Geography Reference
In-Depth Information
transactions costs based explanation of the existence of the MNE is the
exclusive emphasis on the firm as an alternative to the market, rather
than as an institution for learning in its own right, irrespective of how
well markets work. Furthermore, as we will see later, the effects of glo-
balization and the growth of alliance capitalism, strategic collaborations
and partnerships, outsourcing and offshoring, production and distri-
bution networking, and asset-augmenting foreign investment, have all
greatly affected the nature and scope of firm internalization processes. As
Cantwell and Narula put it: 'Internalization issues have received the most
attention, as the conventional belief that full internalization is the pre-
ferred mode of MNEs has been challenged by the growing use of strategic
alliances' (Cantwell and Narula 2001, p. 169).
For our purposes, what needs to be highlighted at this point is that
spatial patterns and locational variables are virtually non-existent in the
internalization theory of MNEs. In part, this is the consequence of the
emphasis on transactional imperfections, which tend to overlook the struc-
tural imperfections related to socio-economic and institutional geographi-
cal contexts. At the same time, however, the importance attributed by the
transactions costs theory to organizational issues, technology, know-how
and R&D, as well as the opportunity costs associated with internal trans-
actions and external exchanges, makes the transactions costs approach
very suitable for identifying and distinguishing between the different types
of economic geographies in which MNEs may choose to locate. These dif-
ferent economic geographies will be the specific focus of Chapters 4 and
5, where we will build on transactions costs approaches to examine the
relationship between multinationality and innovation.
16
This relationship
is a critical feature of the internalization theory, and the transactions costs
perspective allows us to look at the relationship between internalization
and the exchange of knowledge in a specific spatial perspective.
2.5
THE DETERMINANTS OF MULTINATIONAL
ACTIVITY: L ADVANTAGES
2.5.1
From I to L Advantages
As we have seen, economic and business theory has managed to success-
fully integrate O advantages and I advantages, and to consider issues of
ownership, control, organization and integration, as well as transactions
costs both internal and external to the firm, as pooled determinants for
multinationality. Yet, the question of
where
MNEs locate is left rather
undefined and indeterminate, and locational advantages are still resting
