This article reviews some of the criticisms directed towards the eclectic paradigm of international production over the past decade, and restates its main tenets. The second part of the article considers a number of possible extensions of the paradigm and concludes by asserting that it remains “a robust general framework for explaining and analysing not only the economic rationale of economic production but many organisational and impact issues in relation to MNE activity as well.”

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The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions

We examine organizational legitimacy in the context of the multinational enterprise (MNE). After discussing three types of complexity (of the legitimating environment, the organization, and the process of legitimation) that MNEs typically face, we explore their effects on MNE legitimacy. In particular, we distinguish between the legitimacy of the MNE as a whole and that of its parts, and we develop propositions that include issues of internal versus external legitimacy and positive and negative legitimacy spillovers.

Organizational Legitimacy Under Conditions of Complexity: The Case of the Multinational Enterprise

In the last decade, economists have produced a considerable body of research suggesting that the historical origin of a country's laws is highly correlated with a broad range of its legal rules and regulations, as well as with economic outcomes. We summarize this evidence and attempt a unified interpretation. We also address several objections to the empirical claim that legal origins matter. Finally, we assess the implications of this research for economic reform.

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The Economic Consequences of Legal Origins

Since Geert Hofstede's Culture's Consequences: International Differences in Work-Related Values (Sage, 1980) was published, researchers have utilized Hofstede's cultural values framework in a wide variety of empirical studies. We review 180 studies published in 40 business and psychology journals and two international annual volumes between 1980 and June 2002 to consolidate what is empirically verifiable about Hofstede's cultural values framework. We discuss limitations in the Hofstede-inspired research and make recommendations for researchers who use Hofstede's framework in the future.

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A quarter century of Culture's Consequences: a review of empirical research incorporating Hofstede's cultural values framework

This article first traces the changing world economic scenario for international business over the past two decades, and then goes on to examine its implications for the location of foreign direct investment and multinational enterprise activity. It suggests that many of the explanations of the 1970s and early 1980s need to be modified as firm-specific assets have become mobile across natural boundaries. A final section of the article examines the dynamic interface between the value-added activities of multinational enterprises in different locations.

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Location and the Multinational Enterprise: A Neglected Factor?

Given the large size and rapid growth of foreign direct investment in the United States, this subject is a central concern of U.S. firms and U.S. government policymakers. This study explores the factors that contribute to the explanation of FDI in the United States by country of origin of investment. Evidence from the past twelve years shows that the main significant positive influences are home country's exports to the United States and home country market size. Significant negative influences include the home country's imports from the United States, the cultural and geographic distances of the home country from the United States, and the exchange rate (fx/$).

https://link.springer.com/content/pdf/10.1057%2Fpalgrave.jibs.8490129.pdf

Foreign Direct Investment in the United States: An Analysis by Country of Origin

The presence of foreign banks in the United States has grown dramatically in recent years. In particular, Japanese bank activity has grown rapidly and has raised concern from domestic bankers who have felt competitive pressure. This paper assesses the extent of the foreign bank presence in the United States and indicates its distribution by country of origin. The paper develops a formal model of determinants of the value of foreign bank assets and the number of foreign bank offices in the United States based on the country of origin of the investing banks and tests the model using recently available data from the Federal Reserve System. The empirical results indicate that foreign investment in the U.S., foreign trade with the U.S., and the size of the banking sector in the foreign country are positively correlated with that country's bank presence in the U.S. Less stable countries have greater foreign bank penetration, and geographic distance is somewhat positively correlated with bank presence.

Foreign bank activity in the United States: An analysis by country of origin

This study examines the nature of technology and the process of its transfer in five service industries from parent companies to foreign affiliates. Three principal research questions are posed: What is the key technology in each industry? What are the main methods for transferring this technology? How and why do technology and transfer methods differ across firms, industries and countries? The empirical analysis shows that key technologies were generally knowledge of/experience in the industry and methodology for producing the service. Transfer of the technology was mainly done through the training and transfer of experts: and organizational forms were wholly owned subsidiaries and international partnerships. More technology transfer occurred when firms were more international, when affiliates were more recently-established, and when parent ownership was lower in the affiliate. Some evidence exists that more firm-specific, jointly produced technology leads to higher ownership percentage and greater transfer to affiliates.

https://link.springer.com/content/pdf/10.1057%2Fpalgrave.jibs.8490153.pdf

International Technology Transfer in Services

* This paper links the new institutional economics with organizational decision making on foreign direct investment (FDI). We examine the relationship between FDI inflows in Central and Eastern Europe (CEE) and institution building--particularly governments' efforts to create a more favorable FDI environment by reducing uncertainty and, concomitantly, costs associated with long-term capital investments. * By combining institutional constructs with traditional factors that contribute to FDI decision-making and applying them to economies in transition, we extend the new institutional economics. Key Results * We found support for the positive link between institutional variables that reduce uncertainty and costs for MNEs and FDI flows into CEE. Corruption and a measure of political risk were negative and significantly related to inward FDI, while the presence of bilateral investment treaties and the level of restrictions on repatriation of earnings of CEE affiliates were positive and significantly related to inward FDI. * Traditional variables also mattered: the foreign exchange rate was significant and negatively correlated to FDI, while market size was highly significant and positively correlated to FDI. Introduction The goal of this paper is to demonstrate that institutions matter in the context of foreign direct investment (FDI) in the transitional economies of Central and Eastern Europe (CEE). We employ the new institutional economics (NIE) as a theoretical foundation and apply concepts related to it in an examination of FDI activity that may respond to institutional development in CEE. Within this context, FDI is expected to respond to country-level macroeconomic, microeconomic and institutional changes, especially institutional factors that reduce (increase) uncertainty and/or costs related to long-term capital investments. This approach follows Rumelt, Schendel, and Teece (1991) in utilizing tools from both economics and strategic management to facilitate understanding of FDI decision-making. It is well understood that firms entering a new market must adapt their overall strategies to environmental conditions in the host country (Hymer 1976, Kindleberger 1969). Along these same lines, as governments in transitional economies battle for larger shares of global FDI flows, there is increasing evidence that they have adapted their institutional environments (1) in order to attract inward FDI (Meyer 2001). Although institutional hurdles (2) exist in all countries, for emerging markets and economies in transition, the evolution of market-based institutions is a critical hurdle (Clague 1997, Meyer 2001). Economic transition involves replacing one governing framework with another and, in the case of CEE, this transition involved replacing a socialist system with an institutional framework that is consistent with a market economy. And since efficient markets depend on market-based supporting institutions (North 1990), all of the CEE countries have pursued transition strategies from state control toward open markets. Some of the adjustments associated with the installation of a market economy have been implemented more rapidly than anticipated, while others have lagged, partially determined by the manner in which state socialism disintegrated in a given country. (3) Within the broad theoretical framework of institutional theory, normative, cultural-cognitive, and regulative systems have all been identified as being useful approaches. The normative approach specifies how things should be done and normative systems define goals or objectives but also suggest legitimate means by which to pursue them (Scott 2001). The cultural-cognitive approach recognizes that internal interpretive processes are shaped by external cultural frameworks. In fact, it has been proposed that cultural dimensions are the cognitive frameworks in which social interests are defined (Douglas 1982). …

New Institutional Economics and FDI Location in Central and Eastern Europe

International business has existed as a distinct field of study for the past three decades, but it does not have a widely accepted explanatory theory on which to base its uniqueness as a discipline. David Ricardo's theory of comparative advantage, Raymond Vernon's product life cycle, John Dunning's eclectic theory and all others are essentially explanations of business between domestic firms or regions, as well as international firms. They explain "multidomestic" investment and intra-national trade. Those theories offer important insights into the functioning of firms in business anywhere, including international firms, but they fail to focus on the distinguishing characteristics of business operating among different nations. Since international business is the study of business activities that cross national borders and, therefore, is fundamentally concerned with the firms that undertake that business and the national Governments that regulate them, a theory that is unique to such business must explain the responses of businesses to government policies and the policy-making of Governments themselves towards international firms. Empirical studies have distinguished international from domestic business strategies and operations, but they have not resulted in an international theory of cross-national business behaviour. The lack of a proper theoretical focus has diverted the discipline from an emphasis on policy and on conflicts and cooperation among corporations and Governments. A framework for constructing such a theory can be built on existing bargaining theory.

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Robert Grosse

Papers

Foreign Direct Investment in the United States: An Analysis by Country of Origin

Foreign bank activity in the United States: An analysis by country of origin

International Technology Transfer in Services

New Institutional Economics and FDI Location in Central and Eastern Europe

Theory in international business