Abstract

The economic power of multinational corporations (MNCs) has continued to grow over the last few decades. For example, the inflows of foreign direct investment, a key marker of MNC investment, crossed $1.6 trillion in 2012, with over $500 billion reported as mergers and acquisitions (UNCTAD, 2012), leading to a more concentrated global economy. The top 500 MNCs of the world showed revenue growths in excess of 10% and profit growths in excess of 15% in 2012, despite the global economic downturn ( Fortune, 2013), and their revenues routinely exceeded the GDP of most nations; if firms and nations were listed together (annual revenues alongside national GDP), each of the top five corporations in the world (Royal Dutch Shell, Walmart, Exxon Mobil, Sinopec and China National Petroleum) would be ranked as a top 30 nation.1 This concentration of economic power within a few private entities has led to a great sense of unease among other economic actors, in light of troubling signs that MNCs have intensified the deployment of their size and scope to operate in zones that exist beyond the reach of institutional governance. For example, corporations have been known to leverage their spatial breadth to avoid paying taxes to nation-states (Schwartz & Duhigg, 2013). They have been accused of large-scale violations of labor laws (Bajaj, 2013), and their activities have led to profound environmental degradation (Krauss, 2013). MNC responses to the problems they create have been characterized by obfuscation and impunity. For example, the global firms indirectly implicated in the April 2013 collapse of the Rana Plaza in Dhaka that led to the death of over 1000 Bangladeshi workers have refused to accept any legal or moral ownership for the labor conditions in Bangladesh. Likewise, BP has been accused of a highly legalistic and evasive approach to its obligations in the aftermath of the 2010 oil spill in the Gulf of Mexico. These actions and several others like them indicate that MNCs increasingly operate in a climate of impunity, with the imprimatur of law and theory. Critical management scholars have a duty to analyze their actions and develop alternative theories that will act as counterweights to the largely acquiescent praise that passes for international business research in mainstream academia. In this chapter, we attempt to address one facet of such an alternative theory, by exploring the theoretical linkages between an organization and a colony.2 We base our theory on an empirical project, the analysis of capability transfer across national boundaries within an MNC. Many theorists have regarded capability transfer as the single most important source of advantage of an MNC and in fact theorized it as the raison d’être of the diversified and spatially distributed firm. For example, Kogut and Zander (1996: 503) suggest that the spatially diversified firm “be understood as a social community specializing in the speed and efficiency in the creation and transfer” of capabilities. In other words, capability transfer is an existentially defining characteristic of the family of firms of which an MNC is part. These theorists use the ideas of the sociologist Emile Durkheim, who had suggested that “since the division of labor becomes the chief source of social solidarity, it becomes, at the same time, the foundation of the moral order” (Durkheim, 1893; quoted in Kogut & Zander, 1996: 505), to theorize that capability transfer legitimizes firms such as MNCs. Given the salience accorded to capability transfer by mainstream theorists of the MNC, we contend that an analysis of capability transfer will lead to generalizable conclusions about the MNC itself.