The Internalization of Societal Failures by Multinational Enterprises

Abstract

The market-internalization framework can be applied to non-economic institutions because society’s nonmarket subsystems – political, social and cultural – are subject to failures just like economic markets, and firms can contribute to their repair or replacement by selectively, strategically and responsibly internalizing the market and nonmarket arenas for these subsystems’ functions. In other words, internalization theory can be applied to the joint failures of economic and non-economic institutions, and this helps explain the growing “political role” of multinational enterprises in economies in transition as well as the phenomenon of increasing multinational-firm activity in underdeveloped economies. The limits and implications of internalization are drawn in terms of theory development, legitimacy and managerial strategies.

Keywords: Internalization, societal functions and failures, nonmarket strategies, corporate social responsibility