A critical re-evaluation of Hymer's contribution to the theory of the transnational corporation

In Yamin (1991), we provided a reassessment of Hymer’s contribution to the theory of the transnational corporation (TNC) shaped largely by the debate in the mid-1980s relating to the nature of market imperfections that were held to be the drivers of the TNC. Dunning and Rugman (1985) and Casson (1987), for example, had criticised Hymer for over-emphasising structural market imperfections at the expense of transaction costs, although even in his doctoral dissertation, Hymer (1960, published in 1976) did not totally ignore transaction costs (Yamin, 1991:74). Furthermore, in a paper written in 1968 (that came to light in 1990) he explicitly utilised Coase’s framework. Partly as a result of the discovery of this paper, it is now generally acknowledged that Hymer is the pioneer of the economic theory of the multinational company (Horaguchi and Toyne, 1990). It is significant that John Dunning, commenting on the early theoretical work on TNCs, has recently remarked that ‘considering Hymer’s work as a whole, he has probably come nearest to identifying the ingredients of a general theory’ (Dunning, 1996:33). Controversy over which type of market failure (transactional or structural) underpins the TNC has clearly subsided and most scholars of the TNC would now view that debate as sterile. Buckley (1990:658) has summed up the issue succinctly: ‘the internalisation and the market power explanations of the [TNC] should not be viewed as mutually exclusive or competing theories but should be combined to give a full and rich explanation of the growth of multinational firms’. A key issue in current debates on the TNC is whether market failure per se, and irrespective of its forms, is necessarily as pivotal a concept as has hitherto been supposed. Kogut and Zander (1993), in particular, question whether market failure and hence ‘internalisation’ is necessary to explain the TNC. This view is highly pertinent to any re-assessment of Hymer’s contribution, as market failures were central to Hymer’s analyses of the TNC. Hymer’s thesis (1976) incorporated two explanations of what he called ‘international operations’. One emphasised the possession of advantages by firms and the other the removal of conflict between them. Both explanations were heavily premised on the prevalence of structural market failures. For a number of reasons—some of which were discussed in Yamin (1991)—during the 1970s and 1980s, the advantage explanation proved highly influential while the removal of conflict explanation was virtually ignored. In Yamin (1991) it was argued that the latter explanation was likely to be the more enduring aspect of Hymer’s contribution. As explained below, in the section entitled ‘Removal of conflict’, subsequent developments seem to have confirmed that expectation. This is not to argue, however, that this aspect of Hymer’s analyses did not suffer from any weaknesses or that it can be applied without any major alteration to current issues or problems in the world economy. On the contrary, this chapter argues that both aspects of Hymer’ s contribution suffer from an over-reliance on the concept of market failure. However, this is more acute in the case of the advantage explanation.