International Business: Theory and effects of FDI

- Diese Veranstaltung ersetzt das Modul "International Corporate Management and MNCs" und wird ab WS 2013/14 durch PD Dr. Johannes Stephan gelesen. Die Materialien zu dieser Veranstaltung werden zu gegebener Zeit aktualisiert -

Responsible: Dr. Johannes Stephan

The module is offered every winter semester (Oct - Feb) and is mainly designed for IBDEM-students of the first semester. The material for the course and the seminar can be accessed through OPAL (link below).

Material for the lectures and seminars


The intention of this module is to teach students the particularities of international business where several international markets are involved.
This draws upon the rich theoretical and case-study knowledge generated by scientists and practitioners.
The module should help to-be-managers or high-level public administration employees to prepare for the particular challenges and problems involved with the internationalisation of firms and the governance of foreign direct investment and multi-national corporations.

The module consists of two courses: "Economic theories of internationalisation and TNC" and "Economic analysis of TNCs and policy-implications".


Course 1: Economic theories of internationalisation and TNC

  1. The Transnational Corporation is a particular kind of firm
    • Developing the reasons of existence of TNCs
    • Defining a TNC
    • An empirical representation of TNCs in the world
    • TNCs in emerging markets
    • Micro-Multinationals and “How start-ups go global”
  2. Hymer’s theory of the multinational firm: market imperfections
    • From capital movements to foreign direct investment (FDI): control
    • From the transfer of funds to knowledge, technology, and machinery
    • Why do firms invest abroad? Oligopolistic market structure, powerIndikatoren der Entwicklung
  3. Product life cycle: a maturing theory
    • Life cycle phases and factor intensities
    • Factor intensities and technology gaps between countries
    • Diminishing applicability
  4. Internalisation theory: transaction costs and market failure
    • Coase’s theory of growth of firms
    • Williamson’s transaction cost economies
    • Buckley and Casson: knowledge markets
    • Caves: three types of MNEs
  5. Dunning’s eclectic OLI-paradigm
    • General theory of internationalisation (trade, international production, licensing)
    • Strategies for “why, when, and where”
    • Determinants “ownership, locational, and internalisation advantages”
    • Refinements, e.g. FDI motives (natural resource, market, efficiency, strategic assets-seeking), cooperative relationships, resource-based, knowledge-based views
    • Dynamisation of the OLI paradign
    • Institutions and OLI
  6. The Scandinavian School: stages in the internationalisation process
    • Empirical inductive method, focus on market and marketing
    • Dynamic aspect of the concept: state aspects, change aspects
    • The “establishment chain” and “psychic distance”
  7. Cantwell’s theory of technological accumulation
    • Theory of internationalisation linked to innovation and technology
    • Firm as active generator of competitive advantage (O-advantage)
    • Internationalisation as “developmental outcome of the competitive process”
    • Dynamism: interaction between I and O-advantages
    • Cantwell’s double networks
  8. Kogut and Zander’s theory of MNCs as social communities
    • Departing from market failure
    • Departing from transaction cost theory
    • MNCs as social communities and the transfer of tacit knowledge
  9. Verbeke’s evolutionary theory of the MNE
    • Verbeke (2003) as a critique of Kogut/Zander

Course 2: Economic analysis of TNCs and policy-implications

  1. FDI and host country effects
    • Focus on technology transfer
    • Useful theories
    • Overview of literature, methods, and empirical results
  2. MNCs, technology transfer and spillovers in transition economies
    • Definitions
    • Technology transfer and spillovers
    • Spillovers channels
    • Spillover determinants
    • Evolution of spillover models
    • Empirical evidence from CEE
  3. Internationalisation of technological activity and the role of TNCs
    • Key quantitative trends in global R&D
    • Why do some firms favour geographically concentrated R&D?
    • Why do some firms internationalise R&D?
    • How do TNCs organise internationalised R&D?
  4. Absorptive capacities of foreign affiliates and two-way dynamic technology transfer
  5. FDI and national innovation systems, embeddedness, technological activity (R&D and innovations)
  6. TNCs and Intellectual Property Rights
  7. Foreign Direct Investment policies
    • Motivating FDI policy
    • Pitfalls and dangers of FDI policies
    • Overview of policy-strategies and instruments
    • Main questions to be asked/answered
    • Some conclusions

Time and duration

2 semesters (2 hours per week lectures and 2 hours per week seminars), winter semesters only


Each student has to do a presentation of 20 minutes and do the final written test of 120 minutes. The overall mark for the cluster is computed as the weighted average of the marks for the written test (80%) and the presentations (20%).

ETCS - points

6 ETCS points are credited for 180 hours, of which 60 (academic) hours are spent in class and the remainder is spent on self-study.

Basic literature

Course 1: Economic theories of internationalisation and TNC

  • Cantwell, J. (2000), A survey of theories in international production, in Pitelis and Sugdon (eds) The Nature of the Transnational Firms, 2nd edition, London: Routledge
  • Dunning, J. and S.M. Lundan (2008), MNE and the Global Economy, 2nd edition, EE, chapters 1 and 2, pp. 3-62
  • Ietto-Gilles, G. (2005), TNC and International Production, EE, chapters 1 though 4, pp. 7-56
  • World Investment Report (2005), Transnational Corporations and the Internationalization of R&D: Chapter VI: Development implications, pp. 179-200

Course 2: Economic analysis of TNCs and policy-implications

  • Blomström, M. and A. Kokko (1998), MNCs and spillovers, Journal of economic surveys, Vol. 12, No. 2, pp. 1-31
  • Dunning, J. and S.M. Lundan (2008), MNE and the Global Economy, 2nd edition, EE, chapter 19, pp. 665-706
  • Ietto-Gilles, G. (2005), TNC and International Production, EE, chapters 15, 16, and 17, pp. 163-200
  • Jindra, B. (2006), The theoretical framework: FDI and Technology Transfer in Johannes Stephan (ed) Technology Transfer via Foreign Direct Investment in Central and Eastern Europe – Theory, Method of Research and Empirical Evidence, Houndsmill, Basingstoke (UK): Palgrave Macmillan, Chapter 2 (pp. 6-29)
More literature will be provided during the semester!