Internationalization Theory

INTERNALIZATION THEORY

AND ITS IMPACT ON THE FIELD

OF INTERNATIONAL BUSINESS

Alan M. Rugman and Alain Verbeke

ABSTRACT

Internalization theory explains the existence and functioning of the

multinational enterprise. It contributes to understanding the boundaries

of the multinational enterprise, its interface with the external environment

and its internal organizational design. Much work in the international

strategic-management sphere has unfortunately not taken on board

internalization-theory thinking and lacks the insights provided by this

comparative institutional approach. In this chapter, we show how wellknown international strategic-management models could be enriched and

their normative implications altered by adopting an internalizing-theory

lens.

INTRODUCTION

In this chapter we examine several international strategic-management

models revisited through an internalization-theory lens. Internalization

theory explains the existence and functioning of the multinational enterprise

International Business Scholarship: AIB Fellows on the First 50 Years and Beyond

Research in Global Strategic Management, Volume 14, 155–174

Copyright r 2008 by Emerald Group Publishing Limited

All rights of reproduction in any form reserved

ISSN: 1064-4857/doi:10.1016/S1064-4857(08)00003-X

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ALAN M. RUGMAN AND ALAIN VERBEKE

(MNE) (Rugman, 1981) and it contributes to understanding the boundaries

of the MNE, its interface with the external environment and its internal

organizational design.

Conventional internalization theory has focused primarily on explaining

which parameters would stimulate firms to expand across borders, and on

entry-mode choice. More recent internalization-theory extensions have

focused on establishing linkages with strategic-management perspectives on

the MNE and on describing differentiated-network MNEs. The great

strength of internalization theory is its comparative institutional approach

to assessing the...