A Theoretical Analysis of the Tenets of Multinational Enterprise (MNE)


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In this paper, we analyzed the basic tenets of multinational enterprise (MNE) from a theoretical perspective, shedding light on the growing significance of MNEs in today’s global economy. The concept of MNE has been reviewed. We examined two theories of MNE – the trade theory and the transaction cost or internalization theory, in line with emerging global trends. We conclude that no single theory can explain MNE, rather, a combination of theories.

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A Theoretical Analysis of the Tenets of Multinational Enterprise (MNE)

  1. 1. A Theoretical Analysis of the Tenets of Multinational Enterprise (MNE) Claretta Taylor Pam Dr. Gregory Uche College of Management and Technology, Walden University
  2. 2. Introduction Multinational enterprises (MNEs), sometimes referred to as multinational corporations (MNCs), are arguably the most influential business entities responsible for turning Western capitalism into a global phenomenon (Heidenreich, 2012). A comprehensive definition of MNE should integrate structural, investment, and ownership elements.
  3. 3. Concept of Multinational Enterprise The basic tenets in the concept of multinational enterprise (MNE) are that it is a large business organization which emphasizes the structural dimension; it has headquarters in a home country and business operations in several host countries pointing to the element of globalization; and it operates in various business environment (Buckley & Casson, 2009; Qi, 2008).
  4. 4. The fundamental questions to address are: (i)What is the motivation for a business entity to go abroad? (ii)What resources enable it to accomplish this goal? (iii)Why do MNEs embark on different investment interests? (Hennart, 2012).
  5. 5. We reviewed the trade theory and the transactional cost or internalization theories, in an effort to make connections to emerging trends in the world of MNEs. Theories of Multinational Enterprises
  6. 6. The trade theory is based on the assumption that the MNE is a component in the long-term capital sector of the balance of payment with huge implications for foreign direct investment (FDI). The basic argument of the transaction costs theory is that the cost of organizing a given transaction varies with the method of organization chosen to organize it (Hennart, 2009). Theories of Multinational Enterprises
  7. 7. Emerging Trends in MNE Foreign direct investment (FDI) has been on the increase in emerging economies, which may compel Western MNEs to streamline their cost structures and access resources. Driven by profit and cheap labor, most Western countries have resorted to MNEs in order to remain competitive.
  8. 8. We conclude that both theories (trade theory and transaction cost theory) have merits and can be used to explain some contemporary issues in MNE. However, it is our position that no single theory can adequately explain current trends in the complex world of MNEs. Conclusion
  9. 9. References Buckley, P. J., & Casson, M. C. (2009). The internationalisation theory of the multinational enterprise: A review of the progress of a research agenda after 30 years. Journal of International Business Studies, 40, 1563-1580. doi:10.1057/ jibs.2009.49. Heidenreich, M. (Ed.). (2012). Innovation and Institutional Embeddedness of Multinational Companies: New Horizons in International Business. Edward Elgar Publishing. Hennart, J-F. M. A. (2012). Emerging market multinationals and the theory of multinational enterprise. Global Strategy Journal, 2, 168-187. Doi:10.1111/j. 2042.5805.2012.01038.x. Qi, Z. (2008). The model of expansion from local enterprises to multinational enterprises. International Journal of Business and Management, 3(8), 141-148.
  10. 10. About the Authors Dr. Greg Uche is a contributing faculty and an online professor of research methodologies in the Doctor of Business Administration (DBA) program of the College of Management and Technology at Walden University. He is currently a research specialist at Grextar Consulting in Houston Texas. He teaches quantitative research in addition to serving as chair and mentor to several doctoral students. He is a published author.
  11. 11. About the Authors Claretta T. Pam is a doctoral candidate in the Walden University School of Management. Claretta earned an MBA at the University of Phoenix and two undergraduate degrees at the UMass Boston. Her doctoral topic is: An Exploration of Immigrant Entrepreneurs Perceptions of Business Success. Ms. Pam is the managing director of Global Nebula LLC,CEO at the Boston School of Real Estate, Global Realty & Investment Corp and is lead publisher at Innovative Publishers Inc. in Boston, Massachusetts.