Students name id 10 theory grew casson 2018 observes

Student’s Name ID 10
theory grew, Casson (2018) observes that in the 1990s, a ‘systems view’ was developed which
the multinational enterprise was modeled as a complex of interdependent linkages between
modular activities such as production and marketing. This approach was applied to global supply
chains in the 2000s. At the same time, a wide range of contractual alternatives to the
multinationals was examined, including franchising and subcontracting. New questions were
raised, such as whether multinationals grew from domestic firms through internalization, or
whether they were born globally. Another question was whether the multinationals were global,
or they were regional in scope. This, however, is explained by the theories of multinational
enterprise
Trade theories
The standard oligopoly model of international trade led to the rise of MNEs. Venon
(2017) observed that, in the 1960s, the trade economists at the time (and to an extent those of
today) saw MNEs as a component in the long-term capital section of the balance of payment.
Their existence led to the development of large scale exports and foreign direct investment
(FDI). FDI occurred due to the flow of capital from one country to another resulting from the
difference in interest rate. Moreover, they occurred where investors controlled foreign assets and
portfolio investment where they did not.
The view of MNE’s having rooted from the existence of foreign direct investments has
two major shortcomings. First, there is no direct match between FDI and the existence of MNEs.
Second, differences in real interest rates neither provide a necessary nor sufficient reason for the
existence of MNEs (Buckley & Casson, 2016). FDI measures the export of capital from one
country to the rest of the world. However, this is an imperfect measure of the evolution of MNEs
because a firm establishing a plant or office in a foreign country can expand without capital

HUMAN RESOURCE MANAGEMENT Student’s Name ID 11
export from the domicile country by reinvesting its profits or borrowing locally. For example, a
US study on multinational corporations revealed that the sales of these corporation’s foreign
affiliates topped up to $7 trillion in 2013 (Commerce, 2019). It is this kind of revenue that can be
reinvested in other countries.
The view that the existence of MNEs could be explained by international differences in
interest rates stood and was accepted by economists until Steven Hymner attacked it in his Ph.D.
thesis in 1970 as observed by Pitelis and Teece (2010). Hymner asked why, if FDI was motivated
by the search for higher returns, it was undertaken by firms that sought control of foreign assets.
The research also noted the presence of simultaneous FDI cross flows with the US both
exporting and importing from the same country where they even competed for resources. This
show that the trade theories did not explain fully on how there was a relation between direct
financial investments and the existence of MNE’s. This lead to economists looking into literature