Revisiting the impact of multinational enterprises on economic development

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Abstract

In recent years the issues around impact of MNE activities on economic development has moved to a more central position within IB scholarship. This is a significant development in the IB literature, and constitutes an extension and enriching of the domain of international business as a field of study. In the past, international business scholarship was not particularly concerned with the development issue, probably reflecting the notion that inquiries beyond the firm as unit of analysis are not in the domain of international business (Nehrt, Truitt, & Wright, 1970; Ricks, 1985). The developmental impact of IB activity has not been totally ignored in earlier literature as is witnessed by the numerous studies on the incidence of spillover and technology transfer. However, these studies mostly focused on FDI flows at a fairly aggregate level and did not address, in a central way, the effect of MNE strategies and their internal structures on spillover or technology transfer processes. Thus developmental issues occupied a fairly marginal position within the broad field of international business, and the general consensus was that the developmental impact of MNE activity was overwhelmingly positive. We have now a much more engaged stance with the development issue (see e.g., Meyer, 2004 and Ramamurti, 2004) in part reflecting the fact that the earlier optimism regarding FDI as ‘an engine of development’ (UNCTAD, 1992) has virtually evaporated and replaced with an arguably more realistic assessment. This is largely because globalization has radically transformed the context within which the developmental impact of IB activity needs to be considered (Buckley & Ghauri, 2004). Growing liberalization has significantly increased the location options of MNCs whilst the progress of technology, the extensive development of modularization, contract manufacturing in many industries and the revolution of ICT has radically altered the spatial and organizational configuration of activities (Buckley & Ghauri, 2004). As a consequence of these changes MNCs have undergone far reaching organizational changes and moved away from the federative organization in which country level subsidiaries often enjoyed considerable organizational autonomy. The current organizational structure is more typically that of a ‘flagship’ whereby the parent organization directly develops a network of suppliers or key inputs providers who themselves often have a regional or even global scope. In this context IB scholars have argued that the investigation of the ‘external’ effects of IB strategy, including its developmental impacts must be a more central concern in the main stream of IB research (Buckley & Ghauri, 2004; Ghauri & Buckley, 2006). The traditional reliance on spillovers suggested an essentially passive stance on the part of MNCs—whereas IB scholars increasingly call for a ‘reinvention’ of MNE strategies in LDCs with a more deliberate attempt at developing local capabilities (London & Hart, 2004; Zanfei (2005)). This is particularly relevant given the rudimentary character of the governance mechanisms currently in place to handle the interdependence between LDCs and MNEs (Ghauri & Cao, 2006).

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