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  • Print publication year: 2009
  • Online publication date: July 2009

12 - Israeli multinationals: Competing from a small open economy

from Part II - Country Studies

Summary

Orthodox IB theory initially depicted MNEs as giant firms based in large, developed home markets. The headquarters of these MNEs transfer technology, management know-how, and capital from the home country to their various subsidiaries. Only much later did some researchers recognize that an MNE could be a knowledge seeker in addition to being a knowledge creator. Established MNEs endeavor to augment their knowledge by getting access to foreign-created knowledge, for example by acquisition of foreign firms. The MNE participates in various kinds of localized knowledge simultaneously (Rugman and Verbeke, 2001). The acquired knowledge is then transferred from one subsidiary to another or even to headquarters.

Today, established MNEs actively search outside the firm for technologies, ideas, and products. Procter and Gamble, for example, expects half of its future products to be based on technologies and concepts it will acquire from third parties (on the process see, for example, Huston and Sakkab, 2006). They acquire new technology rather than transferring existing technologies.

Porter's (1990a, 1990b, 1998) “demand conditions” are a major part of his “diamond.” Firms must have a large home base in order to develop the skills to operate an MNE and to prosper. MNEs possess FSAs that are transferred to a network of subsidiaries in other locations. FDIs, therefore, are assumed to flow from large, developed economies to other developed economies as well as to less developed ones.

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