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These exports inevitably create demand for production in these new markets.īuckley and Cusson demonstrate that the MNC organizes bundles of activities internally such that it is able to develop and exploit firm-specific advantages in knowledge and other types of intermediate products. According to John Dunning, MNCs often create an environment in which the need for their products is constantly rising, when it reaches limits the product is recreated or exported into new markets. This theory views MNCs as surviving on secrecy of innovation, dynamism of products often times focusing on aspects leading to quick market response, for example, marketing and product presentation. The basic principle is reduction of production, distribution and transaction costs. To do this, the Firm must maintain and keep results of innovation within itself while expanding the range of products and markets as well as production locations. The Firm assumes a market imperfection which generates costs and uncertainties which can be effectively avoided by internalizing transactions hence international production and consequently Multinational Corporations (MNCs). The Internalization Theory is traceable by McManus, Buckley and Cusson to the Theory of the Firm which explains the growth of firms due to the attempt to economize and cut the cost of market transactions. Based on her experience, we shall discuss the import of the Internalization Theory in understanding the emergence of at least 2 multinational corporations.
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This paper seeks to discuss the Internalization Theory in explaining the emergence of multinational corporations in a developing country-in our case, Kenya. They qualify as so if the extent of their staff establishment reflects a global representation both locally and internationally in their subsidiaries. They may also be defined in the context of the expertise and the origin of staff. Multinational corporations are business corporations based in one particular country as the mother country with subsidiaries in other countries. But first of all, what is a multinational corporation? A multinational company or business has offices, shops or factories in several countries 1. This is either through exports or through direct investment in these countries. The determinant of expansion of these firms may mean there is need to produce and sell goods and/or services in a number of countries. Multinational corporations (MNCs) are motivated by factors either internal to the investment or external to the location. Many theories have been advanced in explaining the origin, development and motivation of multinational corporations’ investments globally.