Indigenization as a distinct path of expropriation: French and US investments in Spain, 1870s–1959

Abstract

This study examines why and how multinational corporations (MNCs) may see their local assets transferred to or absorbed by their host-country partners. Drawing on transaction cost economics, we argue that factors beyond the traditional ones proposed by international business research—e.g., entry mode, country risk, or elite ties—can help explain this indigenization of MNC subsidiaries. Using a comparative historical analysis of French and US MNCs operating in Spain from the 1870s to 1959 and an in-depth analysis of the French Banque de Paris et des Pay-Bas (Paribas) and US International Telephone & Telegraph (ITT), we examine why similar investment strategies and partnerships with the local elite led to divergent outcomes under increasing political instability and economic nationalism in Spain. French subsidiaries became more likely than their US counterparts to be indigenized by local partners, due to their operations in maturing sectors and the local partners’ growing ability to substitute foreign capabilities, shifting asset complementarities. Our findings advance the international business literature by conceptualizing indigenization as a distinct mechanism through which an MNC may see its assets expropriated by its local partners, often via strategic and discretionary transfer shaped by shifting complementarities, maturing industries, and persistent relational ties.