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Abstract and Key Results
* This paper provides a formal model of Edith Penrose's Theory of the Growth of the Firm which has important implications for the strategy of multinational enterprises.
* The model provides an analysis of the trade-off between product diversification and foreign market penetration. It also can account for the speed of entry into foreign markets.
* Formalizing Penrose's Theory of the Growth of the Firm provides an account of internationalization incorporating geographical expansion patterns, sequential decision making and learning.
Key Words
Internationalization, Multinational Firms, Global Strategic Management, Edith Penrose, Foreign Market Entry, Product Diversification
Introduction
Foss (2002, p. 148) says "Penrose's work is, in the crucial dimensions, at variance with economic orthodoxy ... It should be thought of as a contribution to economic heterodoxy" Penrose and Pitelis (2002, pp. 19 et seq.), in describing Fritz Machlup as "Edith's supervisor" at Johns Hopkins says "A fascinating paradox is how Machlup, a doyen of neo-classical economics, should have been partially responsible for a work so far removed from the mainstream". Penrose has also been claimed as a feminist economist (Best/Humphries 2003). Our argument is that Penrose sought to create a theory of the growth of the firm which was logically consistent and empirically tractable. Her subsequent adoption as grandmother of the resource based view has only limited validity, based on a selective reading of her work and in defiance of its holistic qualities. See the debate between Rugman and Verbeke (2002, 2004) and Kor and Mahoney (2004) and Lockett and Thompson (2004), the latter based on Penrose's (1960) analysis of the Hercules Powder Company.
This paper presents a formalisation of Penrose's model contained in the Theory of the Growth of the Firm (1959) and applies it to the strategic decisions of multi-national enterprises (MNEs). Previous research on Penrose and the multinational firm (e.g. Dunning 2003; Pitelis 2002, 2004) has focused on Penrose's overall contributions to strategic decisions in MNEs. This paper focuses solely on her 1959 model and compares it to the model of Buckley and Casson (1976). Interesting contrasts are found and a synthetic approach suggests that this combination is a useful basis for further theorising about the MNE and its strategic decisions.
In contrasting Penrose's theory with that of Buckley...