Back to the Future
Chapter 3: Some Antecedents of Internalisation Theory
INTRODUCTION In tracing some of the antecedents of The Future of the Multinational Enterprise, Buckley and Casson (1976), this chapter argues that its contents represent the juxtaposition between two distinct evolutionary strands of economic theory. The starting point is that both strands take as their unit of analysis, the firm as a coordinating unit of control of particular functions or value added activities. However, the raison d’etre for the kind of coordination, and the relation between one mode of coordination and another, is treated very differently, and continues to be so in the literature. The two strands and their genealogy are set out in Figure 3.1. The first looks specifically at the function of exchange and particularly that of intermediate products in or related to1 the value added capturing process. For the most part, it assumes that there are alternative modes of transactions (be they domestic or cross-border). These may range from arm’s length (external) market exchanges to (internal) administrative fiat – and a whole set of cooperative ‘in between’ relationships. The Future of the Multinational Enterprise is primarily concerned with why single firms internalise intermediate product markets. In so far as benefits are gained, these take the form of a reduction in the transaction costs. The second strand looks at the firm as a value adding unit. It is postulated that value is added by the firm engaging in a series of transformation functions, each of which, like the exchange function, requires some coordination of inputs whether these be internally...
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