ABSTRACT
This chapter examines the theory of internalisation as applied to the multinational enterprise (MNE) and, in particular, to European business. Explaining the internationalisation of European firms within an internalisation framework requires an understanding of the influence of two factors: location-specific and firm-specific advantages. Locational conditions are critical for the creation of firm-specific advantages by local firms. The consensus of the work is that regional economic integration may be expected to increase inward foreign direct investment following integration, but that the impacts are complex, varied, and difficult to generalise. Regional integration increases market size, may improve overall efficiency, and through a possible growth stimulus, add to market attractiveness. The creation of the Single Market has added to the competitiveness of European firms. Internalisation theory brought a policy acceptance that MNEs do not simply exploit monopoly power, but contribute to growth and development.
