Inside the Multinationals 25th Anniversary Edition: The Economics of Internal Markets

197 Pages·2006·0.63 MB·English

by  Alan M. Rugman

Inside the Multinationals
25th Anniversary Edition
The economics of internal markets
Alan M. Rugman
Inside the Multinationals
25th Anniversary Edition
Also by Alan M.Rugman
International Diversification and the Multinational Enterprise
Multinationals in Canada
New Theories of the Multinational Enterprise (editor)
Multinationals and Technology Transfer (editor)
Multinationals and Transfer Pricing (co-editor)
International Business: Firm and Environment (co-author)
Megafirms
Administered Protection in America (editor)
Multinationals and Canadian US Free Trade
Global Corporate Strategy and Trade Policy (co-author)
Foreign Investment and NAFTA (editor)
The Theory of Multinational Enterprises
Multinational Enterprises and Trade Policy
International Business: A Strategic Management Approach (co-author)
Environmental Regulations and Corporate Strategy (co-author)
Multinationals as Flagship Firms (co-author)
The End of Globalization
The Oxford Handbook of International Business Oxford (co-editor)
The Regional Multinationals
Analysis of the Strategic Management of Multinationals (co-author)
Inside the Multinationals
25th Anniversary Edition
The economics of internal markets
Alan M.Rugman
© Alan M.Rugman 2006
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First published in 1981 by Croom Helm and Columbia University Press.
25th anniversary edition published 2006 by
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ISBN-13:978–1–4039–9591–9
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Library of Congress Cataloging-in-Publication Data
Rugman,Alan M.
Inside the multinationals 25th anniversary edition :the economics of
internal markets / Alan M.Rugman – 25th anniversary ed.
p.cm.
Includes bibliographical references and index.
ISBN 1–4039–9591–5 (cloth)
1.International business enterprises.I.Title:Inside the multinationals
twenty-fifth anniversary edition.II.Title:Inside the multinationals.
III.Title.
HD2755.5.R82 2006
338.8(cid:2)8—dc22 2006043207
10 9 8 7 6 5 4 3 2 1
15 14 13 12 11 10 09 08 07 06
Printed and bound in Great Britain by
Antony Rowe Ltd,Chippenham and Eastbourne
To my parents
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Contents
List of Tables and Figures viii
Preface ix
Acknowledgements xii
Foreword Mark Casson xiii
Introduction to the 25th Anniversary Edition xx
Appendix 1: Inside the Multinationals: The Economics of
Internal Markets – A Statistical Analysis of the Rugman (1981)
Citation Record Elitsa Banalieva xxiii
Appendix 2: List of Reviews for Inside the Multinationals:
The Economics of Internal Markets xxvii
Selected Quotes from Reviews xxviii
1 Multinationals and the New Theory of Internalization 1
2 Internalization as a General Theory of Foreign
Direct Investment 18
3 The Choice Between Trade, Foreign Direct Investment
and Licensing 34
4 Implications of the Theory of Internalization for
Corporate International Finance 56
5 Multinational Banking and the Theory of Internalization 71
6 Internalization and the Transfer of Technology 87
7 The Regulation of Multinational Corporations 119
8 Conclusions: The Future of Internalization 142
Bibliography 151
Index 159
vii
List of Tables and Figures
Tables
A1.1 Citation record of Rugman (1981) by document type xxiv
A1.2 Citation record of Rugman (1981) by subject category xxiv
A1.3 Citation record of Rugman (1981) by year xxv
5.1 The Degree of Multinationality in Canadian Banking 78
5.2 Canadian Banks’ Rates of Return on Equity,
Per Cent, 1962–79 81
5.3 Earnings of Leading Canadian Banks Mean and Standard
Deviation of Profits, 1967–79 82
5.4 Leading Canadian Chartered Banks, Rate of Return
on Average Assets, Per Cent 84
5.5 Differentials between Chartered Bank Rates of Return on
Domestic and Foreign Currency Assets 85
5.6 Domestic and International Business: Five Largest
Canadian Banks, 1970–5 85
6.1 Canadian Business Payments to Non-residents for
Technology Transfers, 1970–7 98
6.2 Summary of the Determinants of R and D 102
6.3 Expenditures on R and D by Twelve Multinational
Firms in Canada, 1977 113
6.4 Expenditures on R and D by the Subsidiaries of Twelve
Multinational Firms in Canada, 1977 114
6.5 Expenditures on R and D by Twelve Canadian Owned
Corporations, 1977 115
7.1 Performance of the Largest US Multinationals, 1970–9 126
7.2 Performance of the Largest Non-US Multinationals,
1970–9 129
Figures
0.1 Transaction Costs of Internal and External Markets xviii
3.1 The Choice of Entry Mode 45
3.2 The Sequencing of Entry Mode over Time 48
viii
Preface
Conceived at Columbia University, New York, developed and
expanded in Montreal, Quebec and finally brought to fruition in
Halifax, Nova Scotia, this book reflects the varied nature of its subject
matter – the multinational enterprise. Yet it belongs to none of these
places. Rather the genesis of the central idea in this book is the
University of Reading in England, where I first developed an interest
in the concept of internalization. There the work of John Dunning
and Mark Casson and the frequent visitors to the international busi-
ness side of the economics department has developed an oral tradition
of analysis of the multinational enterprise (MNE). In this oral
tradition, the internalization of markets as a theoretical rationale for
the MNE was becoming a central concept by the academic year 1976
to 1977, which I spent there as a Visiting Research Fellow. The
Reading oral tradition has been supplemented by the influential
series of Reading ‘greenbacks’, edited by Professor Dunning, where
the elements of internalization are sketched out in issues over the
last several years. I am grateful to him for very helpful suggestions
and to Mark Casson for many stimulating conversations and for
consenting to write the Foreword.
When teaching international business at Columbia University
from 1978 to 1979 it became clear to me that internalization is a
unifying paradigm for the theory of foreign direct investment (FDI).
In reviewing the literature on the determinants of FDI I found that
each scholar is writing about one or another market imperfection,
which induces the MNE to use an internal market. This analysis is
the cornerstone of this book. Yet there are situations in which inter-
nalization is not the most efficient response to a market imperfec-
tion. In one of the chapters here Ian Giddy and I consider
alternatives to internalization, such as exporting and licensing. We
explore the conditions under which each one of these modes of
servicing a foreign market is optimal at certain points of time, and
how the choice of modality may vary over time. The materials in
Chapter 3 were developed jointly with Ian Giddy, although the use
of them here is my responsibility.
ix