Theories of the multinational firm: A microfoundational perspective

• Author: Alain Verbeke,Liena Kano
• Date: 01 February 2019
• DOI: http://doi.org/10.1002/gsj.1332
• Published date: 01 February 2019

SPECIAL ISSUE ARTICLE

Theories of the multinational firm:

A microfoundational perspective

Liena Kano

1

| Alain Verbeke

2,3,4

1

Department of Strategy and Global Management,

Haskayne School of Business, University of

Calgary, Calgary, Alberta, Canada

2

Department of International Business Strategy,

McCaig Chair in Management, Haskayne School

of Business, University of Calgary, Calgary,

Alberta, Canada

3

Solvay Business School, Vrije Universiteit

Brussel (VUB), Brussels, Belgium

4

Inaugural Alan M. Rugman Memorial Fellow,

Henley Business School, University of Reading,

Reading, UK

Correspondence

Liena Kano, Department of Strategy and Global

Management, Haskayne School of Business,

University of Calgary, Calgary, Alberta T2N 1N4,

Canada.

Email: liena.kano@haskayne.ucalgary.ca

Research Summary:We analyze the six c ore internatio nal

business (IB) strategy frameworks highlighted by Forsgren

(2013) to identify the explicit or implicit microfoundations

embedded therein. We start from two, broad microfounda-

tions, namely bounded rationality and bounded reliability,

covering a total of ten microfoundational facets, recently

put forward as supposedly essential to any predictive and

managerially relevant theory of the firm (Kano and Ver-

beke, 2015). We show how these various facets, embedded

in the conceptual foundations underlying the various theo-

retical approaches, can be made actionable by articulating

them explicitly and by connecting them to firm-level IB

strategy outcomes. We also describe how reflecting on

these microfoundational facets and on the likely a ctionable

implications thereof for managerial decision making, allows

enhancing these theories’conceptual power, predictive

capacity, and managerial relevance.

Managerial Summary:We analyze the six main theories

of the multinational enterprise (MNE), as described in

Mats Forsgren’s (2013) classic book, Theories of the Mul-

tinational Firm. We assess whether individual-level

assumptions about managerial behavior and decision-

making are present in the logic of the theories. We find

that each theory builds upon specific micro-level assump-

tions, but these assumptions are typically neither articu-

lated, nor linked to MNE strategy decisions, e.g., in the

realm of geographic footprint, operating mode selection,

interaction with the external environment, internal organi-

zation etc. We show how assumptions about human

behavior implied in IB theories can be made actionable by

spelling these out and connecting them to international

strategic choices by MNEs. We also describe how reflect-

ing on micro-level assumptions can enhance actionable

managerial implications of IB theory.

Received: 31 May 2016 Revised: 15 March 2017 Accepted: 22 August 2017

DOI: 10.1002/gsj.1332

Global Strategy Journal. 2019;9:117–147. wileyonlinelibrary.com/journal/gsj © 2018 Strategic Management Society 117

KEYWORDS

behavioral assumptions, bounded rationality, bounded

reliability, foreign direct investment, microfoundations,

multinational enterprise

1|INTRODUCTION

International business (IB) strategies of multinational enterprises (MNEs) are strongly affected by

behavioral drivers (Bouquet & Birkinshaw, 2011). This is true particularly in the realm of governance

choices—such as decisions on where to locate operations, how to enter foreign markets, and how to

organize geographically dispersed value chains. Theories of the MNE—especially core theories such

as internalization (Buckley & Casson, 1976) and the Uppsala model (Johanson & Vahlne, 1977,

2009)—are “essentially theories of managerial choice”(Buckley, Chen, Clegg, & Voss, 2016,

p. 139), and as such call attention to the microlevel detail of managerial decision-making.

For IB strategy frameworks to claim managerial relevance, they must build upon plausible micro-

foundational assumptions. Some noteworthy strides have been recently made in this regard. Buckley,

Devinney, and Louviere (2007) show how heterogeneous managerial characteristics affect various

stages of foreign direct investment (FDI). Bouquet and Birkinshaw (2011) develop an attention-based

view of the firm by linking top management's characteristics to the firm's realized international strate-

gies. Buckley et al. (2016) employ the microfoundations approach to enhance FDI theory, through a

fuller understanding of managerial risk attitudes. Still, the IB strategy field needs to achieve an even

more fundamental inclusion of microfoundations in its theoretical approaches, beyond focusing

mainly on how managers address risk and uncertainty issues. Further, the field would benefit greatly

from a nuanced understanding—meaning a situational determination rather than a dispositional

one—of microfoundational assumptions, and of the ways in which these nuances can affect (perfor-

mance) outcomes at commonly adopted levels of analysis, which can be the individual transaction,

the process/routine, the firm as a whole, the firm's network, and so on.

One recent perspective, articulated by Kano and Verbeke (2015), proposes a generalized

approach to the usage of microfoundations in the social sciences. Using comparative institutional

analysis as their conceptual lens, Kano and Verbeke (2015) argue that managerial analysis of the

MNE, and of the firm more broadly, should build upon two microfoundational assumptions, with a

view to improve and potentially optimize key strategic decisions, such as those on organizational

structure and managerial practices: bounded rationality (BRat) and bounded reliability (BRel), with

the latter reflecting imperfect effort to make good on open-ended promises. In this paper, we aim to

assess the potential usefulness of the above combination of two microfoundations by reviewing the

mainstream IB strategy theories through this dual microfoundational lens. We use as our intellectual

anchor Mats Forsgren's (2013) insightful book, “Theories of the multinational firm.”Forsgren pre-

sents what he considers the six core theoretical perspectives of the MNE developed and launched

over the last 50+ years: the first theory of FDI, as articulated by Stephen Hymer; internalization the-

ory; the organizational capabilities (OC) perspective; contingency theory; network theory; and insti-

tutionalization theory. Forsgren (2013) competently discusses the roots, relevance, limitations, and

interplay of these alternative approaches. While the reader is left with the clear impression that

118 KANO AND VERBEKE