The Foundations of International Business: Cross-Border Investment Activity and the Balance between Market-Power and Efficiency Effects

Joseph A. Clougherty, Jin Uk Kim, Bradley R. Skousen, Florian Szücs

Research output: Contribution to journalArticle

Abstract

The foundational international business (IB) scholarship grappled with whether multinational enterprises (MNEs) are largely efficiency-enhancing or market-power inducing institutions. Contemporary scholarship, however, often associates foreign direct investment (FDI) with efficiency-enhancing properties and thus neglects the market-power interpretation of the MNE. Such an imbalance is problematic given that the theoretical and empirical justifications behind the field's embrace of the efficiency interpretation are not fully evident. Instead, both efficiency and market-power effects are seemingly present in cross-border investment activity. Based on a comprehensive sample of up to 4,361 cross-border investments materializing between 1986 and 2010, we present theoretically-grounded hypotheses with regard to when market-power effects will tend to dominate efficiency effects. We find that cross-border investments undertaken by emerging-market MNEs in both developed and emerging markets tend to involve substantial efficiency effects and minimal market-power effects when compared with the cross-border investments undertaken by developed-country MNEs in both developed and emerging markets.

Original languageEnglish (US)
Pages (from-to)340-365
Number of pages26
JournalJournal of Management Studies
Volume54
Issue number3
DOIs
StatePublished - May 1 2017

Keywords

  • FDI
  • emerging markets
  • international acquisitions
  • multinational enterprise
  • theory of FDI

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management
  • Management of Technology and Innovation

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