If Teva Changes its “Nationality,” would Israel's Economy be Affected?

Abstract

In their book Multinational Enterprises and the Global Economy, John M. Dunning and Sarianna M. Lundan offer a generally accepted definition of the term multinational enterprise (MNE): “A Multinational or transnational enterprise is an enterprise that engages in foreign direct investment (FDI) and owns or, in some way controls value added activities in more than one Country” (Dunning & Lundan, p. 3). The title, however, may be misleading since it ignores the fact that each multinational has a home country as well as one or more host countries. Multinationals, in other words, have a nationality. It is the difference between the implications of home and host countries for the individual MNEs that the present chapter explores. It uses a case study involving Teva, Israel's flagship MNE, to address the question: “If Teva changed its nationality, would Israel's economy would be affected?”

The hypothetical case of a change in Teva's nationality and its implications are employed to demonstrate the general validity of the concept of “Distance Premium,” to examine the implication of nationality to individual multinational business enterprises. The chapter explores the proposition that despite its declining effect, due to far reaching technological and political developments, the distance premium, continues to favor home country over host country locations and intra- over interorganizational value activities. The chapter goes on to examine expected changes in the distribution of rents generated by the MNEs between different stakeholder groups. It concludes that, with the exception of stockholders whose welfare is generally not affected by change of nationality, other stakeholders in the new home country gain at the expense of old home country stakeholders.

Citation

Hirsch, S. (2011), "If Teva Changes its “Nationality,” would Israel's Economy be Affected?", Ramamurti, R. and Hashai, N. (Ed.) The Future of Foreign Direct Investment and the Multinational Enterprise (Research in Global Strategic Management, Vol. 15), Emerald Group Publishing Limited, Leeds, pp. 357-377. https://doi.org/10.1108/S1064-4857(2011)0000015020