Penrose’s theory of the firm in an era of globalisation

ABSTRACT

Penrose analysed why some firms succeed in growing – what the factors are that enable growth, and the ways in which success can breed success, with enhanced capabilities enabling growing market share (or sales), and with increased revenues and profitability enabling those capabilities to be further developed. There is a separate question as to why firms expand their operations internationally. In this paper, we analyse a sector that in Edith Penrose’s day operated almost exclusively domestically, namely the ‘consulting engineering’ sector. We consider why firms in this sector are now increasingly operating internationally. In doing so, we consider whether the factors identified – by Penrose and others – as causing firms to grow are also relevant to the expansion of these firms overseas. Our findings support Penrose’s Resource-based Theory, which argues that unique strategic resources that are inimitable and non-substitutable can provide firms with competitive advantages. Internationalisation provides consulting engineering firms with the opportunities to explore and obtain different kinds of expertise and resources from other regions. With a larger pool of expertise to draw from, firms can develop their firm-specific strategic assets and technical advantages.

KEYWORDS:

• Penrose
• mutinationals
• transnationals
• globalisation

JEL CLASSIFICATION:

• D21
• D22
• D23
• L25
• L84

Acknowledgment

We are grateful for helpful comments from an anonymous referee and Professor Oughton.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. This paper draws on Chia Huay Lau’s DPhil thesis on ‘The Global Trading Activities of Consulting Engineering Firms: Managing Risk and Geographical Choice’, Kellogg College, University of Oxford, 2019.

2. We take the fact of ‘globalisation’ as given, but on what that means in practice, see the various authors collected together in Michie (ed.)(2017 and 2019).