Dunning (2000)

Management > Global Firm > Lectures > Independent Research > Dunning > Outward FDI > OA >Theories > Today's OAs > LA > Theories > I

I

Orthodox internalisation theory states that internalisation will occur when the costs of using external arm's length transactions exceeds costs of using internal hierarchies.

It is in an incomplete theory for three reasons:

1. It ignores other functions a firm may perform, such as learning and memory adaptation, which a market cannot reproduce
2. It is a static theory, giving no advice on how to internalise assets for long-term future benefit. It only considers short term profit maximisation
3. There has been a growth in collaborative ventures, which results in "de facto internalisation, but without equity ownership". Internalisation theory assumes only arm's length transactions occur, when now businesses are more interrelated in terms of relationships and trust

To explain the growth of the MNE, one must be "judiciously pluralistic" and see all actions in a holistic fashion.

Theories