Buckley and Casson (1995)

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Buckley and Casson (1995) - A Theory of International Operations

"When markets are internalised across national boundaries, MNEs are created"

Up until the end of WWI, the growth of the MNE was concerned with access to raw materials, which prompted vertical integration. Today it is essential that firms internalising flows of knowledge, which helps sustain and improve OAs.

Benefits from internalisation arise from five types of market imperfection:

1. Production takes time. Internalisation would speed things up
2. It could be too expensive
3. Supplier uncertainty - It would prevent the buyer becoming a potential competitor to the supplier
4. Buyer uncertainty - the buyer cannot know how good the information is until the buyer has all of it, but by that point the seller would have, in effect, just given it away to the buyer
5. The government cannot accurately monitor internal workings, so a firm could internalise to pay less tax

Costs of internalisation