Abstract
Internalization theory explains the existence of the firm because it is the most efficient way of coordinating a set of activities rather than market exchange. The firm grows when it can absorb markets and it will do so until the costs to the firm of further growth exceed the benefits. This principle is combined with theories of trade and innovation to explain the location and relative success of firms. It has proved particularly useful in explaining the growth and organizational development of multinational enterprises (MNEs) in combination with theories of entrepreneurship and culture. Recent theorizing distinguishes operational internalization from knowledge internalization, with the empirical argument that the former is declining, the latter increasing. Spatial and governance implications of the theory are at the frontier of knowledge.
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Buckley, P. (2016). Internalization Theory. In: Augier, M., Teece, D. (eds) The Palgrave Encyclopedia of Strategic Management. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-94848-2_423-1
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DOI: https://doi.org/10.1057/978-1-349-94848-2_423-1
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