Quasi-internalization, Recombination Advantages, and Global Value Chains: Clarifying the Role of Ownership and Control

In responding to the Forsgren and Holm (2021) critique of internalization theory, we develop a capability-based model of internalization and quasi-internalization, highlighting the key role of the international recombination of assets. With external control mechanisms becoming more sophisticated, full internalization has become increasingly unnecessary. Rather, the capacity to orchestrate complex networks is an increasingly important source of competitive advantage. We demonstrate that internalization theory does not need to assume that the MNE is all powerful, or that it can dictate the choice of mode with its foreign business partners. We also disagree with the argument that internalization theory presumes perfect rationality. When managers’ perceptions deviate from reality, they do indeed make wrong choices (over- and under-internalization) that come with various types of efficiency penalties. We share the Forsgren and Holm view that a learning perspective can provide insights on the evolution of an MNE’s asset recombination mode, as it gains experience and knowledge. Furthermore, we show that internalization theory has been extended to incorporate such a learning perspective.