Article Analysis
In the article, Internalization theory and the performance of emerging-market multinational enterprises , Buckley & Tian (2017) assert that the success of the multinational enterprises (MNEs) depend on the knowledge of the international market and the investments on the research and development (R&D). The knowledge of the global market where a business will be situated gives the MNEs a competitive edge over rivals. Buckley & Tian (2017) applied the internalization theory to demonstrate the relationship between ownership advantage (knowledge) and the success of the MNEs.
The investment in R&D provides crucial information about the foreign market. This helps in making the right decisions on international market entry. However, the article does not address the factors such as pricing strategies and quality. The two elements are imperative to the success of MNEs in the foreign markets. Even with the knowledge about the international market , it is also essential to note that customer behavior is significantly affected by the quality of goods and services and prices. Nevertheless, the article still addresses important factors such as the financial position of the multinationals. The financial strength plays a vital role in marketing the MNE in the foreign market and also in investing in technology. The internalization theory seems to focus so much on the knowledge as a critical factor for success. The bottom-line is that the success of the MNEs is not just based on the understanding of the international market, but it is also determined by the pricing strategies and the value of goods and services.
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Buckley (2015) demonstrated the contributions of the internalization theory to international business. In the article, the contribution of internalization theory to international business : New realities and unanswered questions , Buckley (2015) looks at the history of the performance of the global market and makes a comparison. From the history that dates back in 1976, it is apparent that innovation, governance, and the knowledge of the environment has played an imperative role in determining the success of the multinationals.
In the 1970s, Buckley (2015) asserts that the resistance of the multinationals, especially in the less developed countries, was a significant hindrance to internationalization. However, the situation changed towards the 90s and 2000s because of the innovation and globalization. In this article, the author emphasizes the importance of the knowledge, especially understanding the culture of the target market.
Therefore, the internalization theory has been vital in fostering the G&D and also enhancing innovation in the foreign markets. However, Buckley also demonstrates that interdependence has also been imperative to the success of the multinationals. Globalization creates an opportunity for market liberalization, especially in the capitalist countries. Still, MNEs with access to knowledge, skills, technology, and experience are more likely to be more successful. This may explain why companies in the foreign markets might not be able to compete favorably with multinationals with a robust financial position and knowledge. In summary, the article has demonstrated the role of internalization theory and the growth of MNEs.
Narula & Verbeke (2015) focused on the critical factors within the internalization theory that enable MNEs to gain a competitive edge in the foreign market. In the article, making internalization theory good for practice: The essence of Alan Rugman's contributions to international business, Narula, & Verbeke (2015) demonstrate that internalization theory is vital in explaining the performance and competitiveness of the multinationals. The arguments by the two authors revolve around governance, innovation, and efficiency. Unlike other scholars who focus on external factors as the primary determinant of success, Narula & Verbeke (2015) show that the competitive advantage emanates from the firm itself.
Effective governance and investment in skill development are essential . Additionally, R&D initiatives provide a firm with more information about the international market, especially on the culture of the consumers and competition. This knowledge is utilized by the management to make the right decisions on foreign market entry. Therefore, the internal factors are considered vital to the success of the MNEs in the global markets. The argument is justifiable in the sense that effective leadership and efficiency are two factors that foster customer attraction and retention. However, the article ignores essential factors such as pricing strategies, advertisement, and the financial strength of the MNE. Such factors, apart from the knowledge of the foreign market, will also have an impact on the performance of the MNEs. Nevertheless, the article is objective and puts the internalization theory into context to explain the claims.
Verbeke & Kano (2015) were interested in examining the ability of the internalization theory to explain the phenomenon of the emerging multinational enterprises (EMNEs). In the recent past, multinationals from the emerging countries are expanding their operations in the developed and other emerging economies. Such EMNEs are gaining a competitive edge as they compete favorably with the multinationals from the developed countries. Verbeke & Kano (2015) concluded that internalization theory is still relevant in explaining the reasons behind the performance of EMNEs.
The article introduces the aspect of Non-location-bound firm-specific advantages, which is tied to the internalization theory. The firm-specific advantages include technology, administrative skills, and marketing knowledge. Most of these factors are transferable to the foreign market. Again, the aspect of knowledge emerges in the article as the most important in determining the success of the multinationals. Technology helps in enhancing effectiveness and efficiency.
Technology also promotes the standardization of goods and services, as well as enhance quality. Such factors make the EMNEs be more attractive, mainly because most of them benefit from cheap labor. As a result, they lower the cost of goods and services, thereby gaining a competitive edge in the market. Administrative skills and knowledge help in making the right decisions in the international market. For example, the understanding of the values, norms, and beliefs of target customers help in making decisions about the kind of goods and services to avail in the market.
In the article, An internalization theory perspective on the global and regional strategies of multinational enterprises , Verbeke & Kano (2016) focus on the question of why a majority of the multinationals enterprises are unable to emulate their domestic success to the international market. While most of the multinationals perform well in the domestic markets, they are unable to replicate the same success in the international markets. This could be attributed to competition and the unfavorable culture of the target customers. Additionally, Verbeke & Kano (2016) also focus on the role of internalization theory on the success of multinationals in the international markets.
The internalization theory was found to be vital in enabling multinationals to perform better in the foreign markets. The success of the multinationals can be attributed to the transfer of knowledge and skills from the domestic market to the international market . The experience and technologies from the domestic markets are also important in determining the success in the overseas markets. The R&D also helps in gathering information about the target market. It is possible to understand the strength of the competitors and the customer’s purchasing behavior.
A significant strength of the article is that it focuses on a combination of several factors, including innovation, governance, entrepreneurship, and the ability of the business to adapt to the new environment. Therefore, the knowledge and skills are not the only factors that determine the ability of the firm to succeed in an international market. Sometimes localization is imperative for a firm to be successful . That means a business will be willing to customize its products to meet the unique needs of the target customers. The goal is to realize that customers have different tastes and preferences that determine the consumption.
In summary, all the five articles have demonstrated the importance of the internalization theory for the success of the multinationals in the foreign markets. The ability to transfer the domestic skills, knowledge, and governance helps to make multinationals more successful. However, it is also important to understand that the success of the multinationals is also attributed to other factors, especially the pricing strategies, uniqueness, and quality of the products. Localization of the products and marketing strategies are also vital for the success of the multinational enterprises.
References
Buckley, P. & Tian, X. (2017). Internalization theory and the performance of emerging-market multinational enterprises. International Business Review , Volume 26, Issue 5, October 2017, Pages 976-990. https://doi.org/10.1016/j.ibusrev.2017.03.005
Buckley, P. (2016). The contribution of internalisation theory to international business: New realities and unanswered questions . Journal of World Business , Volume 51, Issue 1, January 2016, Pages 74-82. https://doi.org/10.1016/j.jwb.2015.08.012
Narula, R. & Verbeke, A. (2015). Making internalization theory good for practice: The essence of Alan Rugman's contributions to international business. Journal of World Business Volume 50, Issue 4, October 2015, Pages 612-622. https://doi.org/10.1016/j.jwb.2015.08.007
Verbeke, A. & Kano, L. (2015) The New Internalization Theory and Multinational Enterprises from Emerging Economies: A Business History Perspective. Business History Review 89 (Autumn 2015): 415–445. doi:10.1017/S0007680515000689
Verbeke, A. & Kano, L. (2016). An internalization theory perspective on the global and regional strategies of multinational enterprises. Journal of World Business , Volume 51, Issue 1, January 2016, Pages 83-92. https://doi.org/10.1016/j.jwb.2015.08.014
