Abstract/Summary

In a recent ‘‘Point’’ in this journal, Forsgren and Holm (J Int Bus Stud, 2021. https://doi.org/10.1057/s41267-021-00416-3) suggest that internalization theory cannot explain the external business relationships of multinational enterprises (MNEs). In contrast, in this Commentary we suggest that classic internalization theory is actually well equipped to do so, once scholars move beyond the simple market versus firm dichotomy (used mainly for pedagogical reasons in extant research). We build upon Coasean thinking, a foundation of the classic internalization perspective, to show that decisions on internalization are embedded in the institutional theory of the allocation of property rights. Property rights theory can explain ownership and control decisions, but also more broadly the allocation of decision rights in institutional arrangements. This broader focus on decision rights, beyond the simple ownership and control distinction, resolves the dilemma that Forsgren and Holm put forward. Any given distribution of decision rights does not come about in a costless, frictionless, or timeless fashion, which means that attention must be paid not only to the relative costs of different modes of operation but also to the costs of getting to a resolution among parties, to the process of doing so, and to the institutional and legal framework binding the arrangement. Ownership and control are shorthand terms for particular bundles of decision rights but these need to be examined in a broader context of decision rights.