Guest Editorial: The Evolution of International Business Theories: Internalization vs. Externalization

• Author: Pervez N. Ghauri,Byung Il Park
• DOI: http://doi.org/10.1002/cjas.1446
• Published date: 01 December 2017
• Date: 01 December 2017

Guest Editorial: The Evolution of International

Business Theories: Internalization vs.

Externalization

Pervez N. Ghauri

Birmingham Business School

Byung Il Park*

Hankuk University of Foreign Studies

We are very pleased to present f‌ive papers for

publication in this special issue on the evolution of

international business theories: internalization versus

externalization. These papers underwent a rigorous double-

blind review, with the result making a substantial

contribution to the theory of international business. Here

we give an overview of those papers selected for

publication, but f‌irst provide some context for the topic of

this special issue.

International Business Theory in Context

International business scholars have long been asking,

and continue to ask, why multinational corporations (MNCs)

choose foreign direct investment (FDI) despite the liabilities

of foreignness. Internalization theory (e.g., Buckley &

Casson, 1976, 1999; Rugman & Verbeke, 1995) stipulates

that under imperfect business environments in intermediate

product markets, f‌irms conf‌ine transactions within

corporations by shifting assets between subsidiaries across

borders rather than in open markets. In addition, because

knowledge has public good characteristics, internalization

is required for MNCs to prevent other f‌irms from copying

proprietary knowledge and to protect knowledge reservoirs.

In contrast, John Dunning (e.g., 1993, 2000) integrates

the motivations pushing f‌irms to go abroad (i.e., ownership-

specif‌ic advantages) and the factors pulling f‌irms to invest

(i.e., location-specif‌ic advantages) with internalization to

illustrate the growth of MNCs and the spread of FDI. This

eclectic paradigm suggests that if f‌irms enjoy competitive

advantages by possessing strong organizational assets

(e.g., trademarks, production techniques, entrepreneurial

skills, and returns to scale) and discover appropriate

locations to undertake value adding activities without an

internalization advantage, they tend to be engaged in

licensing rather than FDI. According to his explanations,

the suff‌icient conditions for FDI are met only in the case

where the transaction costs in the free market are higher

than the internal costs, thus shedding light on the

importance of internalization.

However, the scholarly debates described above

overlook the crucial fact that no one f‌irm possesses enough

resources and competitiveness to eff‌iciently compete with

other f‌irms. According to the resource-dependence

perspective (e.g., Pfeffer, & Salancik, 1978), f‌irms often

seek complementary resources from foreign organizations

and even competitors operating in overseas markets and in

so doing seek strategic assets to compensate for

organizational shortcomings from external environments.

In other words, f‌irms try to offset their weaknesses through

co-opetition with other f‌irms in international joint ventures

and try to remedy knowledge imbalances against other f‌irms

through international mergers and acquisitions. These

dialogues clearly indicate that conventional international

business theories and the extant literature have focused on

the internalization motivation for FDI, and thus we do not

yet know enough about why some MNCs externalize their

activities in foreign markets. We argue that this special

issue, including the following f‌ive papers, brings together

theoretical and empirical advancements connecting

discussions on the motivation for the internalization and

externalization of MNCs and greatly extends our current

understanding of this topic.

Special Issue Overview

The f‌irst paper written by Kum-Sik Oh and John

Anchor tried to identify the key factors affecting reverse

knowledge transfer (RKT) from overseas subsidiaries to

MNC headquarters. There have been a number of

empirical papers dealing with conventional knowledge

transfer (i.e., knowledge transfer from MNCs to

subsidiaries in foreign markets) (e.g., Gupta &

Govindarajan, 2000; Lyles & Salk, 1996; Park, 2010),

*Please address correspondence to: Byung Il Park,Hankuk University of

Foreign Studies, College of Business 270, Imun-dong, Dongdaemun-gu,

Seoul, 130-791, South Korea. Email: leedspark@hufs.ac.kr

Canadian Journal of Administrative Sciences

Revue canadienne des sciences de l’administration

34: 325–328 (2017)

Published online in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/CJAS.1446

Can J Adm Sci

34(4), 325–328 (2017)Copyright © 2017 ASAC. Published by John Wiley & Sons, Ltd. 325