General Theoretical Framework

This chapter introduces the technological accumulation theory for explaining the internationalisation of firms as the general theoretical framework for the empirical analysis of foreign and West German firms based in East Germany. We start from the capability-based view of the firm, which can be regarded as the fundamental basis of the approach. This is followed by an explanation of the core elements of the theory as developed by John Cantwell, including capital and technological accumulation, technology accumulation and firm location, and the role of international intra- and inter-firm networks. The subsequent sections discuss the technological accumulation approach in the context of alternative theoretical explanations of firm internationalisation that are dominant in the field of international business, including the eclectic paradigm (Dunning 1977), the product life cycle (Vernon 1966), the internalisation theory (Buckley and Casson 1976) and the market power approach (Hymer 1960). Hence we critically appraise the propositions of the technological accumulation approach towards ownership, location and internalisation advantages; the location of R&D and innovation in the MNE; and the role of competition in final product markets. This chapter concludes with a section that relates the main propositions of the technology accumulation approach to the research questions posed by this book and briefly acknowledges the differences between this and previous analytical approaches.