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According to Rugman and Verbeke (2003), the transaction-cost related scholarly work especially in regards to Multinational Enterprises (MNEs) has been compressively addressed by Buckley and Casson in their scholarly book entitled The Future of the Multinational Enterprise. Although the authors argue that there is misguiding information on the relationship that exists between international management and international business, Madhok and Phene (2001) tend to agree with this notion but on a different platform altogether. According to the latter, multinational activities of business operations can only be best described using the electric paradigm framework.
The authors continue to assert that this paradigm has either been largely ignored or underestimated. Furthermore, Rugman and Verbeke (2003) are quite categorical that the transaction-cost-based reasoning as expounded by Buckley and Casson forms a beacon of clarity when discussing the MNEs. On the other hand, Madhok and Phene (2001) are quite categorical that in addition to the electric paradigm, the Strategic Management Theory is critical when evaluating the performance variations among different firms and especially when employing the Ownership, Location-specific, and Internalization (OLI) framework. Nonetheless, both papers attempt to expound on various theories that affect the operation of international firms.
Rugman and Verbeke (2003) posit that the differentiated network of MNEs in international business is a core function of transaction-cost-based related ideology. However, the authors are not conclusive that Buckley and Casson’s literature can fully describe the complex functioning of MNEs, especially in the 21st-century world. However, the aforementioned source provides a stable and quite reliable starting point when studying MNEs.
On a similar note though, Madhok and Phene (2001) almost unanimously agree with this reasoning bearing in mind that both strategic management and economic perspectives have been highlighted as major triggers when studying MNEs. Additionally, both articles argue out that both perspectives have been studied in the periphery for the past twenty-five years or so with little regard for their importance in modern multinational corporations.
While the transaction-cost theory mainly focuses on the overall cost of running any form of a Multinational Enterprise (MNE), the strategic management theory and the electric paradigm framework as put forward by Madhok and Phene (2001) are quite holistic when discussing the operation of international corporations. For instance, strategic management theory encompasses human resources, financial accounting procedures as well as general auditing of an organization to determine its immediate, short-term, and long-term needs. On the other hand, the transaction-cost reasoning attempts to seek ways and means of strategic utilization of organizational resources for purposes of optimizing profit margins.
While Rugman and Verbeke (2003) think that the overall cash flows of an MNE do not depend on the location of implementers, the strategic management theory as described by Madhok and Phene (2001) demands that the proximal presence of those charged with the duty of effecting organizational obligations such as set goals. Regardless of the approach advanced by both articles, both strategies, and lines of thinking lead to the competitiveness of an organization.
In terms of the critical evaluation of the two articles, it is worth noting that although the OLI framework has been applied for a considerably long period, its tenet is yet to be fully understood and appreciated by other scholars in the field of international trade. Notwithstanding its applicability, it is fair to assert that it assists in highlighting the effective operations of MNEs since it is by far and large, an efficiency argument. Furthermore, the Rugman and Verbeke (2003) standing point on differentiated network multinational brings out the existing complexity when managing subsidiaries of an MNE. As such, the transaction-cost theory falls short of its principle that implementers are not critical in various locations where MNEs operate especially when managing cash flows. This appears to be a slight limitation on this theory.
References
Madhok, A. & Phene, A. (2001). The Co-evolutional Advantage: Strategic Management Theory and the Eclectic Paradigm. International Journal of the Economics of Business 8(2): 243-256.
Rugman, A. M & Verbeke, A. (2003). Extending the theory of the multinational enterprise: internalization and strategic management perspectives. Journal of International Business Studies 34, 125–137.
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