adding activities in two or more countries ([32] Dunning, 1993), through different modes, including equity-based modes ([15] Buckley and Casson, 1998; [69] Root, 1994). Equity-based FDI is generally undertaken by large MNEs, while the most common forms of FDI by SMEs are contractual agreements, such as licensing ([46] Hollenstein, 2005). The research area of FDI includes the timing of market entry, motivation for FDI, choice of location and entry mode, consequences of FDI for home and host country, and for the firms in those countries ([91] Werner, 2002). Although FDI has been studied in the context of SMEs ([11] Brouthers et al. , 1996), the majority of FDI research is concerned with MNEs as the units of analysis ([36] Dunning and Lundan, 1993). However, there is a growing trend to consider SMEs in IB research by analyzing how they can grow to become MNEs and under what settings, conditions and influence factors ([26] Coviello and McAuley, 1999; [39] Fillis, 2001; [46] Hollenstein, 2005).

The FSA/CSA explanation of international growth

Researchers in the area of FDI ([31] Dunning, 1980, [35] 2001; [70] Rugman, 1980, [71] 1981) developed theories that explain international production and FDI, in which MNEs internationalize in order to internalize market imperfections ([70] Rugman, 1980). Dunning's eclectic or OLI paradigm explains that whether, and to what extent, a firm engages in FDI depends on three factors ([31] Dunning, 1980):

ownership of assets or access to assets which its competitors or potential competitors do not possess;

interest and ability in the internalization of these assets, i.e. making use of them rather than selling or leasing them to others; and

location based factors that influence the profitability of exploiting the firm's assets in a foreign country versus in the home country.

[72] Rugman (1986) takes this approach further by combining the first two factors, ownership and internalization, into firm-specific advantage (FSA) and labeling the third factor country-specific advantage (CSA) in the FSA/CSA framework ([74] Rugman, 2010). …

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