The internalization of societal failures by multinational enterprises

Purpose – The purpose of this paper is to show that the market-internalization framework can be applied to non-economic institutions because society’s non-market sub-systems – political, social and cultural – are subject to failures just like economic markets, and firms can contribute to their repair or replacement by selectively, strategically and responsibly internalizing the market and non-market arenas for these sub-systems’ functions. Design/methodology/approach – Internalization theory is applied to a new area – that of societal failures. Findings – Internalization theory can be applied to the joint failures of economic and non-economic institutions, and this helps explain the growing “political role” of multinational enterprises in economies in transition as well as the phenomenon of increasing multinational firm activity in underdeveloped economies. Research limitations/implications – The limits and implications of internalization are drawn in terms of theory development, legitimacy and managerial strategies. Originality/value – This paper is the first to analyze the selective internalization of societal failures by the multinational enterprises. It extends internalization theory and examines the contested notion of “public goods”.