Inside the Mnc: Structuring Ownership of Firm-specific Advantages
Abstract: We examine how multinational firms (MNCs) organize internal ownership of their firm-specific advantages (FSAs). In contrast to the assumption that FSAs are a public good within MNCs, we find that MNCs allocate economic ownership of their FSAs to affiliates and/or the parent within the firm. The MNC entities that own the FSAs contract or license them to other MNC entities. We draw on property rights theory to understand the decisions that MNCs make with regard to the internal ownership of FSAs, and we identify four different ways in which MNCs choose to structure internal FSA ownership. We argue that these structures are important in creating internal incentives and facilitating coordination. We find that MNCs with independent and easily codifiable FSAs, such as trademarks, are more likely to use ownership structures that provide market-like incentives. In contrast, MNCs with knowledge-intensive, tacit FSAs are more likely to use ownership structures that facilitate knowledge sharing and coordination within the firm.
