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Information technology and transnational integration: Theory and evidence on the evolution of the modern multinational enterprise

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  • Subramanian Rangan

    (INSEAD, Fontainebleau, France)

  • Metin Sengul

    (Boston College, Chestnut Hill, USA)

Abstract

Reflecting amplified hazards in cross-border exchange and imperfections in markets for intangibles, internalization has been central in multinational enterprise (MNE) theory. This centrality notwithstanding, the fact is that internalization coheres with lower-powered incentives and carries an implicit drawback, namely, higher realized production costs. With the emergence and deployment of information and communication technology (ICT), modern MNEs are reshaping their transnational governance to address this cost. The modern MNE uses ICT to mitigate transaction costs, and evolves more to arm's length exchange to incentivize lower production costs. A testable prediction is that MNEs in industries more susceptible to and employing more ICT will exhibit a reduced propensity for transnational integration. We examine this hypothesis using available data from 1982 to 1997 for US MNEs across all manufacturing sectors. Regression results and robustness tests are strongly congruent with the prediction. This study, a first to explore empirically the role of ICT in the evolution of transnational exchange, suggests that MNE theory, until now founded primarily on transaction cost economics and a cross-border control theory of value capture, is more likely to keep pace with developments in MNE practice by opening up to incentive theories of exchange governance and a cross-border coordination theory of value creation.

Suggested Citation

  • Subramanian Rangan & Metin Sengul, 2009. "Information technology and transnational integration: Theory and evidence on the evolution of the modern multinational enterprise," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 40(9), pages 1496-1514, December.
  • Handle: RePEc:pal:jintbs:v:40:y:2009:i:9:p:1496-1514
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    Cited by:

    1. Wenjie Chen & Fariha Kamal, 2016. "The impact of information and communication technology adoption on multinational firm boundary decisions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 47(5), pages 563-576, June.
    2. Mauri, Alfredo J. & Neiva de Figueiredo, João, 2012. "Strategic Patterns of Internationalization and Performance Variability: Effects of US-Based MNC Cross-Border Dispersion, Integration, and Outsourcing," Journal of International Management, Elsevier, vol. 18(1), pages 38-51.
    3. Luo, Yadong & Bu, Juan, 2016. "How valuable is information and communication technology? A study of emerging economy enterprises," Journal of World Business, Elsevier, vol. 51(2), pages 200-211.
    4. Pezderka, Noemi & Sinkovics, Rudolf R., 2011. "A conceptualization of e-risk perceptions and implications for small firm active online internationalization," International Business Review, Elsevier, vol. 20(4), pages 409-422, August.
    5. Grigori Feiguine & Julia Solovjova, 2013. "ICT Investment and Internationalization of the Russian Economy," EIIW Discussion paper disbei196, Universitätsbibliothek Wuppertal, University Library.
    6. repec:spr:manint:v:51:y:2011:i:2:d:10.1007_s11575-011-0071-6 is not listed on IDEAS
    7. Grigori Feiguine & Julia Solovjova, 2014. "ICT investment and internationalization of the Russian economy," International Economics and Economic Policy, Springer, vol. 11(1), pages 231-250, February.
    8. Mauri, Alfredo J. & Lin, Jing & Neiva De Figueiredo, João, 2013. "The influence of strategic patterns of internationalization on the accuracy and bias of earnings forecasts by financial analysts," International Business Review, Elsevier, vol. 22(4), pages 725-735.

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