Skip to main content
SpringerLink
Log in

Dynamic Capabilities and the Multinational Enterprise

  • Chapter
  • First Online:
Globalization

Abstract

Contemporary theories of the MNE have made limited progress in explaining interfirm heterogeneity. A fuller explanation should account for the uncertainties that firms face about market demand and about the costs of competing organizational alternatives. One approach is to allow a role for entrepreneurial managers who assess uncertainties on an ongoing basis and make non-routine decisions that create unique paths for the organizations they lead. This paper presents the dynamic capabilities framework, a multidisciplinary approach to analyzing the characteristics of individual firms and the sources of firm-level competitive advantage. Dynamic capabilities encompass the non-routine actions of entrepreneurial managers and the creative output of a firm’s expert talent. These capabilities are also embedded in “signature” organizational routines and processes rooted in an organization’s unique history. A dynamic capabilities approach supports a richer understanding of the distinctive characteristics of MNEs. A case study is presented that shows how the exploration division of a large multinational oil firm introduced capability awareness into the management of its global staff of geophysicists.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 119.00
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 159.00
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 159.00
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Notes

  1. 1.

    By sustained competitive advantage, I mean the ability of a firm to earn better than its cost of capital over the longer run.

  2. 2.

    Vernon’s (1966) theory of trade and investment over the product cycle comes close to recognizing market creation because it posits that multinationals invest in offshore production as their product technology matures. However, it hypothesizes that offshore plants will go into markets that are already importing the goods, which, like Coase-Williamson theories, skips over the market creation function of the MNE.

  3. 3.

    As before, failure is benchmarked against a hypothetical world of complete, fully-contingent markets and perfect competition. Accordingly, the “failure” discussed is not policy-relevant and does not require government intervention.

  4. 4.

    According to Rumelt (2011: 7), a guiding policy specifies the approach to dealing with the obstacles called out in the diagnosis. Coherent actions are feasible coordinated actions diagnosed to carry out the guiding policy.

  5. 5.

    It is not given to all managers to be entrepreneurial. While this is partly a function of the MNE’s culture and values, it is also specific to each individual’s nature and experience. Managers differ not only in the types of skill they possess but also in “their level of ability for each type of skill” (Castanias and Helfat 2001: 663.)

  6. 6.

    This section is adapted from Teece (2011) and Linden and Teece (2014).

  7. 7.

    See, for example, Schmidt and Rosenberg (2014).

References

  • Albert, S., & Bradley, K. (1997). Managing knowledge: Experts, agencies and organizations. Cambridge: Cambridge University Press.

    Book  Google Scholar 

  • Alderman, L. (2012). In Europe, Starbucks adjusts to a café culture. New York Times. Retrieved March 30, from http://www.nytimes.com/2012/03/31/business/starbucks-tailors-its-experience-to-fit-to-european-tastes.html?pagewanted=all

  • Ancona, D. G., & Caldwell, D. F. (1992). Demography and design: Predictors of new product team performance. Organization Science, 3(3), 321–341.

    Article  Google Scholar 

  • Antràs, P., & Helpman, E. (2004). Global sourcing. Journal of Political Economy, 112(3), 552–580.

    Article  Google Scholar 

  • Augier, M., & Teece, D. J. (2007). Dynamic capabilities and the multinational enterprise: Penrosean insights and omissions. Management International Review, 47(2), 175–192.

    Article  Google Scholar 

  • Augier, M., & Teece, D. J. (2009). Dynamic capabilities and the role of managers in business strategy and economic performance. Organization Science, 20(2), 410–421.

    Article  Google Scholar 

  • Barney, J. B. (1986). Organizational culture. Academy of Management Review, 11(3), 656–665.

    Article  Google Scholar 

  • Barney, J. B. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120.

    Article  Google Scholar 

  • Bartlett, C. A., & Ghoshal, S. (1989). Managing across borders: The transnational solution. Boston: Harvard Business School Press.

    Google Scholar 

  • Bartlett, C. A., & Rangan, U. S. (1986). Kentucky Fried Chicken (Japan) Limited, Case No. 9-387-043. Boston: Harvard Business School Case Services.

    Google Scholar 

  • Birkinshaw, J. (2000). Entrepreneurship in the global firm. London: Sage.

    Google Scholar 

  • Brouthers, K. D. (2013). A retrospective on: Institutional, cultural and transaction cost influences on entry mode choice and performance. Journal of International Business Studies, 44(1), 14–22.

    Article  Google Scholar 

  • Buckley, P. J. (2007). The strategy of multinational enterprises in the light of the rise of China. Scandinavian Journal of Management, 23(2), 107–126.

    Article  Google Scholar 

  • Buckley, P. J. (2009). Internalisation thinking: From the multinational enterprise to the global factory. International Business Review, 18(3), 224–235.

    Article  Google Scholar 

  • Buckley, P. J., & Casson, M. C. (1976). The future of multinational enterprise. London: Macmillan.

    Book  Google Scholar 

  • Burkitt, L. (2012). Starbucks plays to local Chinese tastes. Wall~Street~Journal. Retrieved November 26, from http://professional.wsj.com/article/SB10001424127887324784404578142931427720970.html

  • Burrows, P. (2004). The seed of Apple’s innovation. businessweek.com. Retrieved October 12, from http://www.businessweek.com/print/bwdaily/dnflash/oct2004/nf20041012_4018_db083

  • Cantwell, J. A. (1989). Technological innovation and multinational corporations. Oxford: Blackwell.

    Google Scholar 

  • Casson, M. C. (1982). The entrepreneur—an economic theory. Oxford: Martin Robertson.

    Google Scholar 

  • Casson, M. C. (1997). Information and organization: A new perspective on the theory of the firm. Oxford: Clarendon.

    Google Scholar 

  • Casson, M. C. (2000). Enterprise and leadership: Studies on firms, networks and institutions. Cheltenham: Edward Elgar.

    Book  Google Scholar 

  • Casson, M. C. (2005). Entrepreneurship and the theory of the firm. Journal of Economic Behaviour and Organization, 58(2), 327–348.

    Article  Google Scholar 

  • Castanias, R. P., & Helfat, C. E. (1991). Managerial resources and rents. Journal of Management, 17(1), 155–171.

    Article  Google Scholar 

  • Castanias, R. P., & Helfat, C. E. (2001). The managerial rents model: Theory and empirical analysis. Journal of Management, 27(6), 661–678.

    Article  Google Scholar 

  • Chandler, A. (1977). The visible hand. Cambridge, MA: The Belknap Press of Harvard University Press.

    Google Scholar 

  • Chen, M.-J., Lin, H.-C., & Michel, J. G. (2010). Navigating in a hypercompetitive environment: The roles of action aggressiveness and TMT integration. Strategic Management Journal, 31(13), 1410–1430.

    Article  Google Scholar 

  • Chesbrough, H., & Rosenbloom, R. S. (2002). The role of the business model in capturing value from innovation: Evidence from Xerox Corporation’s Technology. Industrial and Corporate Change, 11(3), 529–555.

    Article  Google Scholar 

  • China Economic Review. (2011). Original recipe: KFC remains far ahead of McDonald’s in China. chinaeconomicreview.com. Retrieved November 1, from http://www.chinaeconomicreview.com/content/original-recipe

  • Clark, D., & Tibken, S. (2011). Cisco to reduce its bureaucracy. WSJ.com. Retrieved May 6, from http://online.wsj.com/article/SB10001424052748703859304576304890449176956.html

  • Coase, R. (1937). The nature of the firm. Economica, 4(16), 386–405.

    Article  Google Scholar 

  • Dunning, J. (1981). Alternative channels and modes of international resource transmission. In R. W. Moxon & H. V. Perlmutter (Eds.), Controlling international technology transfer: Issues, perspectives and implications (pp. 3–27). New York: Pergamon Press.

    Chapter  Google Scholar 

  • Dunning, J. H., & Lundan, S. M. (2008). Multinational enterprises and the global economy. Cheltenham: Edward Elgar.

    Google Scholar 

  • Dunning, J. H., & Lundan, S. M. (2010). The institutional origins of dynamic capabilities in multinational enterprise. Industrial and Corporate Change, 19(4), 1225–1246.

    Article  Google Scholar 

  • Ernst, D., & Guerrieri, P. (1998). International production networks and changing trade patterns in East Asia: The case of the electronics industry. Oxford Development Studies, 26(2), 191–212.

    Article  Google Scholar 

  • Feiler, P., & Teece, D. (2014). Case study, dynamic capabilities and upstream strategy: Supermajor EXP. Energy Strategy Review, 3, 14–20.

    Article  Google Scholar 

  • Gans, J., & Stern, S. (2010). Is there a market for ideas? Industrial and Corporate Change, 19(3), 805–837.

    Article  Google Scholar 

  • Gereffi, G., Humphrey, J., & Sturgeon, T. (2005). The governance of global value chains. Review of International Political Economy, 12(1), 78–104.

    Article  Google Scholar 

  • Ghemawat, P. (2003). Semiglobalization and international business strategy. Journal of International Business Studies, 34(2), 138–152.

    Article  Google Scholar 

  • Gratton, L., & Ghoshal, S. (2005). Beyond best practice. MIT Sloan Management Review, 46(3), 49–57.

    Google Scholar 

  • Grossman, S. J., & Hart, O. D. (1986). The costs and benefits of ownership: A theory of vertical and lateral integration. Journal of Political Economy, 94, 691–719.

    Article  Google Scholar 

  • Grossman, G. M., & Helpman, E. (2004). Managerial incentives and the international organization of production. Journal of International Economics, 63(2), 237–262.

    Article  Google Scholar 

  • Hambrick, D. C., Cho, T. S., & Chen, M.-J. (1996). The influence of top management team heterogeneity on firms’ competitive moves. Administrative Science Quarterly, 41(4), 659–684.

    Article  Google Scholar 

  • Helfat, C. E., Finkelstein, S., Mitchell, W., Peteraf, M. A., Singh, H., Teece, D. J., et al. (2007). Dynamic capabilities: Understanding strategic change in organizations. Oxford: Blackwell.

    Google Scholar 

  • Hennart, J. F. (2009). Down with MNE-centric theories! Market entry and expansion as the bundling of MNE and local assets. Journal of International Business Studies, 40, 1432–1454.

    Article  Google Scholar 

  • Hennart, J. F. (2010). Transaction cost theory and international business. Journal of Retailing, 86(3), 257–269.

    Article  Google Scholar 

  • Huselid, M. A., Beatty, R. W., & Becker, B. E. (2005). A players or a positions? Harvard Business Review, 83(12), 110–117.

    Google Scholar 

  • IfM, & IBM. (2008). Succeeding through service innovation. Cambridge: University of Cambridge Institute for Manufacturing. http://www.ifm.eng.cam.ac.uk/dlregister/ccdf17e234a153587c7c88c027429367/resources~service~succeeding-through-service-innovation/

  • Janis, I. L. (1972). Victims of groupthink: A psychological study of foreign-policy decisions and fiascoes. Boston: Houghton, Mifflin.

    Google Scholar 

  • Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.

    Article  Google Scholar 

  • Kesmodel, D. (2011). Boeing examines supply chain for weak links. WSJ.com. Retrieved December 30, from. http://online.wsj.com/article/SB10001424052970204058404577111091095438300.html

  • Kogut, B., & Zander, U. (1993). Knowledge of the firm and the evolutionary theory of the multinational corporation. Journal of International Business Studies, 24, 625–645.

    Article  Google Scholar 

  • Larson, J. R., Jr. (2007). Deep diversity and strong synergy: Modeling the impact of variability in members’ problem-solving strategies on group problem-solving performance. Small Group Research, 38(3), 413–436.

    Article  Google Scholar 

  • Linden, G., & Teece, D. J. (2014). Managing expert talent. In P. Sparrow, H. Scullion, & I. Tarique (Eds.), Strategic Talent Management: Contemporary Issues in International Context (pp. 87–116). Cambridge: Cambridge University Press.

    Chapter  Google Scholar 

  • McGirt, E. (2008). Revolution in San Jose. Fast Company, 131, 90–93.

    Google Scholar 

  • Melitz, M. J. (2003). The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica, 71(6), 1695–1725.

    Article  Google Scholar 

  • Nonaka, I., & Toyama, R. (2007). Strategy as distributed practical wisdom (Phronesis). Industrial and Corporate Change, 16(3), 371–394.

    Article  Google Scholar 

  • Penrose, E. G. (1959). The theory of the growth of the firm. New York: Wiley.

    Google Scholar 

  • Pfeffer, J. (2001). Fighting the war for talent is Hazardous to your organization’s health. Organizational Dynamics, 29(4), 248–259.

    Article  Google Scholar 

  • Pisano, G., & Teece, D. J. (2007). How to capture value from innovation: Shaping intellectual property and industry architecture. California Management Review, 50(1), 278–296.

    Article  Google Scholar 

  • Pitelis, C. N. (2004). Edith Penrose and resource—based view of (international) business strategy. International Business Review, 13(4), 523–532.

    Article  Google Scholar 

  • Pitelis, C. N. (2007). Edith Penrose and a learning—based perspective on the MNE and OLI. Management International Review, 47(2), 207–220.

    Article  Google Scholar 

  • Pitelis, C. N., & Teece, D. J. (2010). Cross-border market co-creation, dynamic capabilities and the entrepreneurial theory of the multinational enterprise. Industrial and Corporate Change, 19(4), 1247–1270.

    Article  Google Scholar 

  • Reich, R. (2002). The future of success: Working and living in the new economy. New York: Vintage.

    Google Scholar 

  • Rugman, A. M. (1981). Inside the multinationals: The economics of internal markets. New York: Columbia University Press.

    Google Scholar 

  • Rugman, A. M., & Verbeke, A. (2003). Extending the theory of the multinational enterprise: Internalization and strategic management perspectives. Journal of International Business Studies, 34(2), 125–137.

    Article  Google Scholar 

  • Rumelt, R. (2011). Good strategy/bad strategy: The difference and why it matters. New York: Crown Business.

    Google Scholar 

  • Santos, J., Spector, B., & Van der Heyden, L. (2009). Toward a theory of business model innovation within incumbent firms. Faculty & Research Working Paper 2009/16/EFE/ST/TOM. INSEAD, Fontainebleau, France. http://flora.insead.edu/fichiersti_wp/inseadwp2009/2009-16.pdf

  • Schmidt, E., & Rosenberg, J. (2014). How Google works. Business Plus.

    Google Scholar 

  • Shuen, A., Feiler, P., & Teece, D. (2014). Dynamic capabilities in the upstream oil and gas sector: Managing next generation competition. Energy Strategy Review, 3, 5–13.

    Article  Google Scholar 

  • Siebdrat, F., Hoegl, M., & Ernst, H. (2009). How to manage virtual teams. MIT Sloan Management Review, 50(4), 63–68.

    Google Scholar 

  • Spencer, B. J. (2005). International outsourcing and incomplete contracts. Canadian Journal of Economics, 38(4), 1107–1135.

    Article  Google Scholar 

  • Sturgeon, T. J. (2002). Modular production networks: A new American model of industrial organization. Industrial and corporate change, 11(3), 451–496.

    Article  Google Scholar 

  • Subramaniam, M., & Youndt, M. A. (2005). The influence of intellectual capital on the types of innovative capabilities. Academy of Management Journal, 48(3), 450–463.

    Article  Google Scholar 

  • Teece, D. J. (1975). The multinational corporation and the resource cost of international technology transfer. Philadelphia: Economics Department, University of Pennsylvania.

    Google Scholar 

  • Teece, D. J. (1981a). The multinational enterprise: Market failure and market power considerations. Sloan Management Review, 22(3), 3–17.

    Google Scholar 

  • Teece, D. J. (1981b). The market for know-how and the efficient international transfer of technology. Annals of the Academy of Political and Social Science, 458(November), 81–96. In R. G. Hawkins & A. J. Prasad (Eds.), Technology transfer and economic development. Greenwich, CT: JAI Press.

    Google Scholar 

  • Teece, D. J. (1986a). Transaction cost economics and the multinational enterprise: An assessment. Journal of Economic Behavior and Organization, 7(1), 21–45.

    Article  Google Scholar 

  • Teece, D. J. (1986b). Profiting from technological innovation. Research Policy, 15(6), 285–305.

    Article  Google Scholar 

  • Teece, D. J. (2000). Managing intellectual capital: Organizational, strategic, and policy dimensions. Oxford: Oxford University Press.

    Google Scholar 

  • Teece, D. J. (2007). Explicating dynamic capabilities: The nature and microfoundations of (sustainable) enterprise performance. Strategic Management Journal, 28(13), 1319–1350.

    Article  Google Scholar 

  • Teece, D. J. (2010). Business models, business strategy and innovation. Long Range Planning, 43(2–3), 172–194.

    Article  Google Scholar 

  • Teece, D. J. (2011). Human capital, capabilities and the firm: Literati, Numerati, and entrepreneurs in the 21st-century enterprise. In A. Burton-Jones & J.-C. Spender (Eds.), The Oxford handbook of human capital (pp. 527–562). Oxford: Oxford University Press.

    Google Scholar 

  • Teece, D. J. (2012). Dynamic capabilities: Routines versus entrepreneurial action. Journal of Management Studies, 49(8), 1395–1401.

    Article  Google Scholar 

  • Teece, D. J. (2014a). A dynamic capabilities-based entrepreneurial theory of the multinational enterprise. Journal of International Business Studies, 45(1), 8–37.

    Article  Google Scholar 

  • Teece, D. J. (2014b, March 25). The foundations of enterprise performance: Dynamic and ordinary capabilities in an (economic) theory of firms. Academy of Management Perspectives. doi:10.5465/amp.2013.0116.

  • Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509–533.

    Article  Google Scholar 

  • Turner, S. F., & Fern, M. J. (2012). Examining the stability and variability of routine performances: The effects of experience and context change. Journal of Management Studies, 49(8), 1407–1434.

    Article  Google Scholar 

  • Vernon, R. (1966). International investment and international trade in the product cycle. Quarterly Journal of Economics, 80(2), 190–207.

    Article  Google Scholar 

  • Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal, 5(2), 171–180.

    Article  Google Scholar 

  • Williamson, O. E. (1981). The modern corporation: Origins, evolution, attributes. Journal of Economic Literature, 19(4), 1537–1568.

    Google Scholar 

  • Williamson, O. E. (1985). The economic institutions of capitalism: Firms, markets, relational contracting. New York: Free Press.

    Google Scholar 

  • Zahra, S. A., Ireland, R. D., & Hitt, M. A. (2000). International expansion by new venture firms: international diversity, mode of market entry, technological learning, and performance. Academy of Management Journal, 43(5), 925–950.

    Article  Google Scholar 

Download references

Acknowledgement

I wish to thank Dr. Greg Linden for helpful comments.

Author information

Authors and Affiliations

  1. Haas School of Business, University of California, Berkeley, CA, USA

    David J. Teece

Authors
  1. David J. Teece
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to David J. Teece .

Editor information

Editors and Affiliations

  1. Department of Economics and Business Economics, Aarhus University, Aarhus, Denmark

    Bent Jesper Christensen

  2. The Fletcher School, Tufts University, Medford, Massachusetts, USA

    Carsten Kowalczyk

Rights and permissions

Reprints and permissions

Copyright information

© 2017 Springer-Verlag Berlin Heidelberg

About this chapter

Cite this chapter

Teece, D.J. (2017). Dynamic Capabilities and the Multinational Enterprise. In: Christensen, B., Kowalczyk, C. (eds) Globalization. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-49502-5_5

Download citation

  • DOI: https://doi.org/10.1007/978-3-662-49502-5_5

  • Published:

  • Publisher Name: Springer, Berlin, Heidelberg

  • Print ISBN: 978-3-662-49500-1

  • Online ISBN: 978-3-662-49502-5

  • eBook Packages: Economics and FinanceEconomics and Finance (R0)

Publish with us

Policies and ethics

Search

Navigation