The process of internalization is strategic, it serves as an efficient method for corporations to maintain dominance within a market. Internalization of the market is buying up competition instead of risking to compete with them. It poses as an alternate solution to competing. A key example of internalization is when a corporation has competition in the same market, but the competitor has some sort of advantage; such as technological advancements. Instead of the dominant firm attempting to create its own technology similar to the competitor, the firm can simply buy up the competition. This will not only reduce the competition, but it will also provide the firm with access to the competitor’s advantage. This internalization is consistent with the OLI model; which is a liberal theory that is a possible explanation for why MNCs go international. Dunning views markets as spontaneous, natural and imperfect regarding property knowledge. OLI theorizes that corporations have incentives to internalize the market. This incentive is due to the profit maximizing motives. For example, its more efficient to buy up competition and their technology instead of attempting to create the technology. OLI has three requirements of MNCs; 1) MNCs must own specialized knowledge. 2) Foreign investment must be more advantageous than home markets and 3) Export and licensing agreements must be less attractive than FDI. This OLI model is complimented by Spero and Hart’s oligopoly theory which claims that firms move aboard to exploit the monopoly power they possess through factors such as unique production, control of technology etc. it should be noted that both of these models focus on competitive advantage or core competence strategy. The knowledge, skills and resources that corporations possess provide them with a competitive advantage compared to others. A key factor that increases competitive advantage is the division of labour which is when production is spilt up into various specific activities and carried out by affiliates in different locations. A location which is best suited to that particular production or service, thus providing a competitive advantage. A key success of the division of labour is illustrated by international subcontracting. The offshore sub-contracting by firms is an example this. Finally, the internalization process is likely to reduce exports and licensing. As illustrated by the requirements of OLI, internalization is successful if licensing and exports are less advantageous. Therefore, it is evident that internalization will result in the reduction of these other methods. Internalization proves to be an efficient model, however, with technology continuously expanding, internalization has become too costly or difficult. Due to this, corporations should conduct cost-benefit analysis of all three models (OLI, PCM, GRP) in order to determine which model is best and if they should even go international.
The Multilateral Agreement on Investment (MAI) was being negotiated to “facilitate international investment by ensuring that host governments treat all foreign and domestic firms similarly” (Kobrin, 1998). This agreement faced harsh scrutiny as it was largely beneficial to one side (the affluent world). These negotiations were conducted by OECD countries whose mandate is to pursue the economic growth of its member states; all but three who are countries from the Global North. This in itself is an issue because that means the MAI is being discussed by and will likely only benefit the OECD members, thus the Global North. Critics of the MAI claimed it would immensely empower corporations, even to the point where they could use their “sovereign power to govern countries” (Kobrin, 1998). The MAI was considered a “major and immediate threat to democracy, sovereignty, the environment, human rights and economic development” (Kobrin, 1998, p.98). The main concerns the public had regarding the MAI focused on “treating foreign firms as national, extending benefits to foreign investors, bans on performance requirements exportation clause and the right of corporations to sue governments” (Kobrin, 1998, p.102). The last concern is one of the most crucial concerns, the MAI would provide corporations with such great power that they could sue governments. This means that if governments supported environmental policies that hindered corporate profits then corporations would have the right to sue. Critics argue that acceptance of the MAI will have devastating health, environmental, human rights impacts. The issue that is extremely interesting about the MAU is how it was halted. Preamble collective brought the MAI agreement forward to the public. What was previously a discussion being had secretively for three years became public internationally. Media and increased technology has a large hand in achieving this as the incomplete agreement was uploaded onto the internet. This sparked wide spread debate across the world regarding the concerns of the MAI. Media was a grand component of raising awareness as well as creating resistance for the MAI; such as protests, debates and pledges. Media serves as a tool to bond a broad range of groups (human rights, and environmental activists) in order to oppose the MAI. Some people argue that media didn’t serve to halt the MAI, however, it can be argued that media’s ability to raise awareness quickly enabled these other components to occur. Media’s bringing forth of the issue is the initial incident and therefore it has one of the greatest hands in preventing the MAI.
Stephen Kobrin(1998) “The MAI and the Clash of Globalizations,”Foreign Policy