Marc Casson's Internalization Theory Analysis

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One of the theories that is usually applied to analyze FDI, licensing and subcontracting is the Internalization Theory proposed by Marc Casson. Internalization theory says that the available external markets fail to provide a profitable environment where the firm can use its technology or production resources. Therefore, the firm tends to replicate an internal market via investment in multiple countries and creating the required market conditions to achieve its objective. A typical MNE (multinational enterprises) achieves its objectives not only through exploiting it proprietary knowledge but also through internalizing operations and management. Internalization is the activity in which an MNE internalizes its globally dispersed foreign operations …show more content…

Ownership of limited natural resources, patents, trademarks etc, is some of the examples of ownership advantages. When the first condition is fulfilled, then location advantages determine who will become the host country for the activities of MNCs. Benefits of quantitative and qualitative factors of production, resource availability, lower costs of transportation, telecommunications, and large market size, common government policies, and distance from the home country, cultural relations etc. are the location specific advantages. I stand for internalization. When the first two conditions are fulfilled, it must be profitable for the firm to use these advantages in collaboration of some of the factors outside the country of origin using the OLI model, one can arrive at four reasons for which an MNE may choose to invest in a host country. These are
• Resource seeking : in this category the main aim of the MNEs is that of acquiring particular types of resources that they are not available at home (like natural resources or raw materials) or that are available at a lower cost (such as unskilled labor that is offered at a cheaper price with respect to the home

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