Geography Reference
In-Depth Information
As said above, such a classification of MNEs is particularly significant
here as it is based primarily on the L advantages. These different types of
MNEs, which are not mutually exclusive as they can, and increasingly do,
belong simultaneously to all four categories and also as we will see more
in detail in Chapters 3 and 5, imply very different types of geographies.
In what follows we review some of the main theories of the MNE
accommodated by the OLI paradigm, paying particular attention to the
interactions between the triumvirate of the determinants of multinational-
ity, and the associated geographical issues.
2.3
THE DETERMINANTS OF MULTINATIONAL
ACTIVITY: O-ADVANTAGES
2.3.1
Hymer: Control, the 'Correspondence Principle' and the Locational
Pyramid
Among the very first contributions which are considered to be the major
pioneers in the recognition of the importance of ownership as an essential
aspect of multinationality, is the work of Stephen Hymer (1960).
1
He
focuses in particular on the identification of the nation-specific owner-
ship advantages of multinational firms. Hymer's analysis is rooted in Joe
Bain's industrial organization work, which aims at explaining differences
among selected US industries on the basis of firms' entry and exit dynam-
ics (Bain 1956). Bain shows that different industry-specific entry barriers,
and thereby different kinds of protection in certain industrial sectors,
provide different competitive advantages to firms in terms of ownership,
increasing returns to scale, costs and market access.
Hymer applies Bain's approach to the study of various types of foreign
direct investment (FDI)
2
activities of US firms. Hymer points out that mul-
tinational behaviour implies the existence of international flows of groups
of activities and resources, including technology, capabilities, skills, and
entrepreneurship. In contrast to the typical cross-border transactions
analysed by economic theory up to that point,
3
Hymer demonstrates that
such flows also require the same ownership and control across national
boundaries. Indeed, his argument is that common ownership and control
confer specific advantages to the firm, making it able to counterbalance
the disadvantages of operating in foreign environments. Thus, the MNE
emerges from market failure. As such, Hymer breaks with traditional eco-
nomics, putting at the centre of his analysis the nature of the firm and its
expansion process, rather than the market exchange activities carried out
by representative Marshallian-type firms.
