AbstractInternalisation is a transactional approach to the study of the multinational enterprise (MNE) and market behaviour, which has been widely applied to MNE development, decision-making criteria and R&D considerations, but not to joint public-private funding of research. The political implications of internalisation are explored by examining the European Union programme ESPRIT. Through consideration of the market and technological factors associated with a firm's pursuit of internalisation as a viable business strategy and their role within the ESPRIT initiative, the argument is presented that European policy-makers exploited the failings of the European information technology sector to initiate the transfer of competence from the national to European arena. This has arguably led to the political ‘capture’ of internalisation as a policy tool and a distortion of corporate strategy.