RESEARCH IN GLOBAL STRATEGIC MANAGEMENT Series Editor: Alan M. Rugman Volume 1:
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International Business Research in the 21st Century Global Competition and the European Community Corporate Response to Global Change
Volume 4: Volume 5: Volume 6:
Global Competition: Beyond the Three Generics Beyond the Diamond Multinational Location Strategy
Volume 7:
International Entrepreneurship: Globalization of Emerging Business Leadership in International Business Education and Research Multinationals, Environment and Global Competition
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North American Economic and Financial Integration Internalization, International Diversification and the Multinational Enterprise: Essays in Honor of Alan M. Rugman Regional Economic Integration Regional Aspects of Multinationality and Performance
RESEARCH IN GLOBAL STRATEGIC MANAGEMENT VOLUME 14
INTERNATIONAL BUSINESS SCHOLARSHIP: AIB FELLOWS ON THE FIRST 50 YEARS AND BEYOND EDITED BY
JEAN J. BODDEWYN Baruch College, City University of New York, USA
United Kingdom – North America – Japan India – Malaysia – China
JAI Press is an imprint of Emerald Group Publishing Limited Howard House, Wagon Lane, Bingley BD16 1WA, UK First edition 2008 Copyright r 2008 Emerald Group Publishing Limited Reprints and permission service Contact:
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LIST OF CONTRIBUTORS Nancy J. Adler
McGill University, Faculty of Management, Montreal, Quebec, Canada
Raj Aggarwal
University of Akron, College of Business Administration, Akron, OH, USA
Yair Aharoni
Tel Aviv University, Tel Aviv, Israel
Jack N. Behrman
University of North Carolina, Chapel Hill, NC, USA
Jean J. Boddewyn
Baruch College, Zicklin School of Business, New York, NY, USA
S. Tamer Cavusgil
Michigan State University, East Lansing, MI, USA
Farok J. Contractor
Rutgers University, Newark, NJ, USA
C. Samuel Craig
New York University, New York, NY, USA
Z. Seyda Deligonul
St. John Fisher College, Graduate School of Management, Rochester, NY, USA
Susan P. Douglas
New York University, Stern School of Business Management, New York, NY, USA
John H. Dunning
Reading University, Oxon, England
David A. Griffith
Michigan State University, Eli Broad Graduate School of Management, East Lansing, MI, USA
Subhash Jain
University of Connecticut, School of Business, Storrs, CT, USA
Masaaki Kotabe
Temple University, The Institute of Global Management Studies, Philadelphia, PA, USA ix
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Stefanie Lenway
University of Illinois at Chicago, College of Business Administration, Chicago, IL, USA
Klaus Macharzina
Universitaet Hohenheim, Stuttgart, Germany
Michael J. Mol
University of Reading, Business School, Reading, England
Janet Y. Murray
University of Missouri-St. Louis, College of Business Administration, St. Louis, MO, USA
Howard V. Perlmutter
University of Pennsylvania, Philadelphia, PA, USA
Ravi Ramamurti
Northeastern University, College of Business Administration, Boston, MA, USA
Alan M. Rugman
Indiana University, Kelley School of Business, IN, USA
John K. Ryans Jr.
Kent State University, Kent, OH, USA
John M. Stopford
London Business School, London, England
Hans Thorelli
Indiana University, Bloomington, IN, USA
Alain Verbeke
University of Calgary, Haskayne School of Business, Alberta, USA
Mira Wilkins
Department of Economics, Florida International University, Miami, FL, USA
PREFACE The Fellows of the Academy of International Business provide the institutional memory for the Academy of International Business. Through their awards in recognition of practitioners who have made outstanding contributions to the practice of international business, of scholars who have produced pioneering social-science studies that provide new research perspectives for scholars of international business, and of Business-School Deans who have built outstanding academic programs in international business, the AIB Fellows also help to legitimize the field of international business. Among its members, it counts the founders of the field of international business as well as an increasing number of senior scholars whose research has helped to build international business as an acknowledged and renowned academic field of study. The Fellows assist the mission of the Academy of International Business to promote cutting-edge scholarship that promotes a better understanding of business organizations, practices and strategies cutting across national borders. Scholars of international business explore the underlying reasons for why companies expand their scope of activities across national boundaries and mutate from national to multi-national organizations. They also study how these organizations balance global market pressures that drive efficiency-seeking centralization with local market pressures that demand customized products and business practices adapted to appeal to local consumers. Perhaps most importantly, scholars of international business seek to measure how the reduction of barriers to trade and investment creates the opportunity for firms to transfer their distinctive capabilities to a local entity in a foreign market in order to create new value for that economy, the world economy and themselves. In an effort to identify the role of the Academy of International Business, John Dunning, in his 1989 presidential address, commented that ‘‘The best that [the AIB] can do is inform, educate and advise, to act on behalf of its members to advance their educational interests and career prospects, to offer a forum for the presentation and discussion of research results and pedagogic issues, and to provide support and guidance to those who seek to advance the teaching and research of IB in their home institution’’ xi
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(Dunning, 1989, p. 426). In many business schools, this takes the form of providing a forum for faculty in the functional areas of business such as finance, marketing, strategy, human-resources management and operations to explore fundamental research questions within an international context. The Academy of International Business also encourages scholars from a variety of disciplines – including economics, psychology, political science, sociology and anthropology, among others – to address key theoretical questions raised in their discipline in the context of international-business phenomena. The third role of the Academy involves expanding the engagement of scholars in the study of international business from its birthplace in the United States to countries around the world through the creation of AIB country chapters. Indeed, to ensure the vitality of international-business scholarship, the AIB must encourage scholars from around the world to use old and new constructs and theories to promote an understanding of global business from multiple perspectives. This volume has been produced by the AIB Fellows in celebration of the 50th anniversary of the Academy of International Business and of the 30th anniversary of the first election of new Fellows. Taken together, the chapters provide both an intellectual history of scholarship in international business as well as an organizational history of the AIB Fellows. They also point to the future and provide signposts for more junior scholars to interesting opportunities for future research. Nancy Adler looks at the evolution of the field of international business in its early days as one that focused on the underlying tensions between multinational corporations and nation-states to the future in which these firms devote their massive capabilities to address significant societal challenges. Yair Aharoni and Ravi Ramamurti analyze the trend on the part of multinational corporations headquartered in developing countries to become increasingly powerful economic players in developed countries. Farok Contractor scrutinizes how MNCs from both developed and developing countries form strategic alliances to strengthen their technological, strategic and cultural capabilities and build a global civilization. Susan Douglas and C. Sam Craig identify new ways of thinking about advertising and marketing coming from developing countries and the transfer of intangible skills from one country to another by transcending the dichotomy between standardization and adaptation. Masaaki Kotabe suggests that, in addition to marketing and advertising becoming more nuanced, supply chain management will also move beyond an emphasis on offshoring and outsourcing to a consideration of the benefits of vertical
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integration and the co-location of a firm’s specific value-chain segments. In order to better appreciate why offshoring may not always be in a company’s best interest, Jack Behrman documents how the barriers to globalization have slowed the rate of economic integration and argues that they need to be better understood and if possible eliminated for the participants in the global economy to enjoy the gains that they have been promised. Several chapters in this volume also point towards the many opportunities to increase the rigor of international business research. Tamer Cavusgil and his colleagues suggest the benefits that result from formulating specific criteria and processes to develop constructs promoting a better understanding of international-business phenomena. Rag Aggarwal encourages scholars to explore how the field of finance contributes to internationalbusiness research and how this field will assist research in finance. Mira Wilkins explores how business history has contributed to our understanding of international business, while Alan Rugman and Alain Verbeke argue for the opportunity to increase the rigor of international-business research though an analysis of how internalization theory, which explains why companies internalize specific activities within cross-border organizations, can be used to enrich models of international strategic management. Klaus Macharzina touches on the AIB’s strategy to expand the number of non-U.S. scholars who study international business by tracking the engagement of scholars in Germanic countries in IB teaching and research. Hans Thorelli looks at innovation in international-business education through the use of simulations that provide student teams with an opportunity to develop a strategy for a multinational corporation within a dynamic competitive environment. Jean Boddewyn and Lee Nehrt document the history and institutional evolution of the AIB Fellows, which provides insights into how the field of international business came to be an academic field of study and how the field continues to evolve. As a finale, two senior scholars in international business, Howard Perlmutter and John Dunning speculate on the future of both the practice and study of international business. Perlmutter looks at the forces which could bring down the global economy while Dunning points to the tremendous opportunities that international-business scholars have to explore the ongoing evolution of cross-border companies and their relationships to the physical and social environments in which they operate as they search for ways to increase global economic welfare. On behalf of the AIB’s Executive Board, I want to thank Jean Boddewyn for launching and editing this volume. Jean played the role of cheerleader,
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traffic cop and coach to ensure that each of the chapters represented the best efforts of the writers and reviewers. His tireless efforts as Dean of the AIB Fellows have strengthened the sense of community among the members by welcoming a diverse class of new Fellows while maintaining the strong norms of collegiality that characterized the Fellows when it was a much more homogeneous group. In building community among this diverse group of Fellows, Jean has brought his considerable skills in international business to bear in balancing strong individual self-expression with a powerful group culture. For all his efforts to keep the Fellows a vibrant contributor to the AIB, all of our members owe him a large debt of gratitude. Stefanie Lenway President Academy of International Business Dean University of Illinois at Chicago College of Business Administration
INTRODUCTION Jean J. Boddewyn International business (IB) research did not wait for the Academy of International Business (AIB) (1958) nor for the AIB Fellows Group (1977) to begin and thrive but has it gained from the existence and assistance of both organizations? In this introduction, I limit myself largely to what the AIB Fellows Group has contributed to the development of IB research, based on AIB and Fellows archives as well as personal recollections and perspectives. The chapters written and reviewed by AIB Fellows in this volume also give us important glimpses of what they have achieved so far and what they suggest in terms of further IB research.
AIB FELLOWS’ CONTRIBUTIONS TO IB RESEARCH First, AIB conference themes have reflected the issues thought to be important during its 50 years of operations, and the Fellows have regularly staffed Plenary Sessions devoted to these yearly themes (e.g., Eden & Lenway, 2001 on globalization). Second, on seven occasions, the Fellows discussed the work of Eminent Scholars who had been elected because of their impact on IB scholarship:
Charles Kindleberger (MIT) 1987 Edith Penrose (INSEAD and University of London) 1994 Geert Hofstede (Tilburg University) 1998 Richard Caves (Harvard University) 1999
International Business Scholarship: AIB Fellows on the First 50 Years and Beyond Research in Global Strategic Management, Volume 14, 1–13 Copyright r 2008 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1064-4857/doi:10.1016/S1064-4857(08)00022-3
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Alfred Chandler (Harvard Business School) 2000 Oliver Williamson (University of California, Berkeley) 2003 Douglass North (Washington University in St. Louis) 2007 Ronald P. Dore (London School of Economics and Political Science) 2008
Third, the Journal of International Business Studies (JIBS) published in 1994 four Professional Lives in International Business which traced the intellectual itineraries of AIB Fellows John Fayerweather, Raymond Vernon, Richard Robinson and Michael Brooke. Similar introspections were written by John Dunning in 2004 and Jack Behrman in 2006.1 Fourth, many Fellows have conjectured the future of IB research. Thus, the 1992 symposium organized by Brian Toyne and Douglas Nigh (1999a, 1999b) at the University of South Carolina provided a so far unmatched opportunity to discuss the big IB research issues (e.g., ‘‘Is international business a distinct field of inquiry?’’) as well as the theoretical development of the various IB functional areas (marketing, finance, etc.), their teaching and program administration. In addition, John Dunning has frequently traced the evolution of IB research and the contributions of the AIB to it. In his presidential address (1989), he observed that IB scholars have developed theories and paradigms of their own but the latter needed to become truly interdisciplinary rather than multidisciplinary for IB to become a discipline in its own right. His ‘‘eclectic paradigm’’ (1995) has provided an excellent example of the continuous integration of economics with other disciplines and his chapter in this volume confirms his continuous quest for new research questions and their integration. More recently, Peter Buckley (2002) asked whether we had exhausted old research paradigms and were able to develop new ‘‘big questions.’’ Oded Shenkar (2004) replied that there were still unanswered questions in the old paradigms, provided ‘‘IB is positioned as an integrative field whose competitive advantage and added value lie in the synergetic combination of global and local knowledge that is unavailable to, and not imitable by, its major competitors, in particular economics and strategy’’ (p. 161).2 Buckley and Lessard (2005) applauded the early (1950–1990) recursive interplay between: (1) theories explaining such emerging IB issues as the rise of foreign direct investment and (2) theories developed outside the IB field (e.g., industrial organization). However, they worried that theories borrowed from outside the IB domain may now be ‘‘superficially understood, badly applied and inappropriately interpreted’’ (p. 596). Hence, IB researchers should avoid the trap of sheer amalgamation of theories into imperfectly integrated paradigms.
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In this context, Buckley and Lessard deplored the current lack of ‘‘intermediate’’ IB theories that would be driven by contemporary IB problems (e.g., offshoring) rather than by the direct application to such problems of discipline-based theories (e.g., geographic location and the resource-based view) that are not ‘‘specific’’ enough to explain particular IB issues. They concluded that: Major advances can be made if every ‘‘theory driven’’ international business article begins with a statement of its derivation from theory and ends with its contribution to theory, however incremental. Often, theoretical derivations are lost in extensive literature reviews and theoretical contributions are underweighted compared with contributions to practice or methodology. ‘‘Issue driven’’ contributions should identify how/why the observation challenges/sharpens theory, making specific reference to the relevant theory rather than just collecting interesting artifacts (pp. 598–599).
Fifth, Fellows have contributed to the conceptualization and structuring of major IB functional areas. Thus, international management was organized by John Fayerweather (1969) around its economic, social, political and administrative dimensions; Christopher Bartlett and Sumantra Ghoshal developed the concept of transnational management; Yves Doz and C. K. Prahalad, among others (including Michael Brooke), scrutinized the centralization and decentralization of multinational enterprises and the reasons for their different combinations over time; Vern Terpstra implanted the now traditional organization of international-marketing textbooks around the 4 Ps of product, price, promotion and place (channels); Susan Douglas (with Douglas Craig) gave impetus and structure to international-marketing research and Richard Robinson, Jack Behrman, Robert Grosse, Stephen Kobrin, Louis T. Wells Jr. and Jean Boddewyn (2005) launched the study of IB–government relations – as did Yair Aharoni in the case of the foreigninvestment decision process and Sri Zaheer for ‘‘the liability of foreignness.’’ Sixth, in terms of theory development, John Dunning’s ‘‘eclectic paradigm’’ has provided a unified interpretation of international production while Peter Buckley, Mark Casson, Jean-Franc- ois Hennart and Alan Rugman pioneered the application of transaction-cost economics to explain the internalization of markets by the multinational enterprise. These authors switched explaining the existence of multinational enterprises (MNEs) on account of market power a` la Hymer and Kindleberger to using failures as the explanatory variable. Later on, Bruce Kogut and Udo Zander emphasized knowledge-based theories of the firm to reflect the growing interest in resources and capabilities as determinants of the value of MNEs which are ‘‘repositories of knowledge’’ rather than mere ‘‘nexus of contracts.’’
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Seventh, the magnum opus of several Fellows have been examined through special sessions, journal sessions and award-winning ceremonies devoted to their major works or research thrusts: Peter Buckley and Mark Casson for their 1976 classic book The Future of the Multinational Enterprise, Christopher Bartlett and Sumantra Ghoshal for their study of the transnational enterprise, John Dunning for his eclectic paradigm, Bruce Kogut and Udo Zander on the 10th anniversary of their award-winning 1993 JIBS article on ‘‘Knowledge of the Firm,’’ Alan Rugman and his extensive publications over 25 years (Verbeke, 2005) and Michael Brooke posthumously in a special issue of International Business Review (13 (2), 2004, edited by P.J. Buckley). Eighth, practically all editors-in-chief of the JIBS have been or have since become AIB Fellows, starting with Ernest W. Ogram and, most recently, Lorraine Eden.
PERSONAL REFLECTIONS ON IB THEORETICAL DEVELOPMENT My own research since 1957 has covered a variety of topics, with particular emphasis on the early conceptual development of new study domains such as comparative management and marketing, foreign divestment and MNE political behavior.3 Besides, as journal editor and reviewer, I have had the opportunity to evaluate and assist numerous theoretical inventions and applications which have led me to develop the following views on IB research. Blind Alleys There have been too many hasty fads whereby IB researchers have copied what their ‘‘domestic’’ counterparts were doing, instead of developing sui generis IB theories as was fortunately the case with the internalization of markets, the transfer of knowledge and cooperation – all topics which other disciplines have ‘‘imported’’ from IB research. Similarly, the blind borrowing of quantitative methodologies applied to secondary data has largely prevented the generation of findings that would more correctly reflect the evolution of MNE structures and practices on the basis of personal interviews and on-site observations. These are well-known shortcomings which need no further elaboration even though Louis T. Wells, Jr., in a 17 March 1987 personal
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communication to the AIB Fellows, confessed that ‘‘I think that we are particularly weak when it comes to teaching the non-quantitative skills needed for research. We do little with field interview methods, with questionnaire design and too little with the overall design of research projects y This problem occurs on top of the well-known difficulties of doing research in the international field. Research is typically expensive, and requires large units of time.’’
Causeways to IB Research My own conceptual research has led me to appreciate the usefulness of research perspectives traceable to the very origins of science and developed by Baggozi (1980) on the basis of Aristotle’s conceptualization of types of ‘‘causes’’ (Boddewyn & Iyer, 1999; Wikipedia.com). I will apply them to a topic I am familiar with, namely, foreign divestment (Boddewyn, 1983a, 1983b, 1985) in order to illustrate Buckley and Lessard’s (2005) point that IB theories should be driven by contemporary IB problems which require intermediate specific theories rather than directly relying on more distant discipline-based ones. To start with, Aristotle’s formal cause is the ideal blueprint from which our cruder and more realistic conceptualizations derive, but one cannot explain anything if the underlying truth of the phenomenon in cause is not known. Thus, to study ‘‘foreign divestment’’ one has to understand the essence of ‘‘foreign’’ and ‘‘divestment’’ by carefully differentiating them from proximate concepts such as ‘‘international’’ and ‘‘spinoffs.’’ More importantly, for anything such as foreign divestment to happen it must be possible, wanted and triggered so that the theories derived from the major disciplines must focus on a phenomenon’s conditions (what makes things possible), motivations (what makes people want things to happen) and precipitating circumstances (what triggers something that was possible and wanted but had not happened so far). I will now define these three ‘‘causes’’ and apply them to foreign divestment. Condition: Something essential to the existence or occurrence of something else; a prerequisite (Webster’s Dictionary) – what Aristotle called ‘‘a necessary antecedent’’ in the form of the material cause out of which something is composed.
It is worth noting how much we rely on conditions to explain IB phenomena. Thus, Dunning’s eclectic paradigm of international production is essentially condition-based because, for the latter to be possible, the firm
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must have ownership (O) advantages and be able to internalize (I) certain transactions, and there must be foreign locations (L) where these advantages can be exploited. Without these ‘‘OLI’’ advantages, foreign production is impossible or unattractive. Similarly, the resource-based view of organizations stresses the prerequisites (i.e., rare, valuable and non-imitable resources) for strategic performance (Boddewyn & Iyer, 1999). Consequently, we must first search for specific condition-oriented theories to apply to foreign divestment. Market-disequilibrium theories of foreign direct investment are relevant here because they stress its transitory nature on account of changes in various conditions (e.g., location, internalization, resources) which ultimately equalize rates of return among countries and justify divestment. Besides, one can reverse Dunning’s conditions for foreign direct investment by focusing on when a firm ceases to possess net competitive advantages over firms of other nationalities, no longer finds it profitable to internalize them rather than sell or rent them to foreign firms and/or does not consider it beneficial any more to utilize its internalized net competitive advantages outside its home country. Under these altered conditions, it is then more advantageous to serve foreign markets by exports or licensing and/or to abandon foreign markets altogether when foreign units are no longer necessary and can be divested (Boddewyn, 1985; Grosse, 1981). Michael Porter’s analysis of ‘‘barriers to exit’’ – for example, hard-to-sell assets, the interrelatedness of the unit to be divested with other parts of the MNE and a lack of potential buyers for the failing subsidiary – also belongs to this ‘‘condition’’ type of ‘‘material cause’’ used to explain what obstacles must be removed for a divestment to take place. Similarly, Oliver Williamson’s (1975) ‘‘markets and hierarchies’’ paradigm is applicable when the lower transaction costs of using external markets (e.g., through exporting and licensing) no longer justify the internalization of these markets through the internal hierarchy of a foreign investment which thus becomes eligible for divestment – particularly, in declining industries. Motivation: An inner drive, impulse, incentive, goal, etc., that causes a person to do something or act in a certain way (Webster’s Dictionary). Aristotle called it the final cause (‘‘finis’’ refers to an end or goal in Latin), meaning the purpose or objective toward which an act tends in a teleological manner.
Even when possible, nothing happens unless someone wants it. Hence, foreign divestment must be beneficial to some individual or coalition in terms of greater efficiency, convenience, market power, performance, reputation or some other valuable end. Again, we can apply the ‘‘reverse’’
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of various theories – theory of the firm, industrial organization, etc. – that explain foreign direct investment in terms of anticipated profitability due to least-cost opportunities (e.g., cheap labor), monopoly rents, risk reduction or diversification. Foreign divestment is thus explainable by the low financial performance of the subsidiary, poor pre-investment analysis leading to unfortunate investments, new adverse environmental conditions, lack of fit and resources, the non-achievement of certain objectives (e.g., return on investment or market share growth) and/or the consideration of better strategic alternatives to the achievement of such goals – that is, the resources could be more profitably invested elsewhere. Such factors leave unexplained why multinational firms do not divest even when individual or organizational motivations would justify abandoning an investment but this explanatory gap can be addressed by referring to Porter’s exit-barriers condition (see aforementioned). Cultural elements facilitate or hinder divestment decisions as in the case of values associated with the laying-off of employees – for example, U.S. firms have fewer qualms than European ones in this regard. It is also easier to make foreign divestment decisions than domestic ones because ‘‘cultural distance’’ helps decision makers divorce themselves from local norms opposed to labor unemployment. Precipitating Circumstance: A hastening element that brings something about (Webster’s Dictionary) – Aristotle’s efficient clause in the sense of the thing (act or person) that happens to bring about certain results and really produces an effect.
Even when possible and wanted, something will not or may not happen unless triggered by somebody or something. Institutional changes, new competition and leadership are usually associated with such triggers – for example, the threat of overly burdensome regulation, competitors moving in and worsening the stakes, providential buyers and brokers making attractive offers and newly-appointed executives bringing different attitudes to bear on an unprofitable foreign investment. Divestment decisions are particularly associated with organization theory and business policy which analyze the foreign-divestment decision process (Aharoni, 1966) following the appointment of new executives uncommitted to past investments that are faring poorly. It is worth noting that a new development such as a plant closing at home often results in lower stock prices because it suggests a major strategic problem in the MNE whereas a foreign divestment causes no such valuation change because it is interpreted as using a favorable arbitrage opportunity abroad and being an isolated one-time unfavorable situation.
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Altogether, by properly defining foreign divestment and identifying its conditions, motivations and precipitating circumstances, the IB researcher is in a better position to choose what research disciplines and general theories are most relevant for addressing the now refined foreign-divestment problems. It is thus possible to satisfy Buckley and Lessard’s (2005) requirement of using ‘‘specific intermediate theories’’ to reflect the sui generis characteristics of foreign divestment (Boddewyn, 1983b, p. 32): Greater centralization of decision-making because the performance discrepancy is felt more at headquarters than in the field. Lesser a priori rationality because of ethnocentricity on the part of decision makers at headquarters. Greater importance of the ‘‘impetus’’ provided by a ‘‘new man’’ (executive) at headquarters. Decision-making more tactical and personal than strategic and organizational because of missing criteria for divestment, which generate ad hoc decisions. Harder-to-detect discrepancies because of ‘‘cultural distance’’ and communication gaps. Lower barriers to exit due to lesser commitment to foreign investments. Lesser commitment of the ‘‘new man’’ to an existing foreign investment. Negative perception of foreign risk that facilitates the persuasion of superiors and organizational commitment. More complex justification to insiders and outsiders on account of nationalistic feelings and moral qualms. Simpler organizational learning (‘‘the organization has tasted blood but it is only foreign blood’’). Each one of these sui generis characteristics suggests using particular theories more tailored to the nature of foreign divestments – for example, applying the reverse of ‘‘the liability of foreignness’’ (Zaheer, 1995) to address the last issue of ‘‘simpler organizational learning.’’ Distinct propositions and hypotheses can then be derived such as ‘‘The greater the cultural distance, the lower the liability of foreignness in deciding at headquarters about the divestment of foreign units.’’
REALLY DOING INTERNATIONAL RESEARCH Note that in the above example, the dependent and independent variables are ‘‘international’’ in nature, that is, truly bearing on phenomena that cross
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borders. In this respect, it is not enough to include two or more countries to make a study ‘‘international’’ because the phenomenon to be studied should be the determining factor rather than the locales themselves. This problem was addressed by the late Graham Astley at a workshop on Theory Development in International Management Research (1990 Annual Meeting of the Academy of Management) (Boddewyn & Iyer, 1999, pp. 173–181). Astley discussed levels of analysis in IB research (the transaction, the firm, the network and the country) as well as disciplinary consensus (essentially, the argument that IB is a field of research that will always require using a multiplicity of paradigms and theories). Regarding his third subtopic of theoretical uniqueness, Astley demonstrated through a fourfold distinction that theories vary in the extent to which they are distinctly international: 1. Universal theories applied to international samples rather than to domestic ones. Classical examples are trade theory and transaction-cost theory whose propositions apply to all places and times – that is, economic activities gravitate to where factors of production and markets are more favorable, and firms internalize the market until the benefits of common governance are exhausted although Rosenzweig (1994) argued that internalization may be culturally affected. 2. Theories whose dependent variables are distinctly international but whose independent variables are not. He gave as an instance international joint ventures (the dependent variable) being affected, among other things, by technological intensity (the independent variable) – the latter again a ‘‘universal’’ type of variable. 3. Theories with dependent and independent variable that are both distinctively international. His example was foreign direct investment being affected by transaction costs that are truly international (for example, those related to foreign cultures and regulations) but one could also analyze the impact of IB alliances on the IB–government relations of MNEs. 4. Theories whose central propositions are distinctively international. By using ‘‘propositions’’ rather than ‘‘variables’’ in this category, Astley was elevating the discussion from ‘‘models’’ to ‘‘constructs,’’ that is, to more generalized statements of relationships between ‘‘approximated units’’4 – for example, that the existence, volume and forms of IB depend primarily on the permeabilities of sovereign states that accept, reject or modify IB activities by fiat. While one could argue that IB research would benefit from moving toward the higher types outlined by Astley, his main point is that IB
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researchers should be aware of the distinct nature of these four types. For example, some IB research is not very ‘‘international’’ at all to the extent that the model used could as well have been applied to a decision to invest in California from a New York base even though the researcher compared the United States and another country instead.
LEARNING FROM THE FOLLOWING CHAPTERS Practically all of the participating Fellows have contributed to this volume either as author or co-author of the chapters and/or as reviewer of them. This volume is thus representative of their interest, concerns and perspectives regarding past and future IB research as detailed in the Abstracts. The chapters by Fellows John Ryans, Susan Douglas, Raj Aggarwal and Klaus Macharzina deal with research in the functional areas of marketing, advertising and finance as well as with the progress made in the Germanspeaking world in the field of IB research and education. Two chapters focus on theory development – the first one by Yair Aharoni and Ravi Ramamurti explores the overseas shift of MNEs from bases in the United States and the theoretical implications of these relocations. The other one by Alan Rugman and Alain Verbeke discusses internalization theory and how it has affected international business as a whole and will continue to do so. However, to understand the present condition of IB one must examine the past. Here, the history of IB as a whole by Mira Wilkins and my own detailed look at the history of the Fellows give us reference points from which to look at the future. In the same vein, we have a chapter by Hans Thorelli which examines the possibilities that virtual reality poses for the future of simulation in IB teaching and another one by Jack Behrman who takes a look at what may prevent further globalization. Farok Contractor details the continuing growth of globalization and how, through the cooperation of those involved, the ‘‘manifest destiny’’ of a truly global civilization can be achieved. Besides, Susan Douglas with Samuel Craig detail possible directions with regard to international-marketing strategy while John Dunning spells out exciting new directions in our research. John Stopford reflects on the continuous search for the proper content of our IB field. Any book with claims such as ours must also include chapters on research development so that Tamer Cavusgil and co-authors developed
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methodologies with which the IB community may advance its study; Nancy Adler looked at business as ‘‘an agent of world benefit’’ in order to dispel false dichotomies between financial performance and societal challenges, and Mike Kotabe and co-authors compared ‘‘fit’’ and ‘‘balance’’ perspectives in the study of global sourcing. The rest is history – the history that present and future members of the AIB and of the Fellows Group will write in the next 50 years of our Academy forever bent on spreading and improving IB research, teaching and administration – as Stefanie Lenway, AIB President, emphasizes in the Preface to this volume implicitly dedicated to all of us. As Robert Penn Warren once wrote ‘‘We can keep the past only by having the future for they are forever tied together’’ and that future is forever ours.
NOTES 1. John Fayerweather, JIBS, 1994, 25 (1), 1–44: ‘‘A Personal Odyssey Through the Early Evolution of International Business Pedagogy, Research and Professional Organization;’’ Raymond Vernon, JIBS, 1994, 25 (2), 215–227: ‘‘Contributing to an International Business Curriculum: An Approach from the Flank;’’ Richard D. Robinson, JIBS, 1994, 25 (3), 435–465: ‘‘A Personal Journey Through Time and Space;’’ Michael Z. Brooke, JIBS, 1994, 25 (4), 667–673: ‘‘The Brooke Story: A Professional Half-Life in International Business;’’ John Dunning, JIBS, 2002, 33 (4), 817–835: ‘‘Perspectives on International Business Research: A Professional Autobiography of Fifty Years Researching and Teaching International Business;’’ Jack Behrman, JIBS, 2006, 37 (3), 432–444: ‘‘A Career in the Early Limbo of International Business: Policy, Research and Education.’’ 2. Mike Peng (2004) thinks that ‘‘What determines the international success and failure of firms?’’ has always served as a fundamental IB research question and is likely to keep propelling progress in the future. 3. My own research has dealt with the international comparison of management and marketing systems, the political behavior of MNEs, international business– government relations, foreign divestment, the nature of international business and management, the regulation and self-regulation of advertising around the world, international public affairs, the concept of nonmarket and the history of the AIB Fellows (in this volume). I served as the founding editor of International Studies of Management & Organization and managed it from 1971 to 2004. 4. ‘‘Approximated units,’’ by their very nature cannot be observed directly (e.g., centralization or culture), compared to ‘‘observed units’’ which can be empirically operationalized by measurement (Bacharach, 1989, p. 498). Several IB scholars have argued that all IB theories have to take the existence of political sovereignties into consideration (Boddewyn & Brewer, 1994; Grosse & Behrman, 1992; Sundaram & Black, 1992).
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REFERENCES Aharoni, Y. (1966). The foreign investment decision process. Boston, MA: Harvard University, Graduate School of Business Administration. Bacharach, S. B. (1989). Organizational theories; some criteria for evaluation. Academy of Management Review, 14, 496–515. Baggozi, R. P. (1980). Causal models in marketing. New York: Wiley. Boddewyn, J. J. (1983a). Foreign divestment theory: Is it the reverse of foreign direct investment theory? Weltwirtschaftliches Archiv, 119(12), 345–355. Boddewyn, J. J. (1983b). Foreign and domestic divestment and investment decisions: Like or unlike? Journal of International Business Studies, 13, 23–35. Boddewyn, J. J. (1985). Theories of foreign direct investment and divestment: A classificatory note. Management International Review, 25(1), 57–65. Boddewyn, J. J. (2005). Early U.S. business-school literature (1960–1975) on international business–government relations: Its twenty-first century relevance. In: R. Grosse (Ed.), International business and government relations in the 21st century (pp. 25–47). New York: Cambridge University Press. Boddewyn, J. J., & Brewer, Th. L. (1994). International business political behavior: New theoretical directions. Academy of Management Review, 19, 119–143. Boddewyn, J. J., & Iyer, G. (1999). International-business research: Beyond de´ja` vu. Management International Review, 39(Special Issue 2), 161–184. Buckley, P. J. (2002). Is the international business research agenda running out of steam? Journal of International Business Studies, 33(2), 365–373. Buckley, P. J., & Lessard, D. R. (2005). Regaining the edge for international business research. Journal of International Business Studies, 36, 595–599. Dunning, J. H. (1989). The study of international business: A plea for a more interdisciplinary approach. Journal of International Business Studies, 20, 411–436. Dunning, J. H. (1995). Reappraising the eclectic paradigm in an age of alliance capitalism. Journal of International Business Studies, 26, 461–491. Eden, L., & Lenway, S. (2001). Multinationals: The Janus face of globalization. Journal of International Business Studies, 32(3), 383–400. Fayerweather, J. (1969). International business management. New York: McGraw-Hill. Grosse, R. (1981). The theory of foreign direct investment. University of South Carolina, Columbia, SC, College of Business Administration, Center for International Business Studies; Essays in International Business, No. 3, December. Grosse, R., & Behrman, J. N. (1992). Theory in international business. Transnational Corporations, 1, 93–126. Peng, M. W. (2004). Identifying the big question in international business research. Journal of International Business Studies, 35, 99–108. Rosenzweig, P. M. (1994). Can management science research be generalized internationally? Management Science, 40(1), 28–39. Shenkar, O. (2004). One more time: International business in a global economy. Journal of International Business Studies, 35, 161–171. Sundaram, A. K., & Black, J. S. (1992). The environment and internal organization of multinational enterprises. Academy of Management Review, 17, 729–757. Toyne, B., & Nigh, D. (Eds). (1999a). International business: An emerging vision. Columbia, SC: University of South Carolina Press.
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Toyne, B., & Nigh, D. (Eds). (1999b). International business institutions and the dissemination of knowledge. Columbia, SC: University of South Carolina Press. Verbeke, A. (Ed.) (2005). Internalization, international diversification and the multinational enterprise: Essays in honor of Alan M. Rugman. Research in global strategic management (Vol. 11). New York: Elsevier/JAI Press. Williamson, O. E. (1975). Markets and hierarchies. London: Free Press. Zaheer, S. (1995). Overcoming the liability of foreignness. Academy of Management Journal, 38(2), 341–363.
HISTORY OF THE AIB FELLOWS: 1975–2008 Jean J. Boddewyn ABSTRACT Most years, several AIB members are elected as AIB Fellows on account of their excellent international business scholarship, and/or past service as AIB President or Executive Secretary. The Fellows are in charge of electing Eminent Scholars as well as the International Executive and International Educator (formerly, Dean) of the Year, who often provide the focus for Plenary Sessions at AIB Conferences. Their history since 1975 covers over half of the span of the AIB and reflects many issues that dominated that period in terms of research themes, progresses and problems, the internationalization of business education and the role of international business in society and around the globe. Like other organizations, the Fellows Group had their ups and downs, successes and failures – and some fun too!
GETTING STARTED (1975–1978) Several phases marked the founding of the Fellows Group within the Academy of International Business (AIB) in 1975–1978. Jean Boddewyn, as AIB Vice-President, brought the matter up at the April 1975 Executive
International Business Scholarship: AIB Fellows on the First 50 Years and Beyond Research in Global Strategic Management, Volume 14, 15–95 Copyright r 2008 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1064-4857/doi:10.1016/S1064-4857(08)00023-5
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Board meeting during Phillip Grub’s presidency (1975–1977). Jean had been elected as Fellow of the Academy of Management in August 1974 and he suggested that a similar group be created within the AIB.1 The idea was favorably received but its implementation was slowed down by the turmoil created by John Fayerweather and Richard D. Robinson – two of its major leaders – leaving the AIB in June 1976 because they opposed the potentially dangerous liaisons that had taken place between the AIB, various governments and pro-MNE bodies. At that time, John Fayerweather, one of the AIB’s founders and its first President, was in no mood to get involved in any new AIB initiatives such as the creation of a Fellows group: ‘‘Obviously I will not be a part of either your program or your fellows idea y [Dick Robinson and I] will [soon] be out of the picture and your group can proceed without us’’ (Note from John Fayerweather to Jean Boddewyn, undated but probably of May 1976 just before they left the AIB in June 1976). Still, President Grub proceeded with the proposal to form an AIB Fellows Group by proposing the following constitutional amendment to the AIB membership: Addition of Article IX – Fellows of the Academy The Academy recognizes the establishment of a separate but internal and integral organization known as the ‘‘Fellows of the Academy of International Business.’’ The purposes of the Fellows are to recognize outstanding contributions to the field of international business and to provide a forum for discussion among its members. Its charter members shall consist of the founding members of the Academy of International Business who have remained active, the past Presidents of the Academy and the past Executive Secretaries of the Academy. The Fellows shall draft their members in accordance with that constitution.
This amendment was one of the four recommended by an AIB Planning Committee and approved by the Executive Board on 1 April 1976 and to be voted upon by the entire AIB membership. The addition of Article IX about the Fellows received 54 Yes and 23 No votes from the AIB members but the three tellers of the ballots commented that: ‘‘A two-third majority of those voting being required y Article IX (Fellows) does in fact exceed the 2/3 requirement [but] the margin of passage by the body is so close as to suggest that a re-ballot on this issue y would be in the best interest of the members of the A.I.B. and the duly appointed tellers do so recommend’’ (Memorandum from Phillip D. Grub to All Members, The Executive Board, Academy of International Business, 28 July 1976).
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Their recommendation was not followed since the amended AIB Constitution of 14 June 1976 included the new Article IX, and the AIB Executive Board decided to proceed with the creation of the AIB Fellows Group although this process extended well into 1978. Thus, Phil Grub wrote in early 1977: Unfortunately I did not get very far in organizing the AIB Fellows. I have written to John Fayerweather asking him for the original membership list which only he can recall from memory and as soon as I get back I will send letters to all past presidents, secretaries and charter members asking for their recommendations for the initial slate of officers. I am also stalling a bit because I hope that John Fayerweather will see fit to join [that is, to rejoin the AIB] before that time. I hope to have this all in order before the August [1977] meeting. (letter from Phillip Grub to Jean Boddewyn, 24 February 1977)
This hope was not fulfilled but a Constitution for the Fellows of the AIB was drafted and approved by the AIB Executive Committee at its meeting in Orlando in August 1977, based partly on the Constitution of the Fellows of the Academy of Management. Richard Farmer, also an AOM Fellow, had been elected as AIB President in 1977, and he appointed Lee Nehrt on 17 July 1978 as the first Dean of the AIB Fellows for the 1978–1981 threeyear period on the recommendation of three of the AIB Executive Board members – Phillip Grub, James Goodnow and Laurence Dowd (letters from Grub to Goodnow, 6 September 1977 and 24 January 1978).
LEE NEHRT’S DEANSHIP (1978–1981) Dean Nehrt assigned Fellow Harold Kellar (Baruch) as the Fellows’ first Secretary-Treasurer for the same three-year period and then Mojmir Bednarik (Pace) after Harold’s death in March 1980. By 28 August 1978, a list of the 15 de jure members had been set up, with ten ‘‘Founding Members’’ (including John Fayerweather), four non-founding ‘‘Past Presidents’’ (including John Fayerweather a second time as past President) and one non-founding ‘‘Past Executive Secretary’’ (James Goodnow) (see Appendix B). Actually, there were 19 potential de jure members who had co-founded the Association for Education in International Business (AEIB, then renamed the Academy of International Business [AIB] in 1974) on 17 November 1958 but three were deceased, three could not be located and three were not members of the AIB as required by the Fellows’ Constitution (Memorandum of Dean Lee Nehrt to the Fellows, 14 September 1978).
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THE FIRST MEETING OF THE AIB FELLOWS (1978) At the very first meeting of the AIB Fellows on 28 August 1978 at the AIB Annual Meeting in Chicago, four of the 15 de jure members (Lee Nehrt, Richard Robinson, James Hart and James Goodnow) had a ‘‘delightful dinner-discussion at a terrific French restaurant [La Chemine´e for $15]’’ which resulted in guidelines and policies that have marked our activities ever since: As there were so few of us (because of the short notice), we decided not to decide anything, but simply to explore ideas, which would be followed up by correspondence. As to the activities of the Fellows, we identified only two: (a) an annual dinner meeting to be held during the AIB Annual Meeting; and (b) a session would be set aside on the annual program of the AIB, to be the responsibility of the Fellows. We would be on our mark to decide what we wished to do with that 90-minute slot. Regarding the election of additional Fellows, we arrived at the following conclusions: (a) that we should now elect 10 additional Fellows [in violation of the 1978 Constitution that allowed only five new members per year!]. (b) that we should attempt to have some non-U.S.A. persons elected to the Fellows. (c) that if there were a strong consensus to elect someone who was not now a member of the AIB, we would ask that person if he (or she) wished to join the AIB. If he (or she) did not wish to join to AIB, we would select another person; (d) that the criteria for election of additional Fellows would be: 1. contribution to research and writing in the field of international business 2. contribution to the teaching of international business and to the acceptance or spread of international business as a field of study. (Excerpts from the Memorandum [‘‘Follow-up to First Meeting’’] of 14 September 1978 from Dean Lee Nehrt to the original 15 Fellows)
A list of 26 nominees was submitted for the Fellows’ vote: seven ‘‘nonUSA’’ academics, three ‘‘non-members of the AIB’’ (including John Dunning!) and 16 ‘‘AIB-USA Members’’ (including two non-academics). Ten of them were elected in late 1978, bringing the membership of the Fellows to 25 (a maximum of 100, not counting those over the age of 70 was specified in the first Constitution) – see Appendices B and E for further details. It is worth noting that the 1978 Fellows’ Constitution provided that ‘‘Entrepreneurs and managers of private and public organizations mainly devoted to international business, shall constitute approximately one-fifth of the total membership’’ and ‘‘each year, there should normally be two nonacademic nominees’’ – with ‘‘full-time teachers and researchers’’ accounting for the other four-fifths. This provision reflected the fact that the creation
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of the AIB resulted from a culmination of meetings of educators with businessmen at the conferences of the National Foreign Trade Council, which included an ‘‘Education’’ session where they met and where businessmen encouraged the spread of international business (IB) education. Actually, the two ‘‘non-academics’’ elected at the first round were Elliott Haynes (Business International, Inc.) and Joseph Bertotti (General Electric) in addition to the two de jure founding members Ray Pe´lissier (International Council for Small Business) and Arthur Reef (AMAX). This requirement that 20 percent of the membership be non-academics was subsequently abandoned and replaced by the election of an ‘‘International Business Leader of the Year’’ in 1980 – later to be called ‘‘International Executive of the Year.’’
THE SECOND, THIRD AND FOURTH MEETINGS (1979–1981) These gatherings mattered because the first Fellows set further policies to shape their development. The second meeting of the Fellows was held in July 1979 in Las Vegas with 15 of them in attendance,2 ten of whom (Joseph Bertotti, Philip Cateora, John Dunning, Paul Garner, Elliott Haynes, Noritake Kobayashi, Endel Kolde, Stefan Robock, Kenneth Simmonds and Raymond Vernon) were introduced as new Fellows. By way of celebration, champagne was served and Richard Farmer joined the Fellows as past AIB President. The early Monday-morning ‘‘Fellows’ Session’’ was attended by 90 percent of the AIB registrants – unfortunately for the concurrent ones. It dealt with ‘‘The Concept and Philosophy of International Business,’’ introduced by Lee Nehrt and chaired by Harold Kellar, with papers by Harold Kellar, Richard Robinson, Phillip Grub and Stefan Robock, while Elliot Haynes, Raymond Vernon, Arthur Reef, Endel Kolde, Phillip Cateora, Vern Terpstra and Richard Farmer served as discussants. A reception preceded the Fellows’ dinner because it was deemed important to provide time for the Fellows to mingle, talk and welcome seven of the ten newly elected Fellows who attended that year. At the dinner-cum-business meeting, a lengthy discussion resulted in the consensus that the Fellows’ Panel in the following year would be on the AACSB/ EFMD Project – a combined U.S. and European initiative – regarding the international aspects of management education.
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Further discussion elicited a number of interesting suggestions that: (1) the Fellows nominate each year an International Business Leader of the Year from business; (2) they develop a public-relations program to educate the U.S. public about IB and international affairs; (3) meetings be organized among Fellows, government officials and international businessmen to get inputs on what business schools should be doing to best prepare students for careers in IB and (4) the Fellows undertake a program to convince Ph.D. candidates to take some IB courses so that they would not enter the teaching profession incapable of teaching such courses or of internationalizing their regular courses. The suggested criteria for International Business Leader of the Year were spelled out: ‘‘(1) pioneering new products which have made a desirable breakthrough in such areas as nutrition, energy uses or sources; (2) actions or deeds which improve host-country multinational-corporate relations; (3) the introduction of uniquely beneficial technology to another country; (4) actions or statements which significantly improve or enhance the stature and role of International Business, and (5) other.’’ These criteria have never been revised or updated since. The third Fellows’ annual dinner/business meeting was held in New Orleans concurrent with the October 1980 AIB annual conference and was attended by 12 Fellows.3 The Fellows’ Panel dealt with the AACSB efforts to internationalize the business-school curriculum under the title: ‘‘Perspectives on the Next 30 Years: Implications for Management Education’’ – we sure held the long-term view then! It was chaired by Paul Garner with an introduction by Lee Nehrt and presentations by Joseph Bertotti, Stefan Robock and Philip Cateora. The Fellows’ Panel again drew a very large audience. At the reception preceding the annual dinner, the five newly elected Fellows were introduced to the group: Jean Boddewyn, Gehrard Mueller, E. William Ogram, Erhenfried Pausenberger and Robert Wade (of the AACSB). At the end of his three years of office on 31 December 1980, Robert Stobaugh, who had served as President of the AIB for two years, did automatically become a Fellow according to the rules which were in force then. The fourth Fellows’ annual dinner/business meeting was held in Montreal in October 1981 and was attended by 19 Fellows.4 The Fellows’ Panel, as part of the AIB program, was on the subject of the AACSB/EFMD project on ‘‘Managers for the 21st Century: Their Education and Development’’ which was based on three colloquia held in France, England and the United States. Once again, the very far future was on their minds!
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At the Fellows’ dinner/business meeting, it was decided that the Fellows would not undertake for the foreseeable future any new activities beyond the Fellows’ Panel session and the selection of an International Business Leader of the Year. It was announced that Jacques Maisonrouge, the Executive Vice President of IBM World Trade Inc., had been selected as our first nominee for that award and would be invited to be the luncheon speaker at the 1982 AIB meeting. A separate award for International Dean of the Year would be started in 1984 although already proposed in 1982. Following a reception and the introduction of the four newly elected Fellows (Raymond Mikesell, Hans Thorelli, William Dymsza and Robert Hawkins) out of seven candidates presented with short biographies, there was a wonderful New Orleans dinner. At the Business Meeting, Lee Nehrt, who had completed his three-year term, turned over the Deanship to Richard Robinson (elected from among nine candidates!) who then appointed Richard Farmer as the Fellows’ Secretary-Treasurer (see his very funny minutes of that important meeting in Appendix G). A discussion resulted in a motion passed unanimously that the total number of Fellows be limited to 50 instead of 100. It was agreed that a ballot would be sent out to all Fellows to vote on this proposal as the first amendment to our original Constitution. In other words, an amendment could be the object of a first motion and vote at the Fellows’ business meeting and, if passed there, would be submitted in writing to all of the Fellows for a final vote. It should be noted that the Fellows’ annual receptions and dinner/business meetings have continued to be held during the AIB annual conferences. However, beginning in 1989, the Fellows’ business meeting has been held separately from, rather than immediately after, the dinner meeting. These activities completed the original development of the AIB Fellows Group during the 1975–1981 period – that is, from the proposal for a Fellows group to its creation and the three-year (1978–1981) service of its first Dean – Lee Nehrt. The first Fellows had been appointed or elected and their missions had been agreed upon even though important amendments were later made to our Constitution (see Appendix A for a list of the major amendments over time).
RICHARD ROBINSON’S DEANSHIP (1981–1984) At our meetings in Washington, DC, October 1982, Michael Brooke was declared elected in absentia as our sole new Fellow.5 Dick Farmer, our
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Secretary-Treasurer, maintained his tongue-in-cheek style in the minutes he wrote: The Dean moved approval of the last meeting’s minutes. After a bit of dubious consideration, they were adopted. Rumblings about dumping the incompetent secretary, started by R. Farmer, were quickly quashed by our Dean who doesn’t want to do the minutes himself.
After a motion made by Steve Robock, and seconded by Jean Boddewyn, the Fellows at their 1982 Business Meeting voted unanimously that: ‘‘The Fellows shall make an award to the Dean of the Business School making the best international business contribution to his school during the past year. This will be an annual award.’’ Paul Garner stressed that the award should really go to the School for its entire effort, with the Dean accepting the award on its behalf. He added that the AACSB should be made aware of such an award that should be broadly publicized – something we have rarely done if ever. Implementation of this motion had to wait until 1984. Several amendments to our Constitution in 1982 reduced the maximum number of Fellows from 100 to 50 – not counting those who were past the age of 70. Only two out of 12 nominees were elected in 1983 (Duane Kujawa and Louis T. Wells, Jr.) although a few more of them made it in subsequent elections. Such ‘‘narrow voting’’ prompted various recommendations by a new Committee for the Selection of New Fellows. After a lengthy debate, a motion was passed at the Business Meeting of 29 December 1983, introducing a two-tiered way of electing Fellows as a way of handling elections with too many candidates: Future elections to the Fellows will be conducted in two rounds. The top five candidates with the largest number of total votes on the first round will be listed on the second round of voting. Those receiving the required minimum of 60 percent of the votes of all Fellows on the second round will be elected as Fellows.
This motion was later approved via a ballot mailed to all the Fellows in March 1984. The Committee for the Selection of New Fellows made many other recommendations, most of which were progressively adopted or have remained alive over the years, as revealed by Table 1. Concern was expressed around that time about the still numerous ‘‘nonacademic’’ (meaning ‘‘from business’’) Fellows allegedly exercising too much power over the election of new ‘‘academic’’ Fellows but this fear disappeared over time. Besides, at this early stage in the life of the Fellows Group, it was thought appropriate to nominate and elect Fellows in all IB subfields – particularly Accountancy and Finance – and this goal was progressively achieved.
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Table 1.
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Suggestions Regarding the Election of AIB Fellows (1983).
A. NOMINATION AND ELECTION 1. Should we require a minimum number of sponsors before putting someone’s name on the ballot? 2. Should we have a two-stage election where the list of candidates would first be whittled down to – say – the five candidates with the largest number of votes? A second and final election would then require a 60% majority to be elected. 3. Should a special Election Committee be created and allowed to exercise some discretion in selecting names to be put on the ballot and in interpreting the election results (e.g., to let someone in who missed by just one or two votes?). 4. What role should the general AIB membership play in the nomination process? This year, we invited suggestions but the invitation appeared rather late in the AIB Newsletter on account of scheduling problems. 5. Is it possible to develop a better set of criteria for eligibility? The distribution of the votes (not restricted in number) all over the place, with 10 out of 12 candidates not making it for lack of sufficient votes, suggests that very divergent criteria are being used. 6. Would it be desirable to discuss next year’s potential candidates at each annual Fellows’ dinner? 7. Is it proper for AIB members to campaign for nomination and election? 8. How can we elect more foreign members who may not be well known in the United States? 9. As is done by the Academy of Management Fellows , should we allow only ‘‘active’’ members to nominate and elect new Fellows? (‘‘Active’’ means those who attended at least one of the three preceding annual meetings of the Fellows.) B. NUMBER OF FELLOWS 10. Should the maximum number of Fellows be increased as the number of AIB members grows? 11. Should the present maximum of 50 exclude ‘‘automatic’’ members such as founders, past Presidents, and Executive Secretaries? 12. Should past Presidents and Executive Secretaries continue to obtain automatic Fellow status or should it be submitted to some form of ratification by the Fellows? C. MISCELLANEOUS 13. Should newly elected Fellows be expected to make a special presentation at the AIB annual meeting in order to insure their presence and make the Fellows better known? Report of Jean Boddewyn, Chair of the Committee for the Selection of New Fellows
For the last time perhaps, non-academics were nominated and elected as was the case in 1980 with Robert Wade (Director of International Activities of the AACSB) who had played a very important role in having IB considered an integral part of business education although not as a requirement for the accreditation of business schools – thanks to the tireless efforts of Lee Nehrt and Paul Garner.6 During Dick Robinson’s deanship (1981–1984), Business Leaders (later, Executives) of the Year were directly elected at our Business Meetings. Thus
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in 1983, Elliott Haynes, chief executive of Business International, Inc. (the publisher of respected newsletters and reports), headed the Nominating Committee for that award. Its members came up with nine business candidates duly described and justified as in the following example: Sir David Nicholson, Rothmans International, was the founding Chairman of British Airways and today runs a highly successful international corporation. He is a business statesman of the first order and a profound internationalist. In the belief that business leaders must be active in government and public affairs, he recently created a high-level European-US discussion group, including businessmen, government officials and members of academe. A prophet of a fully integrated Europe he is now finishing a five-year stint in the European Parliament.
Sir David did not make it because the Fellows, at their 1983 Business Meeting, elected Akio Morita of Sony Corporation, who was also an excellent candidate and became our second IB Executive of the Year after Jacques Maisonrouge who received the reward in 1982. Franklin Root was inducted as AIB Fellow after serving as AIB President in 1981–1982. Our first Dean of the Year was elected in 1984 at our Business Meeting from among three candidates, with the winner being Norma Loeser of George Washington University, who spoke at our 1984 Cleveland meeting. It is worth noting that these two Fellows Awards were not linked to obtaining financial assistance from the awardee’s firms or schools to the AIB’s conferences – nor to the Fellows, for that matter. A March 1984 election was held for a new Dean to serve after Richard Robinson’s three-year term ended. The sole candidate and winner was John Fayerweather who had been one of the founders of the AIB and its first President. As we recounted earlier on, John had left the AIB and disavowed any interest in the creation of the Fellows Group because of his feud with Phillip Grub’s Executive Committee about ‘‘dangerous liaisons’’ with business and government. After he and Richard Robinson rejoined the AIB, thanks to Lee Nehrt’s entreaties, Dick became our second Dean and John our third one.
JOHN FAYERWEATHER’S DEANSHIP (1984–1987) There is a huge correspondence and numerous long-ish newsletters to document this period starting in September 1984. John was admirably assisted by William Hoskins who became the Secretary-Treasurer of the Fellows. They were accustomed to working together because Bill served in the same capacity when John was the first President of the Academy
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(1959–1961). Besides, they had both served on the Steering Committee that brought the original AEIB into being. This reunion made John wax lyrical about ‘‘this new season of our careers.’’ Their first Newsletter was issued in December 1984 and there would be 13 of them over three years.
1984 Cleveland Meeting The year 1983 was the last time the AIB and the Fellows met at the very end of the year with the Allied Social Sciences (in San Francisco for that occasion). Starting in 1984, we gathered by ourselves in Cleveland in October.7 Warren Keegan (absent), Arthur Stonehill and Ivan Vernon (who had served five years as AIB Executive Secretary) were introduced as new Fellows. Lee Nehrt’s initiative to internationalize doctoral programs was much discussed and applauded. Several motions were passed at the Business Meeting but John Fayerweather was anxious to have them further discussed at large before being submitted to a vote by all the Fellows. He favored written exchanges of views regarding a particular issue and its hoped-for resolution. Hence, he ran ‘‘opinion polls’’ asking the Fellows ‘‘Would you approve of X’’ instead of an immediate ‘‘Do you approve X’’ which was used in the final balloting. Only after this exchange of opinions, did the Fellows approve or reject various proposals – be they constitutional amendments or changes in practices. At the 1984 Cleveland Business Meeting, John Fayerweather brought up several issues: (1) what should the relationships be between the AIB and the Fellows Group (originally, our Constitution provided for a ‘‘Report to the Academy’’ of an auditing nature but this requirement was later abolished); (2) what activities should the Fellows support (for example, the internationalization of doctoral programs) and (3) what membership policies (as discussed in Table 1) should prevail (at least five Fellows offered various opinions about these membership issues). Following Franklin Root’s Nominating Committee Report, Walter Wriston of Citibank was selected as International Executive of the Year – the new name of our Award – for 1985 although Lee Iacocca (Chrysler), David Rockefeller (Chase) and Armand Hammer (Occidental Petroleum) also received significant support. John was against the creation of a Screening Committee that would review Fellow nominations and election results and possibly eliminate or confirm some of them: ‘‘It opens the door to a lot of pressures, jockeying,
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politics, etc.’’ There would be a need for such a committee ‘‘only if the present system is not producing the right candidates.’’ He was also against any change in the policy of automatically granting Fellow status to past AIB Presidents and to AIB Executive Secretaries who had served at least five years. About the latter, he said: ‘‘If we have a poor one, we would do better to fire him before the 5-year period ended.’’ John liked the suggestion of asking newly elected Fellows to make a presentation at AIB meetings but he favored more informal ways than devoting a special session to that purpose. A ‘‘straw ballot’’ was mailed to the Fellows after the 1984 Business Meeting in Cleveland suggesting that: (1) Fellows residing abroad be excused from attending at least one of the three preceding annual meetings, and (2) constitutional amendments could be initiated by mail at the discretion of the Dean and/or five Fellows, provided this process did not preclude their discussion of the annual meeting. ‘‘Reaction polls’’ also dealt with: (1) including as founders of the AIB and thus as Fellows only the ones who had remained active in the AIB, thereby excluding from membership ‘‘William Cody, James Hagler, Bruce Neighbor, Arnold Oshin, Ray Pe´lissier and Edwin Wigglesworth;’’ (2) changing the requirement that about one-fifth of the membership ‘‘shall’’ be non-academic people to ‘‘may’’; (3) specifying that AIB members at large can ‘‘recommend’’ rather than ‘‘nominate’’ candidates for Fellowship, with recommendations to be sent to any Fellow and (4) questioning whether the payment of dues by Fellows was obligatory to the extent that ‘‘dropping people for nonpayment is not an option [since] election as a Fellow is an honor conferred on members of the AIB with no presumption of conditions such as paying dues to the group’’ although they could be put on the list of ‘‘Inactive Fellows’’ for not paying them. John Fayerweather also considered the creation of a certificate of election to be given to old and new Fellows but this project never came to pass. Richard Robinson, our past Dean, proposed a very detailed program of action for Fellows, including: (1) a list of research priorities (e.g., the costs and benefits of ‘‘externalizing’’ particular processes, functions or transactions in value-added chains (way before offshoring became a major issue!); (2) moral support of various projects designed to enhance IB education and (3) collective and individual pressure on professional journals to consider more articles with IB content – something which came to fruition as time went by. Phil Grub, past AIB President, raised questions about the election process for Fellows who are ‘‘supposed to be the most outstanding leaders in the field of academia in the international arena.’’ He wondered why AIB
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Presidents and Executive Secretaries became automatically Fellows but not the Editor of JIBS and the Program Vice-Presidents, and whether a distinction should be made between this group of ‘‘service providers’’ and those ‘‘full-fledged AIB members recognized as leaders in the IB field in terms of research and publication.’’ This issue resurfaces occasionally in terms of election criteria and the classification as ‘‘Active’’ or ‘‘Participating’’ Fellow. Newsletter No. 2 of March 1985 was 26 pages long, with reports of various committees, the results of opinion polls and a membership list. Bill Hoskins remarked about the exchange of ideas through opinion polls: ‘‘There is a bit more work involved for everyone, but I am sure the process of sharing views will produce better results more efficiently.’’ John Fayerweather added: ‘‘There were a few dissenting comments which suggest that we should remain flexible in our actions and encourage you to register further opinions.’’ A new ‘‘Junior-Senior’’ Symposium organized and staffed by Fellows had been recommended by Jean Boddewyn in 1984. A ‘‘reaction questionnaire’’ dealt with this proposal which ‘‘sounds good but it will be work, cost money, and require solution of assorted questions.’’ In any case, the AIB decision to meet in London in 1986 forced the Fellows to postpone this new Junior-Faculty symposium because of the anticipated difficulty of getting younger scholars to travel to England. John definitively wanted our Business Meetings to be occasions when only various brief votings would take place after opinion polls had favored particular motions, ‘‘trusting there will be no debate which most people would regard as an unproductive use of limited time. If there are still any significant questions, please write to me now so we can try to work them out beforehand.’’ The issue of ‘‘active’’ status (meaning the right to vote) already came up and was resolved in terms of dues payment and meeting attendance – ‘‘the only practical option to deal with the situation.’’ John commented that paying annual dues of $25 provided proof that ‘‘annual operating decisions of the group should be in the hands of those Fellows maintaining an active role in the group.’’ It was reported that AIB President Duane Kujawa was actively pursuing the idea of holding the AIB Conference in Europe, a change which John Dunning had already vigorously advocated. To the question ‘‘When are we going to elect a female Fellow?’’ an unnamed Fellow replied, ‘‘I am against affirmative action being applied to the selection of Fellows.’’ In response to the query of Phil Grub about who should be considered a candidate for AIB fellowship (see above), John Fayerweather spoke about
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the ‘‘image’’ difference among Fellows, that reflected different bases for membership, with the elected Fellows somehow looking ‘‘higher’’ in status than those who are Fellows by virtue of service roles: I am inclined to address this point very bluntly because, regardless of the disposition of the immediate question, it bothers me greatly. I approach the point from the unique perspective of having been in all three of the service roles. I had no part in the creation of the Fellows and the decision to honor people in these roles. But I strongly support the concept. It says to the world that the AIB realizes that the strength of an academicresearch field is built by varied ‘‘outstanding contributions’’ – those of top scholars, those of key administrators, those of innovators and others y [These] people’s contributions are validated by the historical record requiring no validation by election.
In fervent tones, John lauded the people who founded the AIB, including the businessmen who attended the founding meetings and whose support was critical. Regarding later service providers: ‘‘AIB Presidents probably need no defense. The work alone deserves a medal y I suspect that the Executive Secretaries’ contributions are least appreciated, especially when they do their job well y The dedicated responsible work of the five people who have held this role has been a truly outstanding contribution to the quality of the AIB.’’ John’s opinions largely prevailed but some Fellows objected to our membership list indicating who had been ‘‘elected’’ and who had been ‘‘inducted’’ as former AIB President or Executive Secretary, thereby creating some invidious comparison. Therefore, this distinction was dropped from our list although it was revived by the AIB Secretariat in 2006 for record-keeping reasons. In a letter of 2 January 1985 to the Fellows, Jack Behrman stated: ‘‘I consider that each of us as Fellows have gained a great deal from our associations with each other and with activities in this [IB] field and should be called upon to return something to it and to assist those coming along. If we do not do it, I do not know who else has an equal or greater interest in [the] development of the field.’’ Besides, Jack was concerned about the quality of current IB research, even articles published in JIBS, considering that they were often ‘‘spotty, inconspicuous and frequently related to unimportant issues.’’ In a memo of 7 August 1985 to the Fellows, Jean Boddewyn commented about the huge variations in the number of candidates nominated for Fellowship – 5 in 1985 but 14 in 1984. He urged the Fellows to persevere if their candidates did not make it on the first try because ‘‘most of those ultimately elected Fellows have had to wait for one, two or three years before making it.’’ He suggested that the number of favorable votes received by each candidate – whether successful or not – be publicized to the
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nominators because it would give them a better idea of where their candidates stood in terms of future chances and/or things to do about improving their candidacy. This recommendation has been unevenly followed and, at times, strongly opposed. Jean also proposed the creation of what would become our honorary group of Eminent Scholars: We already have ‘‘honorary Fellows’’ in the forms of Business Executive and Dean of the Year. I would like to suggest a third category, namely, ‘‘emeritus scholars.’’ I am thinking of people who have not been active in the AIB but whose contribution to international business scholarship has been exemplary and who have reached the ‘‘endof-career’’ state. Charles Kindleberger, formerly of MIT, comes to my mind in this connection. By waiting until the emeritus stage, we would avoid the objection that they have not been involved with the AIB in any significant and direct manner. I am not suggesting the wholesale addition of all those who – in the United States and abroad – have made some significant contributions to the development of our field, but the careful recognition year after year of one such ‘‘emeritus scholar’’ (without the vote, of course, and without counting him or her toward our 50-Fellow limit).
1985 New York Meeting At their Dinner/Business meeting on 18 October 1985, the Fellows were to vote on a series of amendments ‘‘as a package for a single vote’’ since they had already been discussed through ‘‘reaction questionnaires.’’ John Fayerweather, however, added that ‘‘We will endeavor to deal with any questions in advance, or failing that, we will consider pulling debatable items from the package.’’ Dinner was sandwiched between a 15-minute pre-dinner session to introduce new Fellows (Peter Buckley [absent] and John Daniels) and vote on well-prepared amendments, followed by a larger post-dinner meeting devoted to discuss the Junior-Faculty Symposium proposal and a possible research plan. Later on, reporting on the Fellows’ Annual Meeting in New York, John Fayerweather commented on 8 December 1985 that ‘‘From all reports, the dinner in New York was fairly satisfactory. We had a congenial evening with sufficient good humor intermixed with serious discussion and some accomplishments.’’8 It is worth noting that several AIB founders attended this meeting (Fayerweather, Hoskins, Mandell and Reef ) while the AIB’s contacts with the AACSB were handled by Paul Garner, one of our older Fellows, and Lee Nehrt, the first Dean of the Fellows. The Dean of the Year award needed more impetus and leadership but John was ‘‘not optimistic that anyone in our group will have the combination of time and interest necessary’’ (see below). Already, it was
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proposed by John Dunning to change the name of the ‘‘Dean of the Year’’ award to something like ‘‘Senior Administrative Officer’’ in order to accommodate differences in titles among schools and countries. This issue was sent back to Phil Cateora’s Committee but was not resolved until 2007 when ‘‘International Dean of the Year’’ was replaced by ‘‘International Educator of the Year.’’ John reported that the recent opinion poll revealed that the Fellows were divided as to the need for nomination seconders, the release of the numbers of votes received by candidates in elections and the creation of an Eminent Scholar award so that these proposals would have to wait until the 1986 annual meeting in London for a vote after exploring them further during the coming year. While the Fellows strongly favored (21 to 8) adding the annual payment of dues to meeting attendance as a criterion for active membership and therefore voting eligibility, this issue was also left open for discussion in 1986. The creation of a Junior-Faculty Symposium on an experimental basis was approved but it was going to be difficult to start it in a full-fledged manner in London – the first AIB conference abroad. Therefore, the initial symposium was to be held in conjunction with the AIB Northeast Regional Meeting in Boston in April 1986 but this venue had to be changed to the AIB Chicago Conference in 1987 for lack of proper publicity. ‘‘Junior Faculty’’ was defined as ‘‘those who have completed a doctorate within the past seven years,’’ the symposium would focus each year on a different functional area (e.g., International Marketing) and the young teachers were to present their current research topic to a panel of expert Fellows. Problems of the AIB were broadly discussed. Thus, Ken Simmonds observed that only half of the membership of the new Strategic Management Society is from the United States – which means that it had no trouble becoming an ‘‘international’’ organization in five years while the AIB had a problem recruiting ‘‘foreigners’’ after 25 years (actually 17). In this context, Duane Kujawa reported that the AIB Executive Board was considering breaking the past pattern of meeting in the United States by gathering in foreign locations – as the AIB was to do in 1986 in London. Various amendments to the Fellows’ Constitution were approved at the 18 October 1985 meeting in New York but had still to be ratified through a mail balloting of all the Fellows. One of them added to ‘‘The Purposes of the Fellows’’ that they would ‘‘exercise leadership in the field of international business’’ after their outstanding contributions to this field had been recognized through an election. The category of ‘‘Honorary Members’’ would include ‘‘persons selected as International Executive of
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the Year, Dean of the Year or for other special reasons’’ – a hint of the later creation of the Eminent Scholar award. These honoraries were not to be subject to AIB and Fellows dues and they were not to be eligible to vote or serve as Dean. As was previously proposed, it would no longer be required that entrepreneurs and managers of private and public organizations mainly devoted to IB constitute one-fifth of the total membership. AIB members would be solicited annually via the AIB Newsletter to ‘‘recommend’’ candidates for Fellowship, with these recommendations ‘‘circulated’’ to the Fellows for their consideration only. Annual dues would be set at Business Meetings. These proposed amendments were submitted to the Fellows for voting by mail shortly after the Fellows’ meeting in New York that had been arranged by Steve Robock. At the very end of 1985, Jean Boddewyn again proposed the recognition of ‘‘Distinguished Scholars as Honorary AIB Fellows:’’ Election to regular AIB fellow requires AIB membership except for honorary members. However, we must acknowledge that some prominent international-business scholars ‘‘here and abroad’’ have never been and will probably never become AIB members y A reasonable compromise is to be very selective and honor only those prominent scholars who have reached the emeritus stage. Both criteria guarantee that there will be few of them since 60 percent of those Fellows voting must agree as to the merits of the Candidate; and there are relatively few prominent scholars who have reached the emeritus stage y Charles Kindleberger (Emeritus MIT) provides a good model y His contributions to the study of economic development, trade and FDI theory, and economic history are extensive, well known and significant y Recognizing such people at the end of their formal academic career would redound to the credibility of the Academy of International Business and its Fellows y It would also help alleviate the problem of people asking us: ‘‘How come so-and-so is not a Fellow’’ At the maximum rate of one a year and considering that, like honorary members, they would not have the vote nor count toward our current maximum of 50 ‘‘regular’’ Fellows, we do not risk being overwhelmed by them in any sense.
Another major initiative was the development of a data book to gather information about candidates for our Dean of the Year Award in order to cast a wide net in lieu of the ad-hoc nomination of one or two candidates each year. This project had been recommended by Phil Cateora and other members of the Selection Committee (Gary Mueller and Vern Terpstra plus Lee Nehrt). The Data Book was to be financed by the AIB Foundation ($1,000) and by Fellows ($300) monies.9 As John Fayerweather observed in December 1985: The Dean of the Year Award was initiated as a means to foster implementation of the AACSB standard for internationalization of business school curricula. It was seen as a
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JEAN J. BODDEWYN means to reward accomplishment and to provide role models for future progress. To serve these purposes, the deans and schools given recognition should be perceived by other deans as clearly superior in their accomplishments. Our present selection system relying on volunteer nominators is seriously deficient because it generated only one candidate this year who met the minimum criteria. While no one questioned that this candidate had done a good job in leading the internationalization of his school’s curriculum, there was no assurance that the candidate was superior in comparison with others. Indeed there were definite indications that other deans had done at least as well or better.
For lack of a volunteering Fellow, this project was assigned to James Weekly of the University of Toledo, with the Selection Committee to define the information to be recorded in the data book. Meanwhile, the criteria for selecting a Dean of the Year were spelled out in early 1986: The Fellows may select from time to time as Dean of the Year, a senior administrative officer of a business school whose leadership has resulted in an outstanding example of internationalization of a business school in such a way as to meet the internationalization criterion of the AACSB through an international business course required for all students or international content in core courses for all students. Factors to be considered as contributing to this internationalization will be extent of allocation of support for international research, foreign exchange programs for faculty and students, and development of international business courses.
Meanwhile, Jim Goodnow, head of the Nominating Procedures Committee, circulated in September 1986 suggestions from various Fellows to improve the election process for new Fellows, including a letter from Steve Robock who complained that ‘‘In the present list of nominees, there are several people that I know by name only and about whom I would like more information. There are also several people that I know quite well and would like to share my knowledge with others.’’ At that time, there were only a two-page curriculum form and the full vita of the nominee but no letters of nomination and seconding.
1986 London Meeting The big event in 1986 was the AIB and the Fellows meeting abroad for the first time. The conference took place in London in late November, with John Dunning, Ken Simmonds, Art Stonehill and Bill Hoskins in charge of local arrangements. The Fellows’ schedule included a post-dinner ‘‘scholarly discussion’’ of the quality of IB research to be led by Lou Wells and John
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Dunning ‘‘with intellect, wisdom, wit and repartee’’ according to John Fayerweather’s wish. Michael Brooke protested against our International Executive of the Year Award because ‘‘at least 4 of the 9 names [are] the objects of considerable political controversy y The list could easily be used by a newspaper or broadcasting commentator as evidence that ours is a political front organization with an academic mask.’’ Strong words, yet he expressed support in his letter for Armand Hammer of Occidental Petroleum, who was certainly no paragon of virtue! In any case, Giovanni Agnelli, Chairman of Fiat, received our award in London in 1986 without any opposition, and with Armand Hammer following in 1987. Hal Mason, Secretary-Treasurer of the AIB, was inducted as Fellow after having served in this capacity for five years. The Nominating Procedures Committee headed by Jim Goodnow reported on the various suggestions made to improve our election process. One of the problems singled out was the now common case of an abundance of nominees, resulting in the votes being ‘‘spread over too many candidates with the possible result of no one being elected’’ – as was to happen in 1988. A two-stage balloting system was then in place with the first round whittling down the number of nominees to five who were to be voted upon through a second round of voting two months later. At our London business meeting,10 a ‘‘scanning’’ or ‘‘surfacing’’ committee was proposed to identify scholars who have ‘‘fallen between the cracks’’ and were overlooked by our purely voluntary nomination process. It would definitely not be ‘‘screening’’ these nominations which would now be accompanied by a one-page letter from the sponsor to highlight the candidates’ ‘‘outstanding contributions’’ instead of just submitting a name and a vita as was the custom then. A seconding letter was also considered although: ‘‘It may be that the statements would be substantially repetitious of those of the sponsor’’ although they might also give a different perspective. John Fayerweather was overwhelmed by the quality of our British gathering: ‘‘The London meeting of your group was a jolting experience for me. Conditioned to modest expectations of decision making in Fellows gatherings, I was taken aback by the performance of the group. They moved deliberately into the heart of the key issues, focused on options and made decisions – boom!’’ He also observed that all the people elected in the past three years had played significant AIB roles – possibly ‘‘the critical differentiating criterion among otherwise well-qualified candidates.’’ In any case, it was decided to
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start the call for nominations some nine months (rather than seven) before the date of our next meeting. Warren Keegan sent a call for nominations in January 1987, mentioning that a one-page letter of support be written by the nominator but with no reference to a seconder although a seconding letter was now de facto required. Jim Goodnow, in a letter of 15 December 1986 to John Fayerweather, suggested that Fellows who had essentially retired ‘‘not be counted to calculate the upper limit of the number of persons who can be members of our group’’ although they could retain ‘‘active’’ status as long as they desired. This suggestion was not implemented. After the London Meeting It is worth noting that many proposals were voted upon at Business Meetings – particularly, those that had already been positively supported by at least two-thirds of the favorable votes in opinion polls and were then formally confirmed at a subsequent Business Meeting. However, others were first approved at a Business Meeting and then formally ratified through a later mail ballot. Thus, the following amendment was first approved at the 1986 London meeting and then ratified by a mail ballot in early 1987: ‘‘Active’’ Fellows means those Fellows who meet both of the following requirements: (1) Have made annual membership payments in two of the previous three years, and (2) Either reside in the United States or Canada and have attended at least one of the three preceding annual meetings or reside in other areas [in which case, they are excused for not attending]. These requirements shall not apply during the first two years of membership of a new Fellow.
This distance-based distinction between North-American and other Fellows lasted until 1997 when the same attendance requirements were imposed on all Fellows since the AIB was meeting abroad at least every three years. In his report on the 1986 Business Meeting in London, John Fayerweather expressed pleasure over the planning of the future Junior Faculty Workshop which represented ‘‘both a contribution to improvement of IB research and an implementation of the concept of transmission of skills from one generation to another.’’ The data bank for the selection of new Deans of the Year was being developed by Jim Weekly (not a Fellow), Phil Cateora, Gary Mueller and Vern Terpstra (plus Art Stonehill later on). A mini-fracas erupted, based on the reservations expressed by Michael Brooke about the selection of International Executives of the Year (see above). They were to be examined by a new Committee, following a
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November 1986 report signed by Michael, Peter Buckley and Warren Keegan, which concluded that: ‘‘The offering of honorary titles suggests an identification which could damage our reputation y The award in no way improves the prestige of an academic organization like ours y At best it is an irrelevance.’’ Warren Keegan added: ‘‘I feel that we should continue to invite distinguished business speakers to address our annual dinner, but that we should not confer our ‘businessman of the year’ award. We are a scholarly organization and we must retain our independence and objectivity.’’ Nevertheless, the Fellows kept granting this award. On a more peaceful note, the Fellows were going to choose their first ‘‘Emeritus Scholar’’ who had to be past the age of 60 and to elect a new Dean of the Fellows in 1987. A proposal was made again to appoint a ‘‘surfacing committee’’ in order to insure that additional outstanding Fellow nominees be considered. A nominating letter was considered essential to highlight a candidate’s outstanding contributions ‘‘beyond just submitting a name and vita.’’ John Fayerweather concluded that ‘‘it is clearly in order to examine this matter systematically both because of the questions raised and because it is sound management to re-examine any program after it has been in operation for a few years.’’ Treading on a difficult terrain, Lou Wells circulated the following comments on the quality of research in IB (edited remarks of 17 March 1987): I am not certain that there’s more bad research in international business than in other business fields. Two areas are, I think, at least partial causes of poor research in international business: doctoral programs in the field and the experiences of young faculty. I am suspicious that our field attracts a lot of students who aren’t really deeply interested in and committed to the subject. Some come because they think that international business is glamorous. That’s a reason that doesn’t stand the test of hard work in research. Further, we attract a lot of foreign students, especially from the developing countries, who have come to us by default. They look for a field where they have a comparative advantage, or they look for a field where they think they are likely to be accepted into a program. These are not people who are likely to do fine research. There is a second problem in our doctoral programs, but one not unique to international business. We often fail to do an adequate job training our students to perform good research. I think that we are all particularly weak when it comes to teaching the nonquantitative skills needed for research. We do little with field interview methods, with questionnaire design (perhaps that’s quantitative), and too little with the overall design of research projects. Some of the questionnaires that students send out should be really very embarrassing to us, and I am sure that they discourage cooperation with all researchers by firms that receive them.
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JEAN J. BODDEWYN I am afraid that some of our students don’t choose their thesis topics very wisely. Many spend months trying to choose the very best topic, only finally under panic to choose any old topic to get on track again. Most would be better off with a good topic, not the world’s very best, and more time to work on it. We need to help them in these choices. Finally, we approve theses too quickly. For most academics, the thesis writing stage is the last period in life where they will have a reader who is really dedicated to reading draft documents and trying to help with the research. I keep telling students that they should stay for another month or two and improve the final document. They will then be much closer to having publishable articles or books. Most, however, push for the quick approval but I’m not sure that we do them a favor when we yield to that pressure. The second class of problems arises when the young academic takes his first job. Here the problems are more special to international business. The graduate often goes to a school where he or she is the only international-business specialist. Or, where there are only one or two other people in the field. That is a very difficult environment for a young person to do good research. It is a rare young person who can carry on fine and important research in the absence of senior role models and seminars in which he or she can exchange ideas with others in the field. This problem occurs on top of the well-known difficulties of doing research in the international field. Research is typically expensive, and requires large units of time. Many deans, I understand, hesitate to provide the young researcher in international business a semester or a year free for research. But unlike some other fields, much of the best work in international business cannot be done between classes in a light teaching schedule; better a heavy load for a year or two, and no load for a semester or a year. I am afraid that the Academy of International Business does not do its share in helping to solve the problem. The sessions in our annual meetings, for example, could substitute, at least to some extent, for some of the seminars that inevitably fail to materialize in the young academics’ own schools. But when we insist on cramming three papers into each session, no serious discussion can occur. I hope that we can experiment with some sessions where only one paper is discussed, and where that paper is available before the session for participants to read.
Jack Behrman (pessimistic) and John Dunning (optimistic) added their views on the subject, and Bob Hawkins suggested ways of ‘‘improving the intersection of research in international business and the policy considerations in the U.S. Commerce Department and other Washington policy groups’’ after discussing the problem with Michael Czinkota (now of Georgetown University but then U.S. Assistant Secretary of Commerce). They discussed various exchanges and collaborative mechanisms whereby expertises were to be combined on major contemporary problems. Unfortunately, no Fellows initiatives ensued. No less than 13 Fellows were nominated or self-nominated to succeed John Fayerweather as Dean after the November 1987 AIB Conference in
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Chicago. A first ballot narrowed down the candidates to two, with Franklin (‘‘Russ’’) Root being elected on the second round. Charles Kindleberger was overwhelmingly chosen as our first Emeritus Scholar and did speak at our 1987 Chicago meeting. There was not going to be an International Executive of the Year while committee recommendations were awaited regarding this then controversial issue.
1987 Chicago Meeting At this November 1987 gathering, the Fellows were to vote on various proposals that had been aired through straw ballots. A nomination form, a nominating letter and a seconding one, and a surfacing committee had already been approved by a majority of positive opinions in straw-vote questionnaires. The Junior-Faculty Workshop was started at this conference and served as a ‘‘post-doctoral clinic’’ restricted to four young professors who had taught for at least seven years. It focused on International and Comparative Marketing in its first year, with Jean Boddewyn, Philip Cateora and Vern Terpstra as mentors giving each participant one hour of advice. Chair Terpstra recommended that this initiative be continued ‘‘with expansion to other areas such as international finance.’’ The data bank to help select Deans of the Year was set in motion, with 12 candidates ‘‘surfaced’’ by the Committee. It is worth noting that only two of them – Ronald Patten (Connecticut) and David Bess (Hawaii) – were selected over the years on account of this system designed to make the selection of Deans of the Year more systematic and far-reaching. Following the selection of Ron Patten as the 1987 Dean of the Year, it was thought appropriate to generate a discussion of the internationalization of businessschool curricula ‘‘with the valuable input of a person who has proven competence in accomplishing the desired goal.’’ At his last meeting as Dean of the Fellows, John Fayerweather thanked Bill Hoskins, his Secretary-Treasurer, for his partnership ‘‘in this adventure’’ and for his outstanding management of Fellows affairs, with the numerous straw votes, ballots and elections that took place during the past three years. He then drew the curtain over his three years of vigorous office in his own dry and modest way: ‘‘I could (as you might well expect) write several pages. I prefer, however, just to say that the experience has been interesting and three years is a sound length of time for the Dean.’’ In his parting newsletter, Bill Hoskins commented on the changing of the guard: ‘‘We hope the ‘details’ handled over the past three years have set
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the stage for concentration on broader issues. I agree that the steps were perhaps tedious at times, but I also believe the results were beneficial to our group.’’ Since David Bess (Hawaii, Manoa) had received almost as many votes as Ronald Patten the previous year, it was recommended by the Dean of the Year Committee that he be selected for 1988 and that ‘‘an interval of a few years be observed before renewing the Dean of the Year Award process.’’ Unfortunately, the use of a data bank for proposing candidate Deans was not continued. Armand Hammer of Occidental Petroleum received our International Executive of the Year Award in absentia in 1987. A brief discussion about continuing this award was to be held at the Business Meeting in San Diego in 1988.
FRANKLIN ROOT’S DEANSHIP (1987–1990) Fewer records are available regarding his deanship. With Jim Goodnow as his Secretary-Treasurer, ‘‘Russ’’ Root brought to fruition many of the initiatives of his predecessor. Taking over at the Chicago conference in November 1987, he introduced Charles Kindleberger as our first Emeritus Scholar, Ronald Patten as Dean of the Year and Ingo Walter as the only new Fellow for 1987. One of the first eulogies delivered was for Richard Farmer, former AIB President and first-rate iconoclastic scholar, who had passed away in 1987: ‘‘The Fellows stood for a solemn moment in remembrance of Dick.’’ John Dunning exhorted the Fellows to support the continuous internationalization of the AIB’s activities after their first meeting abroad in London in 1986. Singapore was to be the conference site in 1989 where ‘‘selected international-business issues are to be viewed using the frameworks and paradigms developed by scholars representing a variety of functional areas.’’ Russ Root favored good fellowship over debating issues after the intense rounds of activities under John Fayerweather. Thus, regarding the AIB Conference to be held in San Diego in October 1988, Newsletter No. 16 of August 1988 announced that: ‘‘Our plan is to have a brief business meeting before dinner and relaxed informal fellowship and discussion after dinner.’’ A poll conducted in late 1988 revealed strong preference (24 to 4) for ‘‘a business meeting of one or two hours some time during the AIB Annual Meeting and thereby reserve the Fellows Dinner for social purposes’’ – in order not to bore the spouses. Because only 13 Fellows had sent
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pre-reservations for their Dinner in Singapore, Dean Root ‘‘decided that we dispense with the annual business meeting and keep this year’s get-together a purely social event.’’ Russ remarked in May 1988 that the Fellows remained ‘‘badly split’’ over the selection of International Executives of the Year and he asked for more opinions on this issue. Yet, despite the misgivings about this award, a surfacing Committee was operating in mid-1989 and there was a similar one for Membership designed to possibly add overlooked names to the list of candidates nominated by the Fellows. Yet, in 1988, no Fellows were elected although (or maybe because) there were 11 candidates. At that time, two rounds of elections were still held when there were more than five nominees. In 1989, Steve Kobrin and Don Lessard were elected AIB Fellows from among a distinguished list that included candidates that would be elected in later years: John Stopford, Daniel Van Den Bulcke, Susan Douglas, Mark Casson and Rosalie Tung. At the annual AIB Conference in Toronto (Canada) in November 1990, at the end of his three-year term, Russ Root summarized the Fellows’ achievements under his leadership: the first awarding of the Emeritus Scholar award to Charles Kindleberger, Dean of the Year to Ron Patten (Connecticut) and David Bess (Hawaii) and Executive of the Year to Armand Hammer (Occidental Petroleum) and David Culver (Alcan). He suggested that ‘‘the major accomplishment of his term as Dean was the separation of the annual business meeting from the dinner so that the dinner could be more of a social event.’’11
ROBERT HAWKINS’ DEANSHIP (1991–1993) After being elected from a slate of three candidates, Bob suggested that the Fellows should consider themselves as an honorific group of elder statesmen who could aid the Academy as advisors when asked but should not be a substitute for the AIB’s Executive Board nor be ‘‘terribly aggressive in changing the world.’’ Actually, several major developments took place under his leadership. As Chair of the Membership Committee, Warren Keegan pointed out that only Yair Aharoni was elected in 1990. Given the small number of persons elected in previous years, Warren suggested that the Surfacing Committee be more active in adding nominations to those made by individual Fellows. Considerable discussion followed his report but no changes in election procedures ensued from this exchange of views. In April
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1991, John Fayerweather also commented on the small number of elected Fellows in recent years despite the existence of a Surfacing Committee since 1986: The deficiency is that it has never really been implemented in a very mixed context of annual elections: 1988, confused election still in process at time of the Fall meeting; 1989, very poor documentation experience, most with no endorsing letters; 1990, orderly process, committee effort evident but weak [Fellow] support; 1991, committee apparently made no effort, no test of proposed greater advocacy role.
In a nutshell, the Surfacing Committee’s idea had never received a fair trial so that no further constitutional changes were in order until the surfacing process was implemented energetically and efficiently. John Fayerweather was also concerned about worthy candidates who were not nominated because they were ‘‘non-Americans, people in the less visible fields [of international business] and those without close relations to Fellows [willing to nominate them].’’ The major role of the Surfacing Committee should be ‘‘to level the field’’ by nominating people thus disadvantaged. The issue of automatically inducting as Fellow an Executive Secretary of the AIB who had served at least five years in that capacity did surface again. Jim Goodnow, serving a second term as Secretary-Treasurer of the Fellows, reported that: ‘‘The sense of the meeting (by an overwhelming majority of those present) was that the [AIB] Executive Secretary should be elected as part of the normal balloting process’’ – that is, be nominated, seconded and voted upon like any other candidate. Bob Hawkins used this issue to announce the creation of a committee charged to supervise the revision of the Fellows’ Constitution which had not been amended since 1987, with Bob Hawkins as Chair and John Fayerweather, James Goodnow and Franklin Root as members. Meanwhile, John Daniels proposed that the AIB should incorporate in its annual conferences ‘‘a session or annual presentations by selected members of the Fellows on state-of-the-art and historical overviews on major themes in international business research’’ – a suggestion to be passed to the AIB Program Chairs during Bob Hawkins’ deanship. Warren Keegan, as Chair of the Membership Committee, sent a ballot form and supporting documents to the Fellows in March 1991 for the election of new members. He commented wisely about a now recurrent problem: ‘‘We have experienced a significant increase of nominations for new Fellows this year y Based on past experience, unless you vote for multiple nominees, we will not elect new Fellows. I urge you to vote for as many as you would like.’’ A membership list dated October 1991 included
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46 Fellows, with several AIB Founders and business Fellows still listed as active. Thirty-nine of them counted toward the upper limit of 50 after excluding Fellows past the age of 70, according to the Constitution then in effect. At the October 1991 annual AIB Conference in Miami, Susan Douglas, Howard Perlmutter, Alan Rugman and Jose´ de la Torre were recognized as new members. A Fellows Panel Session run by Don Lessard was applauded as an important innovation well conceived and delivered so that Lou Wells was appointed to run a similar one in Brussels, Belgium, the following year. Choosing a European Executive of the Year seemed appropriate for that venue. Dean Hawkins aired various constitutional proposals that would be discussed the following year. One envisaged broadening the membership of the Fellows by creating a separate category elected on account of their services rather than their scholarship. Jack Behrman’s Emeritus Scholar Committee proposed providing ‘‘honorary designations for eminent scholars in the more traditional fields who have contributed to our understanding of International-Business matters’’ – anthropology, history, economics and others – in order to build some linkages with these disciplines. A ballot for revising their Constitution was circulated to the Fellows with a deadline of April 1992. In Brussels in November 1992, Bob Hawkins was happy to report that the Fellows had unanimously agreed to give approximately $375 to cover the cost of some free gift subscriptions to JIBS to university libraries in developing countries and/or Eastern Europe. Nancy Adler, Fred Choi, David Ricks and Daniel Van Den Bulcke had been elected and they were introduced as new members. The Fellows Panel run by Lou Wells with Jose´ de la Torre and Dick Robinson at the AIB Conference was another success, with John Dunning expected to present a paper at a similar panel in Hawaii in 1993. The speech of Percy Barnevik, President and CEO of ABB Asea-Brown Boveri, was illustrated by a hundred slides and was very well received after he was recognized as our International Executive of the Year in Brussels. Ehrenfried Pausenberger was thanked for his help in getting Mr. Barnevik to accept our award. However, Dean Hawkins deplored that ‘‘As a result of inaction (mainly), the surfacing committee has nominated no one for the Dean of the Year Award’’ – nor for Emeritus Scholar. The Dinner was going to be expensive (US $75.00) ‘‘because of the ambiance of our dinner venue [on the Grand Place in Brussels] and the significant decline in the value of the dollar.’’
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Two constitutional amendments were proposed, discussed and approved in a first round of voting: (1) eliminating the clause that, normally, 20 percent of the Fellows would be non-academics, and (2) increasing the number of Fellows below the age of 70 from 50 to 60. A letter ballot would follow.
JOHN DUNNING’S DEANSHIP (1993–1996) Two Englishmen now ran the Fellows Group after John Dunning was elected in 1993 and appointed Alan Rugman as Secretary-Treasurer. At the start of his deanship, John stressed that ‘‘one of our aims must be to give leadership to our profession and, in particular, offer what encouragement and support we can to our younger colleagues’’ and he hoped for more sustained exchanges with business executives who could make a short after-dinner speech to the Fellows. Mr. Takuma Yamamoto, Chairman of Fujitsu, was designated as the 1993 International Executive of the Year while Edith Penrose was recognized as Emeritus Scholar for 1994. At the October 1993 Business Meeting in Maui, Hawaii, John Dunning welcomed Jeff Arpan, John Stopford and Mark Casson (absent) as new Fellows. For subsequent ballotings, it was decided to replace large CVs with a two-page nomination form still used today, together with the nominating and seconding letters. It was once more proposed that the name of the ‘‘Dean of the Year’’ Award be replaced by a broader one on account of different titles used abroad. The Committee charged with recommending candidates for this Award and chaired by David Bess, a former recipient of it, suggested that they should be those who lead efforts to internationalize their entire schools instead of those who head business schools that already have outstanding IB programs. The funding of JIBS subscriptions to seven libraries in poor countries was continued even though it caused an income loss for 1993. Jim Goodnow was given a plaque for his six years of service as Secretary-Treasurer of the Fellows. John Dunning confirmed the continuation of Surfacing Committees for Dean of the Year, Executive of the Year and Eminent Scholar and one for the handling of elections for new Fellows. Alan Rugman issued his first Minutes on the occasion of the Fellows’ Annual Business Meeting in Boston, MA, in November 1994.12 Yves Doz, Christopher Bartlett, Robert Green, John Ryans and Raj Aggarwal were received as new Fellows. Five hundred dollars was allocated for the travel
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expenses of Edith Penrose, our Eminent Scholar, who spoke inspiringly at the AIB Boston Banquet after being enthusiastically introduced by Jose´ de la Torre. Claude Rameau of INSEAD was our Dean of the Year and also addressed the AIB audience to whom it was announced that Chairman Jong-Huyon Chey of the Sunkyong (SK) Group had been chosen as International Executive of the Year for 1995. Steve Robock requested that the criteria for Emeritus Scholar be spelled out, and the minutes recorded that: (1) the person not be a member of the AIB – or at least, not ‘‘an active one,’’ (2) he or she be 60 years of age or older and (3) the person be recognized for his/her outstanding contributions to the scholarly development of IB. A motion to amend our Constitution by Jean Boddewyn and Franklin Root added that the nominee be subject to an election by all the Fellows. It was carried out and subsequently ratified by a mail vote of all the Fellows. These changes have pretty much been carried to this day. The archives contain a letter of 8 May 1995 from Gunnar Hedlund who apologized for not having responded to Jean Boddewyn’s invitation of March 1995 to nominate him for AIB Fellowship on account of his heavy traveling abroad. It was now too late to include his name on the 1995 ballot but he agreed to be nominated the following year. Unfortunately, this brilliant Swedish scholar associated, among other things, with the organizational concept of ‘‘heterarchy’’ as applied to multinationals passed away within the year and never became an AIB Fellow. Our Secretary-Treasurer, Alan Rugman, prepared a list of the Fellows accompanied by their record of attendance at our Dinners and payments of annual dues in order to determine who were ‘‘Active Members’’ (later called ‘‘Participating Members’’). He singled out the problem of Fellows ‘‘in danger of ‘inactive’ status due to lack of attendance at annual meetings.’’ In a newsletter of 19 January 1996, Alan announced that ‘‘The Fellows have been invited to help organize a new Doctoral Workshop’’ at the 1996 AIB Conference in Banff, Canada, which Jose´ de la Torre was to run with other AIB Fellows. At the Annual Business Meeting of the Fellows in Seoul, Korea, in November 1995,13 motions were made to change our annual dues ($10) to a choice between a 3-year ($50) and lifetime ($200) dues system. Farok Contractor and Lee Radebaugh were reported elected Fellows by Warren Keegan who had very successfully served as Elections Committee Chair and was to be succeeded by Susan Douglas. The Seoul’s Fellows Panel suffered a low turnout due to concurrent sessions. It was agreed that the Dean of the Year Award could be granted to administrators with ‘‘equivalent’’ functions
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but our Executive of the Year Award was to be restricted to business executives and not extended to public-sector officials. John Dunning urged that previous Executives of the Year be more actively involved with the Fellowship. It was suggested that several of them be invited to participate in a panel at the 1997 AIB Conference in Vienna and that they be asked to help fund either a scholarship, library subscriptions or some other worthy activity. It was recommended that all previous Executives of the Year receive the Fellows’ Newsletter and be invited to AIB meetings. The Fellows Panel at the 1996 Banff Conference dealt with ‘‘The New Regime for Foreign Direct Investment’’ which was analyzed by Sylvia Ostry (University of Toronto) as Distinguished Invited Speaker – with Alan Rugman as Chair and Jean Boddewyn and John Stopford as discussants. Retired Dean James Kane of South Carolina received our Dean of the Year Award at our 1996 Banff meeting, as recommended by David Ricks’ Committee.
JOHN DANIELS’ DEANSHIP (1996–1999) Elected in the spring of 1996, John Daniels took over from John Dunning at the September 1996 AIB Conference in Banff, Canada. Before that, he had chaired the Committee that recommended as Eminent Scholar Geert Hofstede, the acclaimed Dutch cultural expert whose dimensions of national traits have been frequently used by IB researchers. Another pass was made by Alan Rugman, the Fellows’ Secretary-Treasurer, at separating Inactive from Active Fellows in terms of paid dues in two out of three previous years and attendance at one of the preceding three Dinners although ‘‘foreign’’ Fellows residing outside the United States and Canada were still excused from this obligation. Alan was to step down after the Banff meeting, to be replaced by Farok Contractor who would later chair the committee for the 1997 fundamental revision of our Constitution. At the Banff Meeting,14 outgoing Dean John Dunning reminded the Fellows that dues had been set up at US $50 for a three-year period coinciding with a Dean’s three-year term – instead of annual dues which caused too many collection problems. Later on, a ‘‘lifetime dues’’ category was created at $200, as proposed by Farok Contractor, our incoming Secretary-Treasurer, after an affirmative vote of the Fellows. John Dunning, always keen on getting former Executives of the Year involved in Fellows initiatives, reported that two of them had contributed a total of $1,200 to
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provide support to IB doctoral students, including travel to AIB conferences and Fellows doctoral consortia. Susan Douglas, Chair of the Elections Committee, reported the election of Bruce Kogut and Mira Wilkins. However, she observed that the median vote had been for only three candidates – another case of ‘‘narrow voting’’ – ‘‘making it difficult for more than two Fellows to be elected in any one year when there is a large number of nominations and voting is fairly evenly dispersed.’’ The Fellows expressed great satisfaction at the choice of Jean Monty, Chairman and CEO of Northern Telecom, as Executive of the Year recommended by Paul Beamish, who made an excellent presentation at a Fellows Plenary Session. Donald Lessard, as current AIB President, emphasized the need for early coordination between the Fellows and the AIB Vice-President Program who had to fit our Plenary Sessions into the Conference’s schedule. The Fellows lost direct control of the Doctoral Consortium which they had created and staffed when the AIB Executive Board voted to have the 1997 consortium organized by the off-year Vice President rather than by the Fellows themselves, albeit Fellow Bruce Kogut was the one to run it that year. In the future, AIB VP-Program Chairs would have a budget for special guests appearing on Fellows panels. To involve the AIB membership at large, it was agreed to have them invited again to submit recommendations for potential new Fellows, Deans and Executives of the Year through announcements in the AIB Newsletter. Following Alan Rugman’s call for a much-needed revision of our Constitution, John Daniels appointed a special Committee chaired by Farok Contractor assisted by Jean Boddewyn, Alan Rugman and John Daniels as Dean, who would propose the necessary amendments in 1997. In a more mundane vein, it was reported that the Fellows bank balance amounted to only $1,700. Reacting fast, the Fellows overwhelmingly (31 out of 37) approved setting up the option of paying $50 every three years or a lifetime sum of $200. The January 1997 Fellows Newsletter reported the deaths of Fellow Paul Garner who, together with Lee Nehrt, had done so much to have the AACSB introduce an international requirement among accreditation criteria, and of our 1994 Eminent Scholar Edith Penrose whose contributions were even more widely discussed and used after her passing away. Geert Hofstede was elected by the Fellowship in 1996 as Eminent Scholar but not inaugurated until 1998 in Vienna. In September 1997, Dean John Daniels submitted an overall revision of our Constitution which ‘‘has several inconsistencies, redundant and
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overlapping membership categories, and ambiguities relating to important issues such as elections, while silent on several important issues.’’ There would be only three membership categories (Participating [instead of ‘‘Active], Inactive and Honorary) and the revision opened up more spaces for younger candidates by not counting Fellows over the age of 65 as part of the upper limit of 60 persons although older Fellows could continue to retain active-participation status – hence, the name ‘‘Participating Fellow.’’ Fellows would vote on the revised Constitution as a whole rather than on piecemeal amendments because many of its Articles were related to each other. They were urged not to allow minor misgivings to deflect an affirmative vote, and ballots offering only a Yes or No answer for the whole package of amendments were to be returned by 14 November 1997 after discussion at the Fellows Annual Meeting in Monterrey, Mexico, in October. Ultimately, 36 Fellows favored the new 1997 Constitution and none opposed it. Meanwhile, a September 1997 Newsletter announced the election of Paul Beamish and Eleanor Westney as new Fellows. At the Fellows Meeting15 of 10 October 1997 in Monterrey, the unnamed Executive of the Year did not appear, prompting a motion to the effect that a deadline be enforced to confirm the attendance of the selected awardee – a good piece of advice! Harold Wyman was our newest International Dean of the Year – a feat to be repeated ten years later when Dean Joyce Elam, also of FIU, received this award! A motion to form a committee to advise our Secretary-Treasurer on the investment of our meager funds was defeated. Once more, a Surfacing Committee for the nomination of additional Fellows beyond those directly nominated and the automatic relisting of narrowly defeated candidates the following year were favorably considered but no motions were put forward regarding them. Lee Nehrt raised the issue of how our votes were counted and verified – an important but rarely brought up problem – but ‘‘the discussion was inconclusive.’’ Jose´ de la Torre successfully moved that it be made clear in the AIB Conference Programs that Fellows Panels were open to all participants and not restricted to the Fellows (e.g., ‘‘Panel Presented by the Fellows’’ or ‘‘Fellows-sponsored Panel’’). Jumping to August 1998, the Fellows Newsletter announced the election of Klaus Macharzina, Tamer Cavusgil and Masaaki (Mike) Kotabe. Our own Robert (Bob) Hawkins (Rennsselaer Polytechnic Institute) was to be our Dean of the Year while Richard Caves was elected Eminent Scholar for 1999. It is worth noting that up to four new Fellows could have been elected because they had received enough positive votes but our new 1997
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Constitution only allowed three new members a year. Farok Contractor, as past Chair of the Constitutional Committee commented that: It seems that putting up more than four good candidates in a year carries a significant risk of producing a result such as we had this year. As a possible solution, individual nominators and the ‘‘Nominating Committee’’ [probably referring to the previously mentioned Membership or Surfacing Committee] may be more sparing with their proposals. But whether this is desirable or practically enforceable may be a topic for brief discussion at the annual meeting.
A decade later, the Fellows’ opinion would swing in the opposite direction of trying to elect more Fellows because of the greatly increased proportion of Fellows past the age of 66. For that purpose, Fellows were urged once more to provide their birthdate to our Secretary-Treasurer in a confidential manner. The annual AIB Conference of October 1998 took place in Vienna, Austria, where the new Fellows briefly gathered for their Business Meeting in the Lehar Room named after the two famous waltz composers while our Dinner took place in a ‘‘fin-de-sie`cle’’ Viennese restaurant in an old palais hotel.16 In a more contemporary end-of-century manner, an email address was used for the first time by our Dean
[email protected] and our Secretary-Treasurer
[email protected] ‘‘since we are switching over to a greater use of electronic communications.’’ Farok reported that several Fellows ‘‘strolled through an enchanted moonlit evening and were captured on camera, unashamedly posing beside the gilded statue of Johann Strauss in the Stadtpark.’’ In a private communication to John Daniels, Jean Boddewyn proposed that brief eulogies of recently deceased Fellows be presented at our Dinners, as was the custom with the Fellows of the Academy of Management – and this habit came to take root in subsequent years. To be sure, the passing away of Fellows had been mentioned at previous meetings where a minute of silence was often observed but the idea was to keep a copy of these eulogies in our archives. At the Business Meeting in Vienna, Bob Hawkins successfully moved that candidates who received at least 60 percent of the vote but were not elected because only three Fellows could be elected each year, according to our 1997 Constitution, be automatically re-nominated the following year – a frequent proposal rarely implemented because it is likely that renomination will happen anyway. Alan Rugman reported that well over two-thirds of the vote supported the election of Richard Caves as Eminent Scholar for 1999. The Committee
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in charge of Fellows Panels at the next AIB Conference announced that the subject of our panel for next year would be related to its overall theme – a habit that the Fellows have pretty much adopted in one form or another (e.g., Caves spoke on the globalization topic in 1999 while the Executive of the Year addressed the Beijing theme of Chinese foreign direct investments in 2006). Warren Keegan, who headed the Executive of the Year Committee, reported that George Soros was its first choice but that the latter did not accept honors. Chris Bartlett suggested considering Stan Shih, CEO of the Acer Group (Taiwan), and this came to pass in 1999. He also mentioned that the Fellows can make a significant contribution in mentoring and coaching young scholars in a pre-conference part of the AIB Annual Conference. Then followed an ‘‘inconclusive discussion’’ as to whether the Fellows should resurrect their Junior-Faculty Workshop which had lapsed. Dean Daniels’ survey of the Fellows revealed that ‘‘the ‘average’ opinion of 21 responding Fellows appeared to be that the current level of activity of the Fellows was adequate.’’ He reported that he leaned toward the view that the Fellows were ‘‘a honorific group of AIB members who ‘have been there and done that’’’ and should limit their duties and serve primarily as a means of getting together socially. Actually, quite a lot had been achieved under his leadership. In September 1999, in his last Newsletter, Farok Contractor promised to keep attending our Meetings ‘‘unencumbered by notes, agendas, checks and bills.’’
SUSAN DOUGLAS’ DEANSHIP (1999–2002) Robert Green briefly served as Susan’s first Secretary-Treasurer before he left for Thailand in 2000, to be replaced by Jeffrey Arpan. In Charleston, SC, in November 1999, Sumantra Ghoshal (absent), Jean-Franc- ois Hennart and George Yip were our new Fellows.17 On a more somber note, Fellows Ernest (Bill) Ogram and Raymond Vernon had passed away in 1999 and were eulogized by Farok Contractor, Lou Wells, Jeff Arpan and Noritake Kobayashi. No Dean of the Year Award was given in Charleston but Stan Shih, Chairman and CEO of the Acer Group (Taiwan) was our International Executive of the Year. The death of Akio Morita of Sony, the second recipient of this award, was also noted. Jose´ de la Torre stressed the need for more permanent and predictable funding sources for AIB Fellows’ projects. In response, Dean Douglas appointed a committee chaired by Chris Bartlett
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to identify initiatives in need of funding, together with potential sources of money. In the January 2001 Newsletter, new Secretary-Treasurer Jeffrey Arpan (‘‘el Jefe’’) reported on our November 2000 Business Meeting in Phoenix, AZ. For the year 2000, Business-History Professor Alfred D. Chandler had been elected as our Eminent Scholar, John Rose (University of Melbourne, Australia) as our Dean of the Year and Brian Toyne as our sole new Fellow. At our Phoenix meeting, the Fellows initiated an executive-education program called ‘‘Gurus of Globalization’’ held on the Thunderbird campus. Business participants paid $1,250, with the profits ($6,000) to go to the AIB Foundation. Led by George Yip and assisted by Robert Grosse, this project was very successful and was continued until 2005 (see below). Fellows Don Lessard, George Yip and Paul Beamish served as the ‘‘gurus’’ complemented by CK Prahalad who became a Fellow the following year in 2001. In his October 2001 Newsletter, Jeff Arpan announced the election of Robert Grosse and CK Prahalad as new Fellows and detailed the drinks to be available at the Fellows Dinner in Sydney, Australia, in November: ‘‘If those attending want to be ‘big’ drinkers of Australia’s fine wines and tasty beers, I’d recommend we go for the package for 3 hours (for about US$14 per person)’’ to be drunk in the historic Rocks area in Sydney. Noritake Kobayashi had organized the Fellows Opening Plenary where non-Fellows spoke. Sir C.K. Chow of Brambles Industries was introduced as our International Executive of the Year and Moshe Porat of the Fox School of Business at Temple University as our new Dean of the Year: ‘‘He has appointed internationally recognized IB faculty [including Mike Kotabe], acquired an international business journal [The Journal of International Management], established an Institute of Global Management Studies, launched IB programs abroad, revitalized its Ph.D program in international business, launched the Greater Philadelphia Global Award, and has raised the visibility of its IB programs and promoted their value among many constituencies.’’ Wharton beware! In his report as Secretary-Treasurer, Jeff Arpan boasted that the Fellows budget was US$8,457 ‘‘despite globalization’s crisis!’’ He announced that Don Lessard would be our next Dean, following the Puerto Rico AIB Meeting in June 2002 – its first move to a summer date. ‘‘El Jefe’’ waxed lyrical about the site: Being married to a Puerto Rican and having been throughout the island several times, I have a certain bias for recommending that all of you attend this year. And, being there in the summer, on the beach, and near the historic part of San Juan makes everything even better.
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DONALD LESSARD’S DEANSHIP (2002–2005) At that 2002 meeting,18 Stefanie Lenway and Dong-Sung Cho were introduced as new Fellows. The minutes of this meeting were the last ones written by Jeff Arpan because the bad news at Monterey, California, where the AIB met in July 2003, was his resignation as Secretary-Treasurer of the Fellows for health reasons – he was to pass away in 2005. At our Dinner in Monterey,19 Jeff was recognized for all his work for the AIB over the years, including serving as its President. Several Fellows immediately pitched in: Alan Rugman to serve again as our Secretary-Treasurer (for one year), Stefanie Lenway to run the election of new Fellows and George Yip to organize next year’s Dinner in Stockholm. In Monterey, CA, Rosalie Tung was introduced as the single new Fellow elected in 2003, Mr. Narayana Murthy (CEO of Narayana Corporation, Infosys Technologies, Ltd.) as our International Executive of the Year and Oliver Williamson as our Eminent Scholar whose work was discussed by Alan Rugman, Donald Lessard, Peter Buckley and Jean-Franc- ois Hennart. The IB ‘‘Gurus’’ project was run again very successfully by George Yip. Already, preparations were made for the July 2004 AIB Meeting in Istanbul, Turkey ‘‘with excellent suggestions for a leading Turkish executive.’’ Alas, this venue never materialized because of a terrorist bombing which shattered this plan and led to our meeting in Stockholm, Sweden instead. In April 2004, Secretary-Treasurer Alan Rugman reported that there were 61 Participating Fellows – a fairly consistent number in recent years after adding the new Fellows and deducting the deceased ones. Up to 23 empty slots were available for future elections, a number that has increased since then. Dean Dezso¨ Horva´th of York University’s Business School was to be our 2004 International Dean of the Year in Stockholm where we met on 12 July 2004: Since becoming Dean in 1988, Deszo¨ Horva´th has played a significant role in transforming Schulich into a truly global business school, with pioneering International MBA and BBA programs, and EMBA offered jointly with Kellogg [Northwestern]. He has also undertaken numerous international initiatives in Eastern Europe, Russia and Asia, and has established a number of endowed chairs with an international focus – three in IB and two others with explicit global mandates.
In his August 2004 Newsletter, Alan reported the passing away of Fellow Sumantra Ghoshal who was remembered by Chris Bartlett and Eleanor Westney, and of Harold Wyman, our 1997 Dean of the Year, whom John
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Daniels eulogized. In Stockholm, Lorraine Eden and Oded Shenkar were celebrated as new Fellows while Yair Aharoni was recognized in the Opening Plenary for his ‘‘Distinguished Contributions to Scholarship in International Business’’ since the publication of his Harvard dissertation in 1966 (The Foreign Investment Decision Process). Dean Don Lessard cheered the increased visibility of the AIB Fellows on the AIB Conference Program – with the Opening Plenary Session covering Yair Aharoni’s work and chaired by Jose´ de la Torre, a historical panel steered by Steve Robock, another Plenary dedicated to the late Sumantra Ghoshal, and our well-chosen Dean of the Year Award (there was no Executive of the Year). For the first time, the Fellows’ finances were to be administrated by the AIB Secretariat, with supervision by our Secretary-Treasurer George Yip who had accepted this position in succession to Alan Rugman and had organized a great dinner in Stockholm for about 70 Fellows and guests.20 Regarding our Dean of the Year Award, comments were made that it was conceived in recognition of the internationalization of a school (Jack Behrman) or of international curriculum planning and development (Lee Nehrt) but it could go to any lead administrator (not necessarily a Dean) of an educational institution (Art Stonehill). John Dunning expressed concern in a letter to the Fellows that it was becoming more difficult to identify Eminent Scholars who work in cognate fields and who have influenced the IB field: I had originally intended to make a firm nomination that Douglass North should be elected as our next Eminent Scholar. Further reflection on this matter, however, suggests to me that the time may be appropriate for a general review of the kind of individual on whom the Fellows might wish to confer this honor. Each [of our Eminent Scholars] had (or has) written directly on International Business issues as well as influencing the thinking of IB scholars. The exception was Oliver Williamson who, like Ronald Coase (whom we never honored), has nevertheless made an outstanding contribution to both the economic and organizational theory of the firm. I believe we are running out of steam of possible candidates of the caliber of those already elected. This suggest to me that we may have to widen the terms of reference a little to include ‘‘an outstanding scholar who has contributed new ideas or analytical perceptions germane to International Business teaching and research’’ (or some such words). This would allow us to put forward names of individuals from the various disciplines making up IB (or closely related to it) but who, perhaps, have not exerted a widespread and powerful influence on the mainstream research of IB scholars. As examples of such scholars from my own discipline of economics, I would think Douglass North, Joseph Stiglitz and Amartya Sen – for their respective writings on
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JEAN J. BODDEWYN institutions, globalization and the structural transformation of economies and economic development – are worthy candidates y I suspect that there are several distinguished scholars of other disciplines that have had a limited direct impact on the work of IB scholars and yet have written, or are writing, in fields germane to IB (e.g., International Relations, Geography, Comparative Economic Systems). Three names which come to mind include Gordon Redding, Ikujiro Nonaka and Richard Nelson y My original thoughts about Douglass North are that, more than perhaps any other economist, he has drawn our attention to the role of institutions in the creation and sustenance of wealth – be these institutions embedded in firms, governments, civil society or supernational entities – and that globalization is requiring us to give more attention to how best integrate, reconcile or respect very different national and regional incentive structures, and the values and belief systems underpinning them. But, while in my own research, I am increasingly benefiting from North’s insights, I recognize that his work is not widely cited by IB scholars. Or am I mistaken about this? But the concern of this note still holds good. On what criteria should we propose Eminent Scholars? y Dare I mention Michael Porter or Gary Hamel? One possible exception is the Canadian Ed Safarian who has written extensively and influentially on FDI and policy-related issues. I would be more than happy to resurrect my proposal about Douglass North if my fellow Fellows thought it worthy of support.
Actually, John Dunning did propose in Stockholm that Douglass North be our Eminent Scholar although his election and induction together had to wait three years. A committee composed of the past three Deans – John Daniels, Susan Douglas and John Dunning as Chair – was appointed to recommend a new Dean to take over from Don Lessard at our 2005 meeting in Quebec City, Canada. Jean Boddewyn was the only nominee considered and approved by this Committee without a subsequent balloting by the Fellows. The minutes of our 2005 Quebec City meetings21 reported that the Fellows would continue to elect an International Executive of the Year. Regarding our other award, it was stressed that the Committee recommending an International Dean of the Year ‘‘should not make unwarranted promises to the people approached for nomination’’ since only one of them could be suggested to the Dean of the Fellows. In view of the difficulty of raising the minimum guarantee of US $10,000 from the host institution and the move of the AIB Conference to the summer when executives tend not to be around, the Fellows agreed to drop the Gurus Program after profusely thanking George Yip for his initiation and successful running of it.22 Actually, it was resumed in 2008 in Milan. Don Lessard was thanked by Jean for his excellent service and presented with a bottle of South-African Goats Do Roam wine (got the pun about a certain French wine?) while George Yip agreed to continue as
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Secretary-Treasurer with our new Dean who suggested that our Eminent Scholar Committee recommend several candidates so as to create an inventory of winners available in different years. Besides, we would have a unique opportunity to have a Chinese Dean and Executive of the Year at next year’s meeting in Beijing. The case of James Wills, who had served ten years as AIB Executive Secretary and had been nominated but not elected in 2004, was discussed. It was agreed that, at the next election in 2006, the ballot documents would highlight this case and encourage the Fellows to vote for him in recognition of his excellent service record – and they did the following year. Meanwhile, John Cantwell, Marjorie Lyles and Bernard Yeung were introduced as new Fellows. Once more, Fellows were asked to email their date or year of birth to the secretary of George Yip (who did not promise to send flowers, chocolates or cigars) in order to keep track of where we stood regarding the constitutional limit of 60 Participating Fellows. Actually, a full record of all of the Fellows’ age was not obtained until 2007. In Quebec City, John Fayerweather was eulogized by Jean Boddewyn and Jeff Arpan by Jose´ de la Torre – both had passed away in 2005.
JEAN BODDEWYN’S DEANSHIP (2005–2008) I cannot be fully objective in outlining and evaluating my own tenure as Dean but there is also the difficulty of sifting through hundreds of documents dealing with all sorts of topics in lieu of a newsletter that would condense and highlight major issues, appointments, achievements and the like. Still, the reports of the four major committees that served from 2005 to 2007 provide an excellent overview of our major undertakings in the rest of 2005 and until Summer 2007. 1. The Back & Forth Committee, co-chaired by Lorraine Eden and Danny Van Den Bulcke and assisted by Dong-Sung Cho, Farok Contractor, John Daniels, Yves Doz, Robert Grosse and Donald Lessard discussed constitutional amendments and ran opinion polls among themselves in order to select important issues worth a ballot. 2. The Beijing 2006 Committee, with Rosalie Tung as Chair and Paul Beamish, Phillip Grub, Marjorie Lyles, Oded Shenkar, Daniel Van Den Bulcke and George Yip as members, recommended an International
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Executive and an International Dean of the Year for our 2006 meetings in Beijing besides organizing our Business Meeting and Dinner there. 3. The Indianapolis 2007 Committee, headed by James Goodnow (who had previously served as AIB Executive Secretary and Fellows SecretaryTreasurer) and helped by John Daniels, John Dunning, Marjorie Lyles, Lee Nehrt, Stefan Robock and Oded Shenkar did the same for our Indianapolis, IN, gatherings. 4. The Eminent Scholar Committee, chaired by Eleanor Westney assisted by Raj Aggarwal, Peter Buckley, Bruce Kogut, Vern Terpstra and Mira Wilkins made recommendations regarding 2008 since a previous committee headed by John Dunning had already secured Douglass North for 2007. Ronald Dore (London School of Economics and Political Science) was subsequently elected for 2008. 5. Dean Jean Boddewyn together with his Secretary-Treasurer – first George Yip who continued to serve in that capacity until Spring 2006 and then Rosalie Tung – constituted the Elections Committee that solicited and garnered nominations and then ran the 2006, 2007 and 2008 elections of new Fellows. These effective committees corresponded with the Fellows in order to keep the latter apprised of their plans and activities besides reporting at our Business Meetings in Beijing and Indianapolis. The following sections highlight their major initiatives and outcomes.
Back & Forth Committee Looking at both old and emerging problems and opportunities, this committee followed a stepwise process of internal consultations before submitting constitutional amendments to the Fellows in October 2006 and March–April 2007. For the first round, a survey of the Fellows was carried out by email and telephone, with four major problems emerging: (1) the maximum number of Fellows electable each year; (2) the percentage of positive votes needed for the election of new Fellows; (3) the requirements (e.g., age) related to the awards we grant and (4) how soon ballots should be returned in order to reflect the faster turn-around time made possible by the Internet. In 2006, all ten of their proposals for constitutional amendments were approved with majorities ranging from 76 to 100 percent – a remarkable achievement indeed! Up to five Fellows could now be elected each year instead of the three allowed by our 1997 Constitution, the percentage of positive votes for
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election was reduced from 60 to 55 percent, three weeks became the norm for returning ballots, and total election time (including the gathering of nominations, secondings and mini-vitas) was reduced from nine to five months. For the second round in Spring 2007, thirteen changes were tested in a straw vote of the Back & Forth Committee members. Only two were retained for a constitutional change and were overwhelmingly approved. One of them finally changed the title of one of our awards from International Dean to Educator of the Year! The other made it possible again for past AIB Presidents and Executive-Secretaries to be elected in the light of their combined scholarly and service contributions. About half of the Participating ( ¼ Active) Fellows voted in both rounds for which ample information was provided about the proposed changes. Proposals to alter the age (now below 65) at which candidates can be nominated for Fellows and Eminent Scholar (now 65 or older) were not advanced in these two rounds for lack of support within the Back & Forth Committee but they were addressed in late 2007 and early 2008.
Beijing 2006 Committee The Fellows’ Opening Plenary on the AIB Conference theme ‘‘Outward Foreign Direct Investment from China’’ was made up exclusively of Fellows, was chaired by Rosalie Tung and was enthusiastically received by the audience. This Committee had recommended that Chairman Liu Chuanzhi of Legend Holdings, the company that owns Lenovo and its IBM PC subsidiary, receive our International Executive of the Year Award and he made an excellent simultaneously translated presentation. It also recommended awarding the 2006 AIB Fellows’ International Dean of the Year Award to Zhang Guo-hua, President and co-founder of the China–Europe International Business School (CEIBS). Sadly enough, the recipient passed away a month after the Committee’s selection but his son and widow received our Award on his behalf in Beijing. These two Fellows Awards definitely contributed to the Fellows’ visibility at the Conference. Udo Zander was recognized at our Dinner as our new 2006 Fellow, together with James Wills who could not attend our excellent 10-course Chinese feast.23 The Fellows had brought their own liquor – a first in our history – and they held it very well too. Jose´ de la Torre offered a moving tribute to Franklin Root – a former AIB President and Dean of the
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Fellows – who had passed away in 2005, a bad year for the Fellows since Jeff Arpan, John Fayerweather and Hal Mason also died then. The Fellows shone in terms of their past, current and future services to the AIB since Oded Shenkar was to serve as Program Chair for the 2007 meeting in Indianapolis and John Cantwell for the 2008 one in Milan; Alan Rugman was completing his two-year term as AIB President and Stefanie Lenway was to succeed him in that capacity; Yves Doz had been Program Chair in 2005 in Quebec City while Mary Ann Von Glinow, who was to be elected Fellow in 2007, was a superb VP Program for the Beijing 2006 Conference before being succeeded in that capacity by Marjorie Lyles in Indianapolis in 2007. Yves Doz was elected AIB President for 2008–2010. Indianapolis 2007 Committee Not to be outdone, Jim Goodnow scored a free Dinner thanks to the generosity of his Bradley Business School’s Dean Robert Baer, which triggered further donations for that purpose by Dean Stefanie Lenway at Illinois/Chicago and Dean Avijit Ghosh at Illinois/Champaign. Jean Boddewyn had expressed his hope for such a freebie at the very beginning of his tenure in 2005 and now it came to be fulfilled although a controversy arose about it later on (see below). This Committee had recommended Joyce Elam for our International Dean of the Year and Theodore (Tim) Solso, Chairman and CEO of Cummins, Inc. for our International Executive of the Year. The latter presented a lively story of the internationalization of his firm to the AIB audience while Executive Dean Elam rejoiced about her Business School at Florida International University being now the recipient of a second Dean of the Year Award after Hal Wyman in 1997! The Fellows’ Opening Plenary was to feature our Eminent Scholar Douglass North but he fell ill at the last minute and had to be celebrated in absentia by John Dunning, Jean-Franc- ois Hennart, Eleanor Westney and Mira Wilkins. Oded Shenkar headed another Fellows Plenary Session on the theme of the AIB Conference, where Fellows John Cantwell, Mike Kotabe, Alan Rugman, Rosalie Tung and Mary Ann Von Glinow spoke on ‘‘Bringing the Country Back In.’’ Eminent Scholar Committee Eleanor Westney and her team laid out criteria for this Award. Since most of our past Eminent Scholars had been economists, they looked for a
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candidate from other disciplines and ultimately recommended British sociologist Ronald Dore who was unanimously elected by the Fellows. They also urged that the age requirement for Eminent Scholar – now required to be at least 65 year old – be eliminated, as it was in 2007.
Fellows Election Committee Dean Jean Boddewyn and Secretary-Treasurer George Yip subsequently followed by Rosalie Tung encountered two very different outcomes in 2006 and 2007. The first year had 10 candidates out of whom only two new Fellows emerged: James Wills (AIB Executive Secretary for ten years) and Udo Zander. We had once more met the old problem of ‘‘narrow voting’’ where Fellows voted for only – say – three candidates because this was the maximum number of Fellows we could elect in 2007 according to our 1997 Constitution. Election also required 60 percent of positive votes. The fact that our 2006 constitutional amendments increased this number to five augured well for the 2007 election for which Fellows were urged to be ‘‘generous’’ and avoid narrow-voting. Out of 14 candidates, eight received at least 55 percent of positive votes but, of course, only the top five could become Fellows. What a difference between 2006 and 2007! For the future, the Dean and Secretary-Treasurer decided to require more information about the candidates – namely, age, year of receiving a doctorate and current AIB membership – in order to help the Fellows evaluate them better. The Fellows have never developed a set of criteria to evaluate the candidates but Jean Boddewyn outlined some of the questions he uses when considering a nominee with whom he is not familiar or who publishes in fields foreign to him: 1. The candidate has the rank of Full Professor. 2. How many years have elapsed since he/she earned a doctorate? A minimum of 15 is his preference. 3. The sheer number of publications is important so that someone with less than 15 major articles, books and book chapters looks weak. 4. For quality, the names of the journals, the renown of conferences and the frequency of single-authorship are important criteria. 5. Further validations of quality can be found in the recognitions, awards and other honors granted to his/her work: best-dissertation and bestpaper awards, research grants, visiting professorships, etc. Citation
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numbers could be checked too but they have not been used in nominations so far. 6. The length, frequency and importance of services to the AIB are also crucial criteria. Whatever personal criteria the Fellows used, they elected Nakiye Boyacigiller, Pankaj Ghemawat, Alain Verbeke, Mary Ann Von Glinow and Srilata Zaheer in 2007 – with Sidney Gray, Ravi Ramamurti and Yadong Luo also getting at least 55 percent of positive votes but ranking below the five top candidates we elected.
Indianapolis Business Meeting and Dinner The Chairs of the above committees received a crystal half-globe marked ‘‘AIB FELLOWS 2007’’ for their superb services on which they reported at our Business Meeting. Rosalie Tung gave an account of her fulfilled responsibilities, including our healthy finances and enhanced membership directory. An advisory motion was unanimously entertained to have the limit removed on the age (above 60) of the Eminent Scholar but the 65-yearold age limit for nominating and electing Fellows was also discussed. Forty-one Fellows attended our meetings in Indianapolis – close to threefourths of our participating members!24 Dinner at the marvelous Skyline Club was a friendly and joyous occasion where the toast, when first raising our glasses, was ‘‘Let’s Increase the Mood!’’ – a motto dear to Mojmir Bednarik, one of the founders of the AIB and the second SecretaryTreasurer of the AIB Fellows. We thanked the benefactors who defrayed the cost of our Dinner or assisted us and the AIB, and we expressed our gratitude to Marjorie Lyles who got us to gather and celebrate at our beautiful venue. The five new Fellows, Nakiye Boyacigiller, Pankaj Ghemawat, Alain Verbeke, Mary Ann Von Glinow and Srilata Zaheer (plus James Wills who could not attend the 2006 AIB Conference in Beijing) were introduced by their nominator or seconder and they received our half-globe memento for 2007. We also celebrated various happy occurrences: John Dunning who turned 80 on the date of our Dinner (a chorus of female Fellows sang for him), Steve Robock’s 92 years and Hans Thorelli’s vigorous presence on his home ground in Indiana. Profound eulogies were given by Jose´ de la Torre for Hal Mason who passed away in 2005 and by Farok Contractor for Bill Dymsza who died a few days before the 2007 AIB Conference. Old pictures taken at
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previous dinners in the 1980s and 1990s were circulated and enjoyed by all, being punctuated by many ‘‘Who is that?’’ questions and ‘‘You looked better then’’ remarks.
Miscellaneous Developments A very important leadership change took place when George Yip relinquished his professional position at the London Business School and his service as Secretary-Treasurer of the AIB Fellows (for both Don Lessard and Jean Boddewyn) in order to become Vice-President and Director of Research and Innovation at Capgemini UK, part of an eminent French consulting firm. Fortunately, Rosalie Tung, who had served as President of the Academy of Management and in multiple other leadership positions, accepted in March 2006 to succeed George who returned to academia in January 2008 as Dean of the Rotterdam School of Management. Dean Boddewyn launched the series of ‘‘A Letter From One Fellow to the Others’’ where they could exchange major thoughts and experiences. John Stopford wrote the first one in April 2006, where he mused beautifully about his post-academic occupations. In July 2007, Robert Green reflected on his move to Thailand, the joys he found there and then the terrible disease that paralyzed him and from which he is slowly recovering. Many Fellows were touched by these two very personal sharings and thanked their writers. It has already been mentioned that the Back & Forth Committee used opinion polls to tap into its members’ views about various issues such as changing the age limit for candidates. Jean and Rosalie ran one in April 2007 to find out how the Fellows felt about revealing to nominators how their losing candidates had fared. Sixty percent of the balloted Fellows accepted this practice although nobody has inquired so far, while 73 percent agreed that the Opening Plenary which is frequently staffed only by Fellows could also include non-Fellows in Milan in 2008. In any case, Fellow CK Prahalad will be the main speaker at the Opening Plenary then and there. In 2006–2007, a half-dozen of Fellows received major awards ranging from Best Paper to lifetime achievements – Paul Beamish, Bruce Kogut, CK Prahalad and John Dunning among others – thereby corroborating the worthiness of being an AIB Fellow and granting us greater visibility within the AIB. As of July 2007, Lorraine Eden became the Editor-in-Chief of the Journal of International Business Studies, with several Fellows assisting her in various capacities.
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Announcements of major Fellows activities – particularly, posting requests to the AIB membership to suggest candidates for Fellowship and publishing the results of our elections of new Fellows as well as eulogies for departed Fellows – have appeared in AIB electronic bulletins and Newsletters while the AIB website includes a list of all the Fellows and short biographies of some of them. At the prompting of Alan Rugman, Jean Boddewyn accepted to serve as Editor of a book to be published by Elsevier (later on, Emerald Press) on the occasion of the AIB’s 50th Anniversary in 2008 – also the 30th Anniversary of the first election in 1978 of Fellows by the de jure initial members of our Group (see Appendices B, C and D). Its chapters have been written and reviewed by Fellows, sometimes with non-Fellow co-authors, under the title International Business Scholarship: AIB Fellows on the First 50 Years and Beyond.
Outside Support The assistance of the AIB Secretariat in recent years must be singled out. First at Hawaii under AIB Executive Secretary James Wills and since 2004 under the leadership of Toma´s Hult (Executive Secretary) and Tunga Kiyak (Managing Director) at Michigan State University, the AIB Secretariat has handled our finances (dues collection, payment of our annual Dinner expenses, etc.), kept our membership list up to date and posted entries for us on the AIB website. It also did research on the creation and composition of our Group over the years and provided all sorts of precious services to support the Dean’s and Secretary-Treasurer’s activities (e.g., the design and preparation of the plaques for our awardees). All communications to the Fellows go through their server. It deserves our heartfelt gratitude!
All is not Well A controversy arose about the Fellows’ free Dinner in Indianapolis in June 2007, when Steve Kobrin wrote in September 2007 to all the Fellows: Let me raise what may be an unpopular and impolitic question. To be blunt: We can all afford to pay for dinner and if we as Fellows are going to go to the trouble of raising funds there may well be any number of better purposes to which they can be put. Helping to support academics or students from poor countries is one that comes to
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mind. While I appreciate the efforts that have been put into this project, I do not think that we are setting a very good example for the rest of the AIB.
A dozen Fellows supported Steve’s views, including Jose´ de la Torre – Chair of our Milano 2008 Committee – who vowed not to raise any money for our Dinner there. Jean Boddewyn responded through a Dean’s Letter where he announced that he, Rosalie Tung (our Secretary-Treasurer), Tunga Kiyak (Managing Director of the AIB Secretariat) and Farok Contractor (Chair of our new Strategic Initiatives Committee) had just begun working on reviving our past initiatives of financially assisting the AIB Foundation in its continuous support of developing countries’ doctoral students and faculty to attend AIB conferences and of libraries that receive JIBS gratis because they are too poor to pay for a subscription. Jean wondered why the criticism of our free Dinner had not surfaced sooner and he explained that the latter had been financed without touching the Fellows’ funds in order to thank the Fellows for their excellent work on our committees and their moral support more generally. Beside, some Fellows can use such a ‘‘freebie:’’ I think that we need to place our discussion of free Fellows Dinners in the same context of assisting deserving people – in this case, those Fellows who need it. About half of the current 61 Active ( ¼ Participating) Fellows are past the age of 66. Some maintain an active teaching, researching and consulting career which allows them to readily defray the cost of attending AIB conferences. Such meetings are expensive because of costly airtravel fares during the high tourist season but also on account of the hefty AIB registration fee ($350 in Indianapolis, a relatively inexpensive venue) and rates charged by good hotels everywhere. Bringing a spouse or partner to our Dinners adds to these costs significantly y Some of us have ample personal funds to cover these expenses, others teach at rich schools that cover all travel expenses but not all Fellows are so blessed y Of the 30 Fellows past the age of 66, I would guess that a significant portion are retired and no longer receive financial assistance from their previous schools y Since charity begins at home, there is therefore merit in keeping our dinners free for those Fellows who would want to avail themselves of this benefit well-earned through participation in AIB activities when they were more prosperous and/or significantly subsidized by their school.
Those Fellows so-inclined could donate $85 (the approximate cost of our cocktails and Dinner in Indianapolis) to the AIB Foundation, as had been suggested by several of us, although nobody has done it so far! Ultimately, a dozen Fellows explicitly supported such a compromise between helping others and ourselves.
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A New Burst of Initiatives Besides preparing for our Milan meeting, three opportunities presented themselves in late 2007 and early 2008: (1) further constitutional amendments to relax age limits affecting nominations and elections; (2) resuming the Fellows’ funding of the AIB Foundation, and (3) creating Special Fellows Awards in connection with the 50th anniversary of the AIB (created in 1958) and the 30th one of the first election (in 1978) of new Fellows by the de jure founding members of our Group (see Appendices B and E). The new Strategic Initiatives Committee (SIC, which succeeded our Back & Forth one) has been chaired since Summer 2007 by Farok Contractor assisted by Nakiye Boyacigiller, Daniel Van Den Bulcke, Lorraine Eden, Rosalie Tung, Alain Verbeke and Sri Zaheer. First, they ran a very successful (78 to 93 percent of favorable votes) ballot of constitutional amendments in October– November 2007 which resulted in a special exception to Article VI.B of our Constitution, which limits to five per year the maximum number of electable Fellows. This clause was changed to allow the election of all those candidates who received at least 55 percent of positive votes in 2008 on the occasion of the above two anniversaries. It succeeded in getting seven out of 11 candidates elected in 2008: Julian Birkinshaw, Timothy Devinney, Kwok Leung, Yadong Luo, Ravi Ramamurti, Kendall Roth and Stephen Tallman. A total of 14 new Fellows were thus elected during Jean Boddewyn’s deanship. Second, the age limit which required that candidates for our Eminent Scholar award be at least 60-year-old (Article VIII.B) was eliminated because the Fellows felt that there may be eminently worthy younger scholars that have inspired IB research although they were not members of the AIB – as were scholars we elected, from Charles Kindleberger to Ronald Dore (see Appendix F). Third, the Committee appointed by the Dean for the election of a successor was enlarged to include the current Dean as consultant to this committee, starting in 2011 (Article X.B of our Constitution). A ‘‘straw ballot’’ in November–December 2007 favored the relaxation of the 65-year-old limit for the nomination and election of new Fellows and did result in that outcome through a further constitutional amendment in March–April 2008. Such amendments sound straightforward but their final wordings are the products of multiple exchanges among committee members to convey a precise meaning. The Strategic Initiatives Committee ran in April 2008 a straw-poll of the Fellows regarding the resumption of our funding activities which have lain dormant since the early 2000s. This ballot has been designed to frame financial goals, the structure of a future fund-raising committee and its
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staffing. It also recommended at the suggestion of Lorraine Eden that digital archives of the Fellows’ photographs and other key documents (e.g., eulogies of deceased members) be created. James Goodnow, as the living ‘‘memory’’ of our history, was approached to conduct this project around the time of the 2009 AIB Conference in San Diego. A Special Awards Committee was appointed by the Dean, with Klaus Macharzina as Chair and Raj Aggarwal, Paul Beamish, Tamer Cavusgil, Susan Douglas, Jean-Franc- ois Hennart and David Ricks as members. Quite a few major contributors to the development of the AIB as well as of IB education, scholarship and leadership have never been elected or inducted as AIB Fellows, International Executives and Educators (formerly, Deans) of the Year or Eminent Scholars, yet deserve recognition on the occasion of the two 2008 anniversaries. The outcome remains uncertain. Jose´ de la Torre ran our Milano 2008 Committee (AKA Milan 6 ) with the help of Fellows John Cantwell (VP-Program in charge of the June–July AIB Conference in Milan), John Daniels, Robert Green, John Stopford and Rosalie Tung. Its tasks have been complicated by the high cost of transportation to major European cities during the high-travel season, the absence of large hotels in Milan and the strength of the euro vis-a`-vis the U.S. dollar. Its responsibilities include recommending a Fellows International Executive and Educator of the Year, and arranging our Dinner in Milan. Partial subsidization of the Fellows’ Reception and Dinner in Milan was made possible by left-over funds from our meeting in Indianapolis and by additional contributions from Joyce Elam (our 2004 International Dean of the Year) and Emerald Press, the publisher of the 2008 Fellows Book. Finally, we unanimously elected Eleanor Westney as our new Dean of the Fellows for 2008–2011: ‘‘Long Live the Dean!’’
CONCLUSIONS Several patterns are evident in this historical account of the creation and operation of the AIB Fellows Group. 1. There has been an unbroken succession of Deans and SecretaryTreasurers, which has allowed our Group to function, survive and usually prosper. 2. Similar problems have been the subject of numerous committee reports, suggestions and motions throughout the years (see Table 1 for an early listing) – particularly, criteria for Fellow nominations, recommendations of Deans and Executives of the Year, and elections of Eminent Scholars;
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how many Fellows to elect a year; how to avoid ‘‘narrow voting’’ when there are many candidates for Fellowship, and when to amend our Constitution to reflect new circumstances. 3. A key question has, of course, been What should the Fellows do? This issue is implicit in all of our decisions to do or not to do certain things – for example, to create and grant awards, organize and run Plenaries at AIB Conferences and adopt a Surfacing Committee but it has at times been explicitly discussed by the Fellows or expressed by our Deans. A couple of the latter have wanted our annual meetings to be only social occasions for good and hearty fellowship. They thought that the Fellows should consider themselves to be an ‘‘Honorary Society’’ of elder statesmen who could advise the AIB when asked but should not be terribly aggressive in changing the world. Other Deans have been more prone to extend the scope, reach and effectiveness of our activities through new initiatives to assist the AIB and its members – particularly, doctoral students and junior faculty – and to improve the functioning of our committees, the updating of our Constitution and the publicizing of the Fellows’ contributions and achievements. Actually, a pattern is fairly evident when a very active Dean is succeeded by a quieter one bent on digesting recent changes, running our traditional committees for elections and awards and emphasizing the camaraderie of our Fellowship. Such iterations are sound as long as there is no loss of momentum in the case of major initiatives. 4. Our relationships with the AIB leadership have been excellent over the years – from supporting the creation of the Fellows Group in 1978–1979 to providing substantial administration and publicity help in more recent years. This smooth relationship has been facilitated by the fact that, in the past, outgoing AIB Presidents became Fellows automatically while, lately, AIB Presidents and most Vice-Presidents were already Fellows when elected to those posts. More inadvertently than deliberately, AIB VPs-Program have assumed control of what were Fellows initiatives – particularly, the Doctoral and Junior-Faculty symposia. However, the Fellows have remained in charge of Opening Plenaries devoted to an Eminent Scholar when we have one (there have been only eight of them since 1987). At other times, they assume responsibility for an Opening Plenary linked to the AIB Conference’s theme or share the limelight with non-Fellows, whether academics or from business, in sessions organized by the AIB VP-Program.
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5. More unfortunate has been the occasional lapse in secretarial functions. For example, we have no Business-Meeting and/or Dinner attendance sheets for the years and periods 1981, 1983, 1987–1993 and 1999–2001, with few newsletters and other reports available to record important decisions taken at these times – for example, when did we stop running our Fellows’ elections in two stages (see above)? Some very important dates regarding the election of new Fellows, the automatic induction of past AIB Presidents and Executive Secretaries and the selection of Honorary Members have been in doubt and have had to be established through secondary sources. The Earth will not stop spinning on account of these lapses but there are no good excuses for them. 6. The ageing of the Fellows has become a problem as the 1958 AIB founders and a number of the post-1978 elected Fellows have passed away or reached the age of 66, leaving about half of the available slots vacant – around 30 out of 60 in 2007! This gap can only be filled by electing the maximum number possible of new Fellows as well as younger ones each year. There does not seem to be a dearth of good candidates among the AIB members if we care to identify, nominate and – if necessary – renominate them. 7. Getting nominations from outside North America and from such functional areas as finance and accounting remains an elusive goal. John Fayerweather was already concerned in April 1991 about worthy candidates who are not nominated because they are non-Americans, labor in less visible IB fields and stand without close relations to Fellows willing to nominate them. More generally speaking, we need to ‘‘give back’’ to the Fellows, the AIB and other relevant people and organizations, as Jack Behrman reminded us in 1985: I consider that each of us as Fellows has gained a great deal from our associations with each other and with activities in the IB field, and should be called upon to return something to it and to assist those coming along. If we do not do it, I do not know who else has an equal or greater interest in the development of the field.
8. A continuous question keeps facing us, namely What are the Fellows for? We have carried out our traditional functions (electing new Fellows, organizing plenary sessions, etc.) rather well most of the time but are we missing some higher purposes in the light of our objectives stated in Article II.A of our Constitution? The objectives of the Fellows are to recognize outstanding contributions to the scholarship and practice of international business, to exercise a leadership role in education and scholarship in the field, and to provide a forum for interaction
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The first objective of recognizing outstanding IB contributions has been fairly well achieved although we may need to create special awards to show appreciation for overlooked IB scholars, administrators, educators and executives on the occasion of the AIB’s 50th anniversary in 2008. Our leadership goal is hard to define and fulfill, especially in terms of longer-term projects spanning the tenures of several Deans. However, our new Strategic Initiatives Committee under Farok Contractor’s leadership should help us identify and start relevant ones such as renewing our partial financing of the AIB Foundation’s assistance of doctoral students and academics from poor countries. Interaction among the Fellows may have improved somewhat through our ‘‘Letters from One Fellow to the Others’’ and occasional bursts of exchanges about some issues (e.g., is campaigning for candidates permissible and/or desirable?). However, these are slender bases on which to build more profound and sustained contacts and relationships so that new relationships should be envisaged. In late 2007, I broached the idea of some sort of a ‘‘blog’’ where Fellows could bring up an idea or question which would start and fuel exchanges among them. Dissemination of IB knowledge is a very broad objective under which we can list our Plenary Sessions for Eminent Scholars and/or on conference themes, together with individual presentations by Fellows at AIB conferences, publications by them in JIBS (now edited by Lorraine Eden) and other media, and the publishing of our 2008 book. Other Fellows may evaluate the achievements of our objectives differently but it is evident that, over the years, our leaders have usually tried with some success to make us more visible, fraternal and contributory. 9. Finally, as happens in any association, there are occasional conflicts of views and personalities among the members and vis-a`-vis their leaders. Some want more while others want less or different things as far as our goals, activities and relationships are concerned. Committees vary in their effectiveness and good initiatives get started but then disappear from view – at least in our archives! Still, we have survived and even prospered most years under very different Deans and with a changing population as founders pass away, Fellows age and younger ones join us, some of them to become our future leaders – possibly with very different agendas in changing times. Long live the Fellows!
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NOTES 1. John Fayerweather recounts in his history of the AIB (Columbia, SC: Essays on International Business, 1986, p. 40) that ‘‘In the April 1974 Executive Board meeting the establishment of the Fellows of the Academy was proposed. The idea was favorably received and moved steadily to adoption in 1977.’’ In fact, the initial proposal took place a year later (Minutes of the AIB Executive Committee, April 1975). 2. In attendance in Las Vegas in 1979 were: Bertotti, Farmer, Goodnow, Hart, Haynes, Kellar, Kolde, Robock, Terpstra, Cateora, Garner, Kobayashi, Raymond, Robinson, Raymond Vernon and Nehrt (possibly Grub also). 3. Present in New Orleans in 1980 were: Bednarik, Bertotti, Farmer, Goodnow, Haynes, Nehrt, Ogram, Robock, Terpstra, Cateora, Garner and Simmonds. 4. In attendance in Montreal in 1981 were: Behrman, Bertotti, Boddewyn, Cateora, Dunning, Farmer, Garner, Goodnow, Grub, Hawkins, Haynes, Mueller, Nehrt, Robinson, Robock, Stobaugh, Terpstra, Raymond Vernon and Wade. 5. Attending in Washington, DC, in 1982 were: Bednarik, Boddewyn, Cateora, Dymsza, Farmer, Garner, Goodnow, Grub, Hattery, Hawkins, Haynes, Hoskins, Nehrt, Pausenberger, Pe´lissier, Robinson, Robock, Root and Terpstra. 6. Thus, in April 1973, Lee Nehrt as AIB President attended the annual meeting of the AACSB Standards Committee and convinced its members to add three key words to the ‘‘Purpose’’ of the business curriculum that would reflect the need for internationalizing it. In a meeting held the next day, the AACSB Standards Committee added the last three words to this definition: ‘‘The purpose of the curriculum shall be to provide for a broad education preparing the student for imaginative and responsible citizenship and leadership roles in business and society – domestic and worldwide.’’ 7. Attending in Cleveland in 1984 were: Behrman, Boddewyn, Dymsza, Farmer, Fayerweather, Garner, Goodnow, Hattery, Hawkins, Haynes, Hoskins, Kujawa, Mandell, Nehrt, Ogram, Robinson, Robock, Root, Stonehill, Terpstra and Ivan Vernon. Warren Keegan and Art Stonehill had been elected in 1984 while Ivan Vernon was inducted as a Fellow upon completing five years as AIB Executive Secretary. 8. John Fayerweather noted that: ‘‘The funding for the grant is provided by a generous gift by Paul Garner. We are most appreciative of Paul’s contribution, knowing especially that behind it lies his deep commitment to the goal of our Award. Paul did a fine job himself as Dean of the Business School at the University of Alabama in building an international business curriculum. He was a stalwart in the AACSB International Affairs Committee working for the adoption of the AACSB curriculum internationalization standard and has continued his interest in its implementation. He was also a key advocate in the establishment of the Fellows’ Dean of the Year Award. We are delighted therefore that his gift to the Foundation is being used for a purpose so much a part of his interests.’’ 9. In attendance in New York in 1985 were: Boddewyn, Daniels, Dunning, Dymsza, Fayerweather, Goodnow, Garner, Grub, Hattery, Hawkins, Hoskins, Keegan, Kolde, Kujawa, Mandell, Mueller, Nehrt, Ogram, Reef, Robinson, Robock, Root, Simmonds, Stonehill, Terpstra, Thorelli, I. Vernon (the Fellows’
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Secretary-Treasurer) and Wells. John Daniels (present) and Peter Buckley (absent) were the two new Fellows elected in 1985. 10. The 27 Fellows present in London in 1986 were: Boddewyn, Brooke, Buckley, Cateora, Daniels, Dunning, Dymsza, Fayerweather, Garner, Goodnow, Grub, Hattery, Hawkins, Hoskins, Keegan, Kolde, Kujawa, Mandell, Pausenberger, Robock, Robinson, Simmonds, Stobaugh, Stonehill, Terpstra, I. Vernon and Wells. John Fayerweather commented on the absence of both Dick Farmer and Hal Mason due to illness. Dick was to pass away the next year and Hal, who had suffered a paralyzing stroke, in 2005. 11. No attendance lists are available for the 1987–1993 meetings of the Fellows. 12. Attending the 1994 Annual Dinner in Boston were: Adler, Aggarwal, Aharoni, Arpan, Bartlett, Boddewyn, Buckley, Casson, Choi, Daniels, De la Torre, Douglas, Doz, Dunning, Fayerweather, Goodnow, Green, Hawkins, Keegan, Kobayashi, Kobrin, Kujawa, Lessard, Mandell, Nehrt, Patten, Perlmutter, Ricks, Robock, Root, Rugman, Ryans, Stobaugh, Stonehill, Stopford, Terpstra, Thorelli, Van Den Bulcke, Vernon. 13. Attending in Seoul in 1995 were: Dunning, Rugman, Arpan, Boddewyn, Buckley, Douglas, Grub, Hawkins, Kobayashi, Lessard, Ricks, Stonehill, Stopford, Terpstra, de la Torre and Van Den Bulcke (plus Ron Patten, previously elected Fellows Dean of the Year). 14. Attending in Banff in 1996 were: Adler, Aggarwal, Aharoni, Arpan, Boddewyn, Buckley, Casson, Contractor, Daniels, Doz, Dunning, Goodnow, Green, Grub, Keegan, Kobayashi, Kobrin, Kogut, Kujawa, Lessard, Nehrt, Radebaugh, Robinson, Robock, Rugman, Ryans, Stonehill, Stopford, Terpstra, de la Torre, Thorelli, Van den Bulcke, Walter and Wells. 15. Attending in Monterrey, Mexico, in 1997 were: Aggarwal, Arpan, Choi, Contractor, Daniels, de la Torre, Douglas, Goodnow, Keegan, Lessard, Nehrt, Radebaugh, Ricks, Robock, Rugman, Ryans and Van den Bulcke. 16. Attending in Vienna in 1998 were: Aharoni, Arpan, Bartlett, Beamish, Buckley, Casson, Cavusgil, Contractor, Daniels, de la Torre, Douglas, Dunning, Hawkins, Keegan, Kobayashi, Kobrini, Kujawa, Pausenberger, Radebaugh, Ricks, Rugman, Ryans, Simmonds, Stonehill, Terpstra, Thorelli, Van Den Bulcke and Westney. 17. Present in Charleston, SC, in 1999 were: Aggarwal, Aharoni, Arpan, Bartlett, Beamish, Boddewyn, Cavusgil, Daniels, de la Torre, Douglas, Doz, Dunning, Green, Hawkins, Keegan, Kujawa, Kobayashi, Kobrin, Nehrt, Pausenberger, Radebaugh, Ricks, Robock, Rugman, Ryans, Stonehill, Simmonds, Terpstra, Van Den Bulcke, Wells and Yip. There were no attendance lists for 2000–2001. 18. A partial pre-conference report on Puerto Rico in 2002 listed: Aharoni, Aggarwal, Arpan, Beamish, Boddewyn, Contractor, Daniels, de la Torre, Douglas, Grosse, Grub, Kobrin, Kujawa, Lessard, Macharzina, Rugman, Ryans, Terpstra, Thorelli, Toyne, Van Den Bulcke, Wells, Westney and Yip. 19. Present at Monterey, CA, in 2003 were: Aggarwal, Aharoni, Arpan, Buckley, Daniels, de la Torre, Goodnow, Hawkins, Kobrin, Lessard, Macharzina, Nehrt, Ricks, Robock, Rugman, Stonehill, Terpstra, Tung, Van Den Bulcke and Yip.
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20. In attendance in Stockholm in 2004 were: Adler, Aggarwal, Aharoni, Arpan, Bartlett, Beamish, Behrman, Boddewyn, Buckley, Contractor, Daniels, de la Torre, Dunning, Eden, Goodnow, Kobayashi, Kobrin, Lenway, Lessard, Macharzina, Nehrt, Radebaugh, Robock, Rugman, Ryans, Shenkar, Stonehill, Terpstra, Tung, Van Den Bulcke, Westney, Wilkins and Yip. 21. Attending in Quebec City in 2005 were: Aggarwal, Aharoni, Beamish, Boddewyn, Buckley, Cantwell, Casson, Contractor, Daniels, de la Torre, Doz, Eden, Green, Horvath, Kobrin, Kotabe, Kujawa, Lenway, Lessard, Lyles, Nehrt, Radebaugh, Rugman, Ryans, Shenkar, Stonehill, Terpstra, Tung, Van Den Bulcke, Wells, Westney, Yeung and Yip. 22. A major initiative of the AIB Fellows was the Gurus Seminars originated and run by George Yip. They took place around the time of the AIB conferences from 2000 to 2003. They were usually run in cooperation with a local Business School or Institute (Thunderbird, Concordia University, Monterey Institute, University of Puerto Rico and Australian Graduate School of Management). The speakers were mostly Fellows (Prahalad, Beamish, de la Torre, Kotabe, Grosse, Westney, Doz, Rugman, Yip, Lessard, Cho, Lenway, Aggarwal and Buckley) with local non-Fellow speakers complementing them on various themes (globalization, technology, managing in Asia, innovation, small business in the global economy, etc.). Business participants in these seminars were charged from $500 to $1250. The speakers donated their time free. The minimum guarantee of $10,000 from the host institution and part of the remaining proceeds after expenses went to the AIB to support charitable purposes such as funding the participation in AIB conferences of doctoral students and academics from poor countries. These seminars held in Phoenix, Sydney, Monterey and San Juan stopped partly because of dwindling attendance at the last two meetings and of the difficulty of raising the minimum guarantee of $10,000 from the host institution in Quebec City. Hence, it was agreed at the 2005 Quebec City Business Meeting of the Fellows to drop the Gurus Program which had not been organized in Stockholm in July 2004 because of the move of AIB conferences to the summer when executives tend not to be around. In the last year it was organized in 2003, the Monterey hosts communicated that, even though they failed to make any profit from the Gurus Seminar, it was the best and most tangible benefit of having hosted the AIB conference and they would not hesitate to organize it again. A revival of the Gurus Seminar at the 2008 Milano AIB Conference is being implemented at the urging of our Italian hosts at Bocconi University. 23. Attending in Beijing, China in 2006 were: Aharoni, Beamish, Boddewyn, Buckley, Cantwell, Cavusgil, Cho, Daniels, de la Torre, Doz, Dunning, Ghemawat, Grosse, Hennart, Kobayashi, Kotabe, Kujawa, Lyles, Macharzina, Radebaugh, Rugman, Shenkar, Tung, Van Den Bulcke and Zander. 24. Attending in Indianapolis, IN, in 2007 were: Adler, Aggarwal, Beamish, Boddewyn, Boyacigiller, Buckley, Cantwell, Contractor, Daniels, de la Torre, Douglas, Dunning, Eden, Ghemawat, Goodnow, Grosse, Hennart, Kobayashi, Kobrin, Kotabe, Lenway, Lyles, Macharzina, Nehrt, Radebaugh, Ricks, Robock, Rugman, Ryans, Shenkar, Simmonds, Terpstra, Thorelli, Tung, Van Den Bulcke, Verbeke, Von Glinow, Westney, Wilkins, Wills, Yeung and Zaheer. Our 2007 Dean of the Year, Joyce Elam, was also there.
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ACKNOWLEDGEMENTS Lee Nehrt, the first Dean of the AIB Fellows (1978–1981), wrote most of the appendices and some of the text for the period 1975–1981, and he reviewed this chapter most competently. This history could also not have been as precisely written without the prodigious documentation and memory of James Goodnow – the second Executive Secretary of the AIB in 1971–1977, a de jure AIB Fellow since 1978, and the fourth Secretary-Treasurer of the AIB Fellows from 1987 to 1993. Alan Rugman suggested and supported this project with some travel money to confer with Lee Nehrt as well as consult archives in Alan’s keeping since he had served as Secretary-Treasurer of the Fellows on two occasions (1993–1996 and 2003–2004). Simon Vengerik did a superb secretarial job and my wife Marilyn forwent much precious time with me so I could complete this project.
APPENDIX A. JANUARY 1978 CONSTITUTION OF THE FELLOWS OF THE AIB As noted in the text, the first Constitution of the Fellows was developed by a committee consisting of the Executive Board of the AIB in 1976–1977. They had carried out two surveys of the AIB members to get approval to change the AIB Constitution so as to authorize the creation of the Fellows. Another committee then selected the first Dean of the Fellows in July 1978. The new Dean immediately appointed a Secretary-Treasurer and created the list of de jure Fellows, as specified by the Constitution. This marked the beginning of the Fellows of the AIB as an organization. Following is the text of that first Constitution.
FELLOWS OF THE ACADEMY OF INTERNATIONAL BUSINESS 1978 CONSTITUTION ARTICLE I. Name of the Association The name of this association shall be the ‘‘Fellows of the Academy of International Business.’’
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ARTICLE II. The Purpose of the Fellows The Fellows of the Academy of International Business are autonomous within Article IX of the Constitution of the Academy of International Business. The purposes of the Fellows are to recognize outstanding contributions to the field of international business, and to provide a forum for discussion among its members. The Fellows will conduct an annual meeting in such manner as the Officers and Fellows of the group may prescribe. Other activities of an educational nature may be performed which are deemed necessary for the exercise of leadership in the field of International Business. Annually, the Fellows will issue a report on ‘‘the state of the Academy’’, reviewing the field, goals, objectives and accomplishments as well as other matters of significance to the membership at large. ARTICLE III. Membership A. Number The total number of Fellows shall not exceed one hundred, not counting Fellows who have passed the age of 70. Apart from de jure members, not more than five new members shall be elected in any particular year, until the maximum is reached. B. General Qualifications 1. Fellows shall be international-business teachers, researchers, and administrators – who have significantly helped develop knowledge and practice in this field. 2. Membership is restricted to members of the Academy of International Business. C. Categories of Member 1. De jure Members a. The founding members of the Academy of International Business (formerly the Association for Education in International Business) present at the 17 November 1958 meeting, who have remained active. b. Past Presidents of the Academy of International Business. c. Past Executive Secretaries of the Academy of International Business.
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2. Elected Scholars Full-time teachers and researchers shall constitute approximately four-fifths of the total membership and should be members at the time of election. 3. Elected Non-Academic Members Entrepreneurs and managers of private and public organizations mainly devoted to international business, shall constitute approximately one-fifth of the total membership. ARTICLE IV. Structure of the Fellows Group Organization The officers of the Fellows Group shall be a Dean of the Fellows and a Secretary-Treasurer. A. The ‘‘Dean of Fellows’’ is the administrative officer of the Fellows Group. He shall preside at all meetings of the Fellows, and he shall appoint a Secretary-Treasurer who shall assist him in conducting the affairs of the Fellows Group. B. The Secretary-Treasurer shall maintain an up-to-date roster of active Fellows and conduct elections as provided in Articles VI. and VII. of this Constitution. ARTICLE V. Elections and Appointments A. Election of the Dean of Fellows 1. Dean’s Term. The Dean will serve for three years. As the end of his term approaches, the election of a successor will be conducted as Section 3 provides. Should the position of Dean become vacant, whether because of death, resignation, or other unusual cause, the Secretary/Treasurer will immediately conduct an election, conforming to the instructions of Section 3, at the same time informing the active Fellows of the circumstances. 2. Election Procedures. The Dean will be chosen in the following manner: a. Not more than six months nor less than three months prior to the annual meeting, the Secretary/Treasurer to the Fellows will invite nominations from active Fellows. b. One month thereafter, the Secretary/Treasurer will send to active Fellows, ballots listing the nominations received by him within twenty-five days after mailing such invitation.
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c. ‘‘Active Fellows’’ means those Fellows who attended at least one of the three preceding annual meetings of the Academy. d. One month after mailing ballots, the Secretary/Treasurer will inform the active Fellows, what Fellow has received the majority of votes cast, and will thereby declare him elected Dean of Fellows. e. In case no nominee receives a majority, the Secretary/ Treasurer will send active Fellows a second ballot naming the two nominees who received the greatest number of votes. Should more than one nominee receive the second greatest number of votes, both or all such nominees will be named in the ballot. Thereafter, the Secretary will act as provided in paragraph (d). f. In case the second ballot still does not result in election, the Secretary will again act according to the intention of the foregoing provisions. B. Appointment of the Secretary/Treasurer 1. As stated above (Article IV-A), the Dean will appoint a Secretary/Treasurer from among the Fellows. Such an appointment will terminate when a successor to the Dean shall have been elected. C. Elections of New Fellows 1. The election outlined under V.A2 will broadly apply to Fellows, with the following exceptions: a. Every nomination shall be seconded by another Fellow. Neither the nominator nor the seconder can be on the faculty where the nominee got his/her terminal degree or is currently teaching, nor in the same place of employment. b. At least sixty percent of the balloting Fellows must vote in favor of the candidates. c. Each year, there should normally be two non-academic nominees until approximately one-fifth of the membership is made up of this category of Fellows. d. [AIB] Executive Secretaries who have served at least five years and [AIB] Presidents who have completed their term of office will automatically become members. e. Recommendations for nominations will be solicited annually from the membership at large through an account in the AIB newsletter. Names of those nominated by the membership will be circulated to the Fellows for their consideration.
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ARTICLE VI. Meetings and Other Activities The Fellows will have an annual meeting in such manner as they may prescribe, but normally at the time of the annual meeting of the Academy of International Business. A. The Dean will designate a Fellow who will arrange for the annual meeting. B. Should the Dean be unable to attend or preside over an annual meeting, he will designate some other active Fellow to preside. C. Other meetings and activities such as a newsletter may be originated at the initiative of the Dean. However, if funds are required for this purpose, and if such activities commit the Fellows, the Dean will first obtain the permission of the Active Fellows at the next annual meeting or through an official poll of the Fellows if urgency requires it. ARTICLE VII. Constitutional Amendments A. Amendments to this Constitution may be instigated by the Fellows attending any regular annual meeting. Such a proposal recommended by a majority of the Fellows attending any regular annual meeting will be mailed to all Fellows within three months after this annual meeting. If a majority of the Fellows voting on the proposals within two months after they have been mailed have given their approval, the amendment will be adopted.
1982–2008 AMENDMENTS TO THE 1978 CONSTITUTION The first Constitution was minimally revised in 1982 by changing Article III A to limit the number of Fellows to 50 ‘‘not counting Fellows who have passed the age of 70,’’ rather than to 100. In 1985, Article II now defined the Fellows’ purposes to include the ‘‘exercise of leadership in the field of international business.’’ Article VI. C was changed to add that the Fellows may engage in other activities of an educational nature. Article III. C 3 was altered to drop the requirement that up to one-fifth of the Fellows shall be entrepreneurs and managers of private and public organizations.
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In 1986, at their meeting in London, the Fellows agreed to create an ‘‘Emeritus Scholar’’ category – later to be called ‘‘Eminent Scholars’’ – who together with the Executive of the Year and the Dean of the Year constituted the ‘‘Honorary Fellows’’ category (Article III. C). Such Honorary Members need not have been members of the AIB but they could not vote and were not subject to annual dues. In 1992, several major revisions were made. First, it designated a new category of Fellows – namely, an ‘‘Inactive Fellow’’ – who was one who had not paid membership dues in at least one of the past three years or had not attended two of the last three annual meetings of the Fellows. However, if a Fellow lived outside of North America or was physically incapacitated, he or she would not be excluded as an active Fellow if he/she did not attend at least one out of every three annual meetings. Second, the 1992 Constitution removed the stipulation that the Fellows issue an annual report on ‘‘The State of the Academy.’’ Third, whereas the 1978 Constitution stated that, in connection with the election of new Fellows, nominees must obtain at least 60 percent of the votes, the 1992 Constitution changed this to ‘‘a majority.’’ Fourth, Article III was altered so that the total number of Active Fellows under the age of 70 should not exceed 60 (up from the previous limit of 50). Fifth, new Article V C1d stated that Past Presidents and Past Executive Secretaries of the AIB would not automatically become members of the Fellows. Instead, they needed to be nominated and voted upon, following the same procedures used for the admission of regular Fellows. Sixth, another paragraph was added under V. C1 to state that nominators and seconders for new Fellows shall not be currently employed by, nor have received terminal degrees from, institutions who currently employ the nominee. In 1997, another major rewriting of the Constitution took place. While much of it consisted of editing it to clarify procedures, there were also some significant changes from the 1992 Constitution: First, whereas the Dean of the Year and the Executive of the Year are selected by a committee and approved by the Dean, it was specified that an Eminent Scholar must be nominated by a committee and elected by a positive vote of at least 75 percent of the Fellows. Second, it stated that, except for the Honorary members, eligibility for the Fellows shall be restricted to members of the AIB below the age of 65 at the time of the next AIB Conference. Third, the limit of the number of Fellows was changed from 60 under the age of 70, to not more than 60 under the age of 66.
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Fourth, new Fellows, to be elected, must receive at least 60 percent of the votes, rather than a majority of them. Fifth, previously, a maximum of five new Fellows could be elected each year. This rule was changed to ‘‘not more than three y in any one year; and fewer or none may be elected if the above limit of sixty persons (under the age of 66) is reached.’’ Sixth, dues are to be determined by a majority of the votes of the members. In 2006–2007, a dozen amendments were easily passed. Periods to vote were shortened from eight weeks to three and the election period was reduced from nine to five months before the next annual meeting in order to reflect the advent of the Internet age. The maximum number of allowable new Fellows was raised from three to five per year, and the percentage of positive votes needed to be elected Fellows was cut from 60 to 55. It was again made possible to elect as Fellows those candidates who have eminently served the AIB as President or Executive Secretary while the title of one of our Awards was changed from International ‘‘Dean’’ to ‘‘Educator’’ of the Year. In late 2007, three amendments received very high support. One of them created a special exemption to Article VI.B which limits to five per year the maximum number of electable Fellows. This clause was changed to allow the election of all those candidates who received at least 55 percent of positive votes in 2008 – and 2008 only – on the occasion of the 50th Anniversary of the AIB and the 30th one of the first election in 1978 of new Fellows by the de jure founding members of our Fellows Group. A second amendment, this one to Article VIII.B, eliminated the age limit (at least, 60year of age) for candidates to Eminent Scholar award because the Fellows felt that there may be worthy younger scholars that have inspired IB research although they were not AIB members (see Appendix F for a list of our Eminent Scholars so far). Finally, the Committee appointed by the Dean for the election of a successor was enlarged to include the current Dean as consultant to this committee of three Deans, starting in 2011 (Article X.B of our Constitution). In April 2008, a much debated amendment to remove the age limit for nominating and electing Fellows was passed with 61 percent of positive votes. The following Constitution of April 2008 is the latest one and thus regulates our current activities.
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THE CONSTITUTION OF THE FELLOWS OF THE ACADEMY OF INTERNATIONAL BUSINESS WITH APRIL AND NOVEMBER 2007 AS WELL AS APRIL 2008 AMENDMENTS I. Name and Relationship to the Academy of International Business (AIB) The name of this association, founded in 1976, shall be ‘‘The Fellows of the Academy of International Business.’’ The Fellows comprise a subset of the membership of the AIB but are an autonomous, self-governing body, as called for in the AIB Constitution (Article IX). II. Objectives and Activities of the Fellows A. The objectives of the Fellows are to recognize outstanding contributions to the scholarship and practice of international business, to exercise a leadership role in education and scholarship in the field, and to provide a forum for interaction among the Fellows as well as for the dissemination of knowledge in the field of international business. B. The Fellows will hold an annual meeting at a time and place its officers and members shall prescribe. Other activities of a scholarly or educational nature, appropriate to the objectives of the Fellows, may be performed, usually in conjunction with the Academy of International Business (AIB). C. There shall be regular communications between the AIB and the Fellows on the goals, policies, activities and accomplishments of their respective organizations as well as on the development of education and research in international business. III. Structure and Functions A. The officers of the Fellows of the Academy of International Business shall comprise a Dean and a Secretary/Treasurer, both serving for an approximate three-year term spanning three Fellows’ Annual Meetings. B. The Dean of the Fellows, as the administrative officer of the group, shall be responsible for organizing and overseeing all the activities of the Fellows, shall preside at meetings of the Fellows and shall appoint a Secretary/Treasurer who will assist in conducting the affairs of the Fellows. The Dean shall appoint one or more persons as a committee to conduct elections of new members and shall also appoint other committees to perform particular functions, as the need may arise.
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C. The Secretary/Treasurer shall assist the Dean, communicate with the membership, collect dues, make disbursements, maintain the records and accounts of the group, and conduct the election for the position of Dean. IV. Membership Categories A. Members shall be grouped into the following three categories: (1) Participating Members; (2) Inactive Members, and (3) Honorary Members. 1. Participating Members are those who have been elected as Fellows (or were inducted into the Fellows because they were Founding Members of the AIB, Past Presidents of the AIB or past Executive Secretaries of the AIB), and continue to fulfill the Fellows’ requirements regarding dues and attending meetings, in order to maintain participating status. 2. Inactive Members are those who were Participating Members at one time but have subsequently not met the requirements regarding dues and attendance. 3. Honorary Members are those inducted as Fellows by virtue of being honored as either International Educator of the Year, International Executive of the Year or Eminent Scholar. 4. A separate roster is kept of Deceased Fellows. B. In order to maintain status as a Participating Member, a Fellow is expected to have paid dues for the current period, and have attended at least one out of the preceding three annual meetings of the Fellows. The attendance requirement may be relaxed if regrets are sent on each occasion, in writing, to the Secretary-Treasurer for not being able to attend an annual meeting, or to pay dues in whole or in part. C. The title of a Fellow, whether inducted, elected or honorary, once conferred, is irrevocable. D. Members of all categories shall receive all communications, except that those pertaining to nomination and voting shall be directed only to Participating Members. V. Membership Eligibility Except for honorary members, eligibility for Fellowship shall be restricted to members of the AIB, who are international-business scholars, teachers or administrators, have significantly helped develop knowledge or practice in the field, and/or have made significant contributions to the AIB.
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VI. Limits on Membership A. For the purpose of determining how many new Fellows can be elected in a particular year, only those Participating members below the age of sixty-six will be counted; and their number shall not exceed sixty. B. Not more than five new Participating Members may be elected in one year, and fewer or none may be elected if the above limit of sixty persons (under the age of 66) is reached. However, on the occasion of the AIB’s 50th anniversary year of 2008 and of the 30th anniversary of the first election of Fellows in 1978, all candidates that receive at least 55 percent of positive votes will be considered elected in that year. C. There shall be no limit on the number of Honorary Members. VII. Voting and Nominating Privileges of Members Only Participating Members may nominate and vote. Honorary and Inactive members may not vote but they may second nominations. VIII. Selection of Honorary Fellows A. The nomination and selection of Honorary Fellows – namely Eminent Scholar, the International Educator of the Year and the International Executive of the Year – shall be made by committees of one or more persons, appointed by the Dean of the Fellows. B. To be eligible for the Eminent Scholar category, a candidate has to be someone who is not an AIB member but whose scholarship has significantly influenced international-business research. C. The Eminent-Scholar nominating committee will put forward a candidate, to be voted upon by all Participating Fellows, with a threequarter favorable vote of those voting necessary for election in this category. D. Nominations for International Educator of the Year and International Executive of the Year shall be presented by the respective nominating committees to the Dean of the Fellows, for approval. IX. Election of New Fellows A. Approximately five months prior to the expected Fellows’ Annual Meeting date, the Secretary/Treasurer will invite nominations, announcing a deadline for forwarding them to the Election Committee. The nominator must be a Participating Fellow. A standard format shall be used for the nomination, seconding and curriculum vitae of candidates.
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No call for nominations shall be issued if the limit of 60 Participating Members has been reached that year. Nominations shall not be accepted from nominators or seconders serving on the same faculty as the nominee, or if either were on the faculty of the institution from which the nominee received his/her terminal degree, at the time of its granting. The nominations, secondings and completed standard forms will be received by an Election Committee of one or more persons appointed by the Dean to conduct the election process. Within three weeks of the deadline for receiving these materials, ballots shall be sent to Participating Members only. Ballots shall be returned to the Election Committee within three weeks of sending the ballots, and before a specified date. The Election Committee shall put forward as many candidates as have been nominated and seconded using the proper forms and procedures. Each new Fellow is declared elected by the Secretary/Treasurer (on recommendation by the Election Committee) only if he/she receives the vote of at least fifty-five percent of the votes returned by Participating Members. In the event that the number of successful candidates will result in exceeding the limit of sixty persons as Participating Members (as described in Article VI), the Secretary/Treasurer shall declare as elected only the highest vote-getters who can be accommodated within the limit of sixty members.
X. Election of the Dean of the Fellows A. The Dean of the Fellows serves for a three-year term of office and may not serve two full consecutive three-year terms. B. A Nominating Committee appointed by the current Dean of the Fellows and ordinarily comprised of any past three Deans, with the most distant Dean serving as Chair of this Committee, shall, after consultation with the current Dean, put forward not more than two nominees. This Committee shall invite suggestions for nominations through the Fellows’ Newsletter. C. An election will be held for a new Dean at the beginning of the third year of the current Dean’s term (or earlier in the event that a Dean is unable to perform his/her duties), following a similar timetable and procedures as for the election of new Fellows described in Article IX, except that: (1) the receipt of nominations and the election shall be conducted by the Secretary/Treasurer, and (2) a Dean shall be declared elected with a
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simple majority of the votes cast by Participating Members voting, with the exception described in Article X.D. D. In the event that only one candidate is nominated, he/she will be declared as elected by the Secretary/Treasurer. E. The Dean of the Fellows is ineligible to vote in this election, except to break a tie. XI. Dues Dues shall be determined by a majority of Participating Fellows that voted through a ballot, following discussion at an annual meeting of the Fellows. XII. Meetings and Other Activities A. The Fellows shall hold at least one annual meeting, in such a manner as they may prescribe. Normally, this meeting shall be held in conjunction with the Annual Meeting of the Academy of International Business. B. Should the Dean be unable to attend or preside at a meeting, he/she will designate another Participating Member to preside. C. Other activities, including a newsletter, may be originated at the initiative of the Dean. However, if significant outlays are required for this activity or if the activity commits the Fellows, the Dean will first obtain a majority vote of Participating Members attending the next Annual Meeting, or through a ballot of Participating Members, if urgency requires the latter course. XIII. Amending This Constitution A. Proposals to amend the Constitution shall normally be initiated by a committee of at least three persons appointed by the Dean of the Fellows. B. However, an amendment proposal may also be initiated by a Participating Member at the Fellows’ annual meeting, provided it receives a majority of the votes of the Participating Members present. Amendment proposals may also be initiated through a written petition of at least five Participating Members. In either case, the proposed amendments shall be checked for conformity with other articles of this Constitution, by a committee appointed by the Dean of the Fellows, but including at least one of the proposers. C. All proposed amendments conforming to Sections A or B of this Article shall be promptly sent by the Secretary-Treasurer to all Participating Members for balloting. Amendments shall be adopted if they garner the favorable votes of at least 60 percent of the Participating Members that returned their ballot within three weeks of the mailing.
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APPENDIX B. SELECTION OF THE ORIGINAL FELLOWS As noted in the original Constitution, dated January 1978, the de jure (originating) Fellows include the following people: (a) The founding members of the Academy of International Business (originally known as the Association for Education in International Business). There were 19 people at that ‘‘Founders Meeting’’ on 17 November 1958 but, of them, only the following 11 remained active in the AIB when the Fellows Group was created. () – – – – – – – – – – –
John Fayerweather, Professor at New York University () Mojmir Bednarik, Professor at Pace University Jack Behrman, Professor at the University of North Carolina () Laurence Dowd, Professor at California State University, San Francisco James Hart, Dean at DePaul University, Chicago () Lowell Hattery, Professor at the American University, Washington, DC William Hoskins, Professor at Bowling Green University Harold Kellar, Professor at Baruch College, City University of New York Stuart Mandell, Professor at the University of Lowell Ray Pe´lissier, Manager at the International Council for Small Business, VA Arthur Reef, Vice President for Advertising, AMAX, Inc., NY
(b) Past Presidents of the Academy Richard Robinson Vern Terpstra Lee Nehrt Phillip Grub (c) Past Executive Secretaries of the Academy James Goodnow () Five Founders of the AEIB did not become AIB Fellows because they did not choose to join the AIB after its creation in 1958: William Cody, James Hagler, Bruce Neighbor, Arnold Oshin and James Wigglesworth.
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() Three founders became AEIB Presidents – John Fayerweather, Jack Behrman and James Hart – while several later AEIB Presidents – Richard Robinson, Vern Terpstra, Lee Nehrt and Phillip Grub – were inducted as Fellows because of their service before the Fellows Group was created in 1976.
APPENDIX C
AIB Past and Present Presidents
Past and Current AIB Executive Secretaries ()
John Fayerweather Roland Kramer James Hart Jack Behrman Richard Robinson (X) Vern Terpstra (X) Lee Nehrt (X) Phillip Grub (X) Richard Farmer (X) Robert Stobaugh (X) Franklin Root (X) Robert Hawkins Duane Kujawa John Dunning John Daniels Arthur Stonehill Jean Boddewyn Donald Lessard Jeffrey Arpan Jose´ de la Torre Stephen Kobrin Peter Buckley Alan Rugman Stefanie Lenway Yves Doz
William Hoskins 1959–1960 Jack Behrman (S) and 1960–1961 Lowell Hattery (T) William Hoskins (S) and 1961–1964 James Hart (T) John Fayerweather 1964–1969 William Hoskins 1970–1971 James Goodnow (O) 1971–1977 Duane Kujawa 1977 – 1980
1959–1961 1962–1964 1965–1966 1967–1968 1969–1970 1971–1972 1973–1974 1975–1976 1977–1978 1979–1980 1981–1982 1983–1984 1985–1986 1987–1988 1989–1990 1991–1992 1993–1994 1995–1996 1997–1998 1999–2000 2001–2002 2003–2004 2005–2006 2006–2008 () 2008–2010
Ivan Vernon (O)
1980–1988
Jerry Watzke
1988–1992
Attila Yaprak James Wills (O)
1992–1994 1994–2004
Toma´s M. Hult, Tunga Kiyak and Irem Kiyak ()
2004–
(X) ¼ These individuals were ‘‘inducted’’ as Fellows by virtue of having been President of the AIB. John Fayerweather also qualified but he became a Fellow mainly because of his role as a founding member.
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(O) ¼ James Goodnow was the first person to become a Fellow because of having served five years as Executive Secretary of the AIB. William Hoskins had been one of the Founders’ Group while Duane Kujawa was nominated and elected a Fellow in the normal way. Ivan Vernon also became a Fellow in 1988 after serving as AIB Executive Secretary for eight years. James Wills (Hawaii) also served as Executive Secretary of the AIB but was elected a Fellow in 2006. Jerry Watzke and Attila Yaprak served less than 5 years. () At first, the AEIB had a separate Secretary (S) and Treasurer (T) until the two functions were combined under the title of Executive Secretary in 1964. The data for the 1950–1971 period are tentative on account of contradictory accounts. Since 1 January 2004, Toma´s M. Hult serves as AIB Executive Director while Tunga Kiyak is the AIB Managing Director (Irem Kiyak is the AIB Treasurer), all three at Michigan State. They serve up to 10 years at the discretion of the AIB Executive Board. () When the AIB used to meet in December and October, Presidents’ terms coincided more or less with the calendar year. With meetings being held in June or July, successions have taken place in mid-year, thereby complicating the assignment of years of service.
APPENDIX D. LIST OF PAST DEANS AND SECRETARY-TREASURERS OF THE AIB FELLOWS Deans
Years in Office
Secretary-Treasurers
Lee Nehrt
1978–81
Richard Robinson John Fayerweather Franklin Root Robert Hawkins John Dunning John Daniels Susan Douglas
1981–84 1984–87 1987–90 1990–93 1993–96 1996–99 1999–2002
Donald Lessard
2002–2005
Jean Boddewyn
2005–2008
Harold Kellar Mojmir Bednarik Richard Farmer William Hoskins James Goodnow James Goodnow Alan Rugman Farok Contractor Robert Green Jeff Arpan Jeff Arpan Alan Rugman George Yip George Yip Rosalie Tung
Eleanor Westney
2008–
Notes: (a) The first Dean (Lee C. Nehrt) was appointed by the then President of the AIB (Richard Farmer) on the recommendation of a committee. All subsequent Deans have been elected by the Participating Fellows; (b) Terms of office have been for three years, the succession taking place at the annual meeting at the end of the third year of office.
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APPENDIX E. ELECTION OF NEW FELLOWS BY YEAR This Appendix E lists only the ‘‘elected’’ Fellows while Appendix B gives the names of the ‘‘originating’’ Fellows. Appendix C lists those past Presidents and past Executive Secretaries (various titles have been used) of the AIB who automatically became Active Fellows after completing their term of office. Appendix F lists the Honorary Fellows who do not have to be AIB members, have no voting rights and do not pay dues. Of the originating Fellows (see Appendix B), only four were able to attend the first annual meeting of the Fellows in Chicago in September 1978 because of a very short notice. Consequently, a quorum did not exist to permit the election of additional Fellows. However, they decided in 1978 that a total of ten Fellows should be elected so as to have a larger number to attend annual meetings. Hence, in 1978, 26 persons were nominated and 10 of them were elected. Their election was confirmed and announced at the Fellows’ business meeting in Las Vegas in September 1979. Subsequently, only a maximum of three or five new Fellows were elected each year. Presently, a maximum of five new Fellows can be elected each year, except in 2008. Following is a list of the Fellows who were declared elected in 1979 and each year thereafter. However, in practice, a new Fellow is recognized only when present at one of our annual meetings after his/her election. 1979 Joseph Bertotti Philip Cateora John Dunning Paul Garner Elliott Haynes Noritake Kobayashi Endel Kolde Stephan Robock Kenneth Simmonds Raymond Vernon 1980 Jean Boddewyn Gerhard Mueller William Ogram
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Ehrenfried Pausenberger Robert Wade 1981 Raymond Mikesell Hans Thorelli William Dymsza Robert Hawkins 1982 Michael Brooke 1983 Duane Kujawa Louis T. Wells, Jr. 1984 Warren Keegan Arthur Stonehill Ivan Vernon (past AIB Executive Secretary, 1980–1988) 1985 Peter Buckley John Daniels 1986 Hal Mason 1987 Ingo Walter 1988 1989 Steven Kobrin Donald Lessard 1990 Yair Aharoni 1991 Susan Douglas Howard Perlmutter Alan Rugman Jose´ de la Torre
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1992 Nancy Adler Frederick Choi David Ricks Daniel Van Den Bulcke 1993 Jeff Arpan Mark Casson John Stopford 1994 Raj Aggarwal Christopher Bartlett Yves Doz Robert Green John Ryans 1995 Farok Contractor Lee Radebaugh 1996 Mira Wilkins Bruce Kogut 1997 Paul Beamish Eleanor Westney 1998 Maasaki Kotabe Klaus Macharzina Tamer Cavusgil 1999 Sumantra Ghoshal Jean-Franc- ois Hennart George Yip 2000 Brian Toyne
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2001 Robert Grosse CK Prahalad 2002 Dong-Sung Cho Stefanie Lenway 2003 Rosalie Tung 2004 Lorraine Eden Oded Shenkar 2005 John Cantwell Marjorie Lyles Bernard Yeung 2006 James Wills Udo Zander 2007 Nakiye Boyacigiller Pankaj Ghemawat Alain Verbeke Mary Ann Von Glinow Srilata Zaheer 2008 Julian Birkinshaw Tim Devinney Kwok Leung Yadong Luo Ravi Ramamurti Kendall Roth Stephen Tallman
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FELLOWS AND THEIR STATUS IN EARLY 2008 Participating Fellows
Year Elected/Inducted
Adler, Nancy Aggarwal, Rag Aharoni, Yair Bartlett, Christopher Beamish, Paul Behrman, Jack Birkinshaw, Julian Boddewyn, Jean Boyacigiller, Nakiye A. Buckley, Peter Cantwell, John Casson, Mark Cavusgil, Tamer Cho, Dong-Sung Choi, Frederick Contractor, Farok Daniels, John de la Torre, Jose Devinney, Timothy Douglas, Susan Doz, Yves Dunning, John Eden, Lorraine Ghemawat, Pankaj Goodnow, Jim Green, Robert Grosse, Robert Hawkins, Robert Hennart, Jean-Francois Keegan, Warren Kobayashi, Noritake Kobrin, Stephen Kogut, Bruce Kotabe, Masaaki Kujawa, Duane Lenway, Stefanie Lessard, Donald Leung, Kwok Luo, Yadong Lyles, Marjorie
1992 1994 1990 1994 1997 F (1978-Inducted) 2008 1980 2007 1985 2005 1993 1998 2002 1992 1995 1985 1991 2008 1991 1994 1979 2004 2007 FES (1978-Inducted) 1994 2001 1981 1999 1984 1979 1989 1996 1998 1983 2002 1989 2008 2008 2005
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(Continued ) Participating Fellows
Year Elected/Inducted
Macharzina, Klaus Nehrt, Lee Pausenberger, Ehrenfried Perlmutter, Howard Prahalad, CK Radebaugh, Lee Ramamurti, Ravi Ricks, David Robinson, Richard Robock, Stefan Roth, Kendall Rugman, Alan Ryans, John Shenkar, Oded Simmonds, Kenneth Stobaugh, Robert Stonehill, Arthur Stopford, John Tallman, Stephen Terpstra, Vern Thorelli, Hans B. Toyne, Brian Tung, Rosalie Van Den Bulcke, Daniel Verbeke, Alain Vernon, Ivan Von Glinow, Mary Ann Walter, Ingo Wells, Louis T., Jr. Westney, Eleanor Wilkins, Mira Wills, James R. Yeung, Bernard Yip, George Zaheer, Srilata Zander, Udo
1998 FP (1978-Inducted) 1980 1991 2002 1995 2008 1992 FP (1978-Inducted) 1979 2008 1991 1994 2004 1979 P (1981-Inducted) 1984 1993 2008 FP (1978-Inducted) 1981 2000 2003 1992 2007 ES (1984-Inducted) 2007 1987 1983 1997 1996 2006 2005 1999 2007 2006
FP, Inducted as past AIB President at the time of the founding of the Fellows in 1978; FES, Inducted as past AIB Executive Secretary at the time of the founding of the Fellows in 1978; P, Inducted as past AIB president after 1978; ES, Inducted as past AIB Executive Secretary after 1978; F, AIB Founder.
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Inactive Fellows
Year Elected/Inducted
Bertotti, Joseph M. Cateora, Philip R. Hoskins, William R. Kolde, Endel-Jakob Mandell, Stuart Mikesell, Raymond Mueller, Gerhard G. Reef, Arthur Wade, Robert H.B.
1979 1979 F (1978-Inducted) 1979 F (1978-Inducted) 1981 1980 F (1978-Inducted) 1980
Deceased Fellows
Year Elected/Inducted
Date of Death
Arpan, Jeffrey Bednarik, Mojmir Benoit, Emil Blough, Roy Brooke, Michael Z. Domke, Martin Dowd, Lawrence Dymsza, William A. Farmer, Richard Fayerweather, John Garner, Paul Ghoshal, Sumantra Grub, Phillip Hart, James A. Hattery, Lowell Haynes, Elliott Kellar, Harold Kramer, Roland Mason, R. Hal Ogram, Jr., Ernest W. Pe´lissier, Ray Root, Franklin Vernon, Raymond
1993 F (1978-Inducted) F (1978-Inducted) F (1978-Inducted) 1982 F (1978-Inducted) F (1978-Inducted) 1981 P (1979-Inducted) F (1978-Inducted) 1979 1999 FP (1978-Inducted) F (1978-Inducted) F (1978-Inducted) 1979 F (1978-Inducted) F (1978-Inducted) 1986 1980 F (1978-Inducted) P (1983-Inducted) 1979
May 28, 2005 February 28, 1983
April 1, 2003 April 24, 1980 June 20, 2007 February 28, 1987 February 3, 2005 1997 March 3, 2004 April 14, 2008
March 20, 1980 September 3, 2005 1999 August 4, 2005 August 26, 1999
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APPENDIX F. HONORARY FELLOWS Eminent Scholars Kindleberger, Charles (MIT) 1987 (deceased) Penrose, Edith (INSEAD and University of London) 1994 (deceased) Hofstede, Geert (Tilburg University) 1998 Caves, Richard (Harvard University) 1999 Chandler, Alfred (Harvard Business School) 2000 (deceased) Williamson, Oliver (University of California, Berkeley) 2003 North, Douglass (Washington University in St. Louis) 2007 Dore Ronald P. (London School of Economics and Political Science) 2008 International Deans of the Year (renamed International Educator of the Year, starting in 2008) Bess, David (University of Hawaii at Manoa) 1988 Elam, Joyce (Florida International University) 2007 Folks, William Randolph, Jr. (University of South Carolina) 2008 Gomez, Jaime A. (Tecnologico de Monterrey) 2005 Hawkins, Robert (Georgia Institute of Technology) 1998 Horva´th, Dezso¨ (York University) 2004 Kane, James (University of South Carolina) 1996 Loeser, Norma (George Washington University) 1984 Patten, Ronald (DePaul University) 1987 Porat, Moshe (Temple University) 2001 Rameau, Claude (INSEAD) 1994 Rose, John (University of Melbourne) 2000 Stetting, Lauge (Copenhagen Business School) 1995 Wyman, Harold (Florida International University) 1997 Zang, Guohua (China Europe International Business School) 2006 International Executives of the Year (originally, Business Leader of the Year) Agnelli, Giovanni, CEO of FIAT, 1986 Barnevik, Percy, CEO of ASEA Brown, Boveri, 1992 Chey, Jong-Huyon, CEO of Sunkyong (SK) Group, 1995 Chow, Sir C.K., CEO of Brambles Industries, Ltd., 2001 Culver, David, CEO of ALCAN, 1990 Desmarais, Jr., Paul, Chairman of Power Corporation of Canada, 2005 Guerra, Andrea, CEO of Luxottica (Milan), 2008
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Hammer, Armand, Chairman of Occidental Petroleum Company, 1987 Liu, Chuanzhi, Chairman of the Legend Holdings Group/Lenovo/IBM, 2006 Maisonrouge, Jacques, Executive VP of IBM World Trade, Air Liquide, 1982 Monty, Jean, CEO of Northern Telecom Corporation, 1996 Morita, Akio, CEO of SONY Corporation, 1983 Murthy, N. R., CEO of Narayana Corporation, Infosys Technologies Ltd., 2003 Sada, Federico, CEO of Grupo Vitro, 2002 Shih, Stan, CEO of ACER Group, 1999 Solso, Theodore, Chairman and CEO of Cummins Inc., 2007 Sutherland, Peter, CEO of Goldman Sachs International Group, 1998 Wriston, Walter, CEO of Citicorp, 1985 Yamamoto, Takuma, CEO of Fujitsu Corporation, 1993 Zambrano, Lorenzo, CEO of CEMEX, 1997
APPENDIX G These 1981 minutes are included because Richard Farmer wrote them in a funny, deadpan manner but also because some important decisions were made at that meeting.
MINUTES OF THE MEETING OF THE ACADEMY OF INTERNATIONAL BUSINESS FELLOWS, OCTOBER 15, 1981, AT MONTREAL, CANADA Members present: J. Behrman, J. Bertotti, J. Boddewyn, P. Cateora, J. Dunning, R. Farmer, P. Garner, J. Goodnow, Ph. Grub, R. Hawkins, E. Haynes, G. Mueller, L. Nehrt, R. Robinson, S. Robock, R. Stobaugh, V. Terpstra, R. Vernon and R. Wade. After dinner, Professor Nehrt turned over the Deanship of the Fellows to Professor Robinson. Professor Robinson’s first act was to thank Lee for his distinguished work as Dean, and the group enthusiastically concurred. Drunk with power, the new Dean noted that according to the Constitution he could appoint a Secretary-Treasurer. He named Richard Farmer for this position. The inept new S/T borrowed the Dean’s pen (a pretty good one at that) and kept minutes.
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After discussion, M. Mueller moved and E. Haynes seconded a motion as follows. ‘‘ALL FELLOWS SHOULD BE ASSESSED $25 U.S. (payable in any convertible currency) TO MEET MISCELLANEOUS EXPENSES OF THE FELLOWS.’’ The motion was adopted unanimously. The Secretary-Treasurer is supposed to bill all Fellows as soon as possible and start an account with this money. Some questioned the S/T’s honesty, accuracy and competence, to invest in foreign currency futures or hog bellies, so that we would really have some big money. This request was ignored, so the S/T will bill members shortly. The question of the limit of the number of Fellows was discussed. A motion was made by J. Behrman and seconded by R. Stobaugh as follows: ‘‘THE TOTAL NUMBER OF FELLOWS SHOULD BE LIMITED TO 50.’’ The motion was passed unanimously. The Dean noted that, since this required a constitutional amendment, all members will be polled on this point, and the results tabulated and circulated. The Dean noted that the definition of an active member is one who has attended at least one of the past three meetings. Inactive members lose some privileges, which the Dean (who presumably has read the Constitution) can enlighten you on if you care. The new S/T has not, and he can’t take shorthand either. The question of criteria for selection of new Fellows was debated at length. The consensus of the Fellows attending was to proceed with caution, although no motion was formally presented. Present criteria seem adequate. These include: 1. No one in line for any AIB office should be selected. 2. No colleague at one’s own institution or one’s former doctoral students should be nominated by any individual. Some Fellows were concerned that much care be taken in screening foreign members, given the difficulties of evaluating such members. All felt that more foreign members was a good idea. The Dean promised to be good.
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An advisory motion (which does not have the force of law, according to the Constitution) was made by S. Robock and seconded by J. Behrman, as follows: A SELECTION COMMITTEE FOR NEW MEMBERS BE ESTABLISHED BY THE DEAN, COMPOSED OF PRESENT FELLOWS. The motion passed unanimously with one abstention. The Dean appointed S. Robock (Chairman), J. Boddewyn, and J. Dunning as members of this new committee, after long reflection. A motion was made by J. Behrman and seconded by S. Robock as follows: THE CRITERIA FOR SELECTION OF NEW MEMBERS BE THE SAME AS THAT DETERMINED IN THE FIRST FELLOWS’ MEETING. This motion (again, advisory) was adopted unanimously. The question of a formal induction ceremony for new Fellows was discussed. A motion was made by J. Behrman and seconded by Ph. Grub, as follows: THERE WILL BE NO FORMAL INDUCTION CEREMONY AND NO CERTIFICATES WILL BE GIVEN FOR NEW FELLOWS. After discussion, the motion passed, all voting aye except J. Boddewyn. Professor Dunning suggested we should make sure that Fellows are well publicized, as in JIBS, and the Dean promised that he would discuss this issue with the Editor. The question of selection and funding for the International Business Scholar of the Year was discussed, with L. Nehrt bringing us up to date. After considerable discussion, it was agreed by consensus to wait for next year to proceed on this issue. The question of the selection of the International Businessman of the Year was discussed. The person was selected, and the Dean will handle notification at a much later date. Because of this delay, the name is not in these minutes. Call or write your Dean or S/T if you want to know whom we selected. The question of problems connected with the AIB Fellows Panel the next morning was discussed. Sympathy was expressed for those involved, but no action was taken. The meeting adjourned real late (the S/T’s Timex had stopped), and the S/T returned the Dean’s pen. A good time was had by all, in spite of the menu at the dinner.
INTERNATIONAL BUSINESS HISTORY: AN AIB TRADITION Mira Wilkins ABSTRACT The history of international business has generated a growing literature. Over the AIB’s fifty years, scholars associated with AIB have contributed to this literature but it has been a far broader one. This chapter surveys a sample of the wide variety of works on the history of multinational enterprise, published from the 1950s onward. The works are not only in business history but also in diplomatic and legal history. The literature makes it clear that the multinational enterprise has a long history and is far from a post-World War II or post-1989 phenomenon. The chapter shows the variety in the accumulation of studies in business history directly related to international business as well as the forums where business historians present their findings. It considers why and how international-business history matters for international-business research.
Very early in the life of the Academy of International Business (AIB), participants recognized the importance of history – and not just knowing history as context but understanding the history of firms. John Dunning in his first book on international business, American Investment in British Manufacturing Industry (Dunning, 1958), included a brief history of US companies involved in British manufacturing while Raymond Vernon’s International Business Scholarship: AIB Fellows on the First 50 Years and Beyond Research in Global Strategic Management, Volume 14, 97–112 Copyright r 2008 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1064-4857/doi:10.1016/S1064-4857(08)00024-7
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product cycle theory (Vernon, 1966) accepted the notion of process and change as fundamental to the understanding of international business. Over the years, many AIB Fellows have contributed to the literature on the history of international business.1 Among AIB’s Honorary Fellows, Charles Kindleberger (in 1987), Edith Penrose (in 1994), Alfred D. Chandler (in 2000) and Douglass North (in 2007) were economic and/or business historians. Chandler in particular made major contributions to the history of international business. In the 1950s and 1960s, as Dunning and Vernon were becoming alert to international business history, business historians were writing archivebased studies on the history of individual multinational enterprises. A number of such works were published in the 1950s and 1960s – for example, the initial two volumes of the history of Standard Oil Company (New Jersey), the principal predecessor of ExxonMobil; Charles Wilson’s three volumes on Unilever, two of which were published in 1954 and then reprinted with the third in 1968; and the first book specifically devoted to the history of multinational enterprise Mira Wilkins and Frank Ernest Hill, American Business Abroad: Ford on Six Continents (Hidy & Hidy, 1955; Gibb & Knowlton, 1956; Wilson, 1968; Wilkins & Hill, 1964). Today, there is a renewed surge of interest within AIB in the historical perspective. The Oxford Handbook in International Business, the first edition of which was edited by Alan Rugman and Thomas Brewer, is going into a second one. The first was in 2001 and had an opening chapter on the ‘‘History of International Business’’ (Wilkins, 2001). As author, I will add to the new edition a vast collection of writings that have appeared during the first years of the twenty-first century. There is now a business history track at the AIB annual conferences and the Journal of International Business Studies (JIBS) has for the first time a senior consulting editor, Geoffrey Jones, who is a business historian and will screen manuscripts on the history of international business. JIBS in 2006 had a lead article by Jones (Isidor Straus Professor of Business History, Harvard Business School) and Tarun Khanna (Jorge Paulo Lemann Professor, also at the Harvard Business School) on ‘‘Bringing History (Back) into International Business.’’ Their article began: ‘‘International business scholars know that ‘history matters’, [but] there is still a search for how it matters.’’ Jones and Khanna found that since 1990, the word ‘‘history’’ was mentioned in more than one-third of the articles and notes (119 in all) published in JIBS (Jones & Khanna, 2006). The title of the Jones and Khanna article reflected the long involvements of the AIB and AIB Fellows in seeking to understand history but also the
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feeling on the part of these two scholars that, in recent years, lip service had been given to history and that ‘‘not a single article [in JIBS since 1990] was either explicitly devoted to the history of IB, or employed historical data to explore an issue’’ (Jones & Khanna, 2006, p. 453). In short, while the AIB and many AIB Fellows were excited by an historical approach, there was more to be done.
BUSINESS HISTORY What have business (and other) historians contributed since the 1950s and 1960s to the body of data on multinational enterprise? I would suggest a great deal although their outlets for publication have been in books and in journal articles other than JIBS, and their presentations of findings have been principally at meetings other than those of the AIB. Nonetheless, their work has greatly enriched the field of international business and has not been neglected by AIB Fellows or by the AIB membership. Historians of multinational enterprise initially began by rebelling against the notion that the formidable post-World War II expansion of U.S. business abroad was something ‘‘new.’’ In my books – The Emergence of Multinational Enterprise: American Business Abroad from the Colonial Era to 1914 (published in 1970) and its sequel The Maturing of Multinational Enterprise: American Business Abroad from 1914 to 1970 (published in 1974) – I made it very clear that U.S. business abroad had a long history (Wilkins, 1970, 1974a). Indeed, in what is now widely accepted as the first age of globalization in the late nineteenth and early twentieth centuries, U.S. multinational enterprises – with their innovative products and processes – became well established internationally. Both of my books were published by Harvard University Press. Their publication was encouraged by Raymond Vernon but they were written while I was at Columbia University Business School, where two early Fellows of the AIB, Roy Blough and Emile Benoit, provided many insights for me in my endeavors. In the concluding pages of my Emergence book, I quoted an Englishman in 1901: The most serious aspect of the American industrial invasion lies in the fact that these newcomers have acquired control of almost every new industry created during the past fifteen years y What are the chief new features in London life? They are, I take it, the telephone, the portable camera, the phonograph, the electric street car, the automobile, the typewriter, passenger lifts (elevators) in houses and the multiplication of machine
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tools. In everyone of these, save the petroleum automobile, the American maker is supreme; in several he is the monopolist.
And, I followed up: ‘‘Had the same Britisher written in 1914, he would have added that with the Model T, the American maker was also supreme as far as the ‘petroleum automobile’ was concerned’’ (Wilkins, 1970, pp. 215–217). In that same book, I excerpted a passage from a 1907 letter to an agent in Thailand from H. B. Thayer, Vice President of Western Electric (Western Electric ultimately became Lucent Technologies, now Alcatel-Lucent): You speak of an anti-American attitude on the part of the [Government] Commission. We have offices and factories making our standard apparatus in Great Britain, Belgium, Germany, France, Russia, Austria, Italy, and Japan so that so far as this matter goes we are international rather than American. If there were time, we could arrange to have the order go to any one of those countries that might be preferred. (Wilkins, 1970, p. 200)
What seems profoundly different one hundred years later in 2007 is not so much the sourcing choices in our new global age but that the ‘‘time’’ consideration has imploded. Speed in communication has changed the internal dynamics of decision-making even though the fundamentals for the strategies may be alike. Indeed, it was the railroad and the steamship, the telegraph and the cable that set the basis for the origins of the modern multinational enterprise. New communication technologies have created sophistication in what can be accomplished in terms of coordination and control and in terms of the logistics of sourcing and markets. My Emergence and Maturing books established that U.S. business went abroad, based on advantages – a technological advantage, a knowledge advantage and an ability to meet what later came to be called the ‘‘liability of foreignness.’’ As I wrote in Emergence, considering American business abroad before 1914: The U.S. triumph abroad was one of ingenuity, new products, new methods of manufacturing, and new sales and advertising techniques. Americans who made overseas commitments had something distinctive to offer foreign customers. They sought not only to cater to, but to create, foreign demand. From sewing machines to drugs to oil to insurance, aggressive and imaginative marketing gave Americans an advantage. Americans went abroad when they discovered their advantage. (Wilkins, 1970, p. 66)
In the second of my two volumes on the history of American business abroad, I presented a model of an evolving enterprise. When in 1977, Alfred Chandler in his Visible Hand book wrote on the evolution of large-scale U.S. managerial corporations, he cited these works of mine on multinational
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enterprise and incorporated the findings into his frame of reference (Wilkins, 1970, 1974a; Chandler, 1977). The next question for students of the history of multinational enterprise was obvious: What about the history of multinational enterprises headquartered within Europe? Charles Wilson, Professor of Modern European History at Cambridge University, had shown with his history of Unilever that there were important European multinational enterprises. In various contexts in the 1970s, he explored the history of multinational enterprise. He did so at an international conference held in Delaware in May 1972, where he wrote on ‘‘Multinationals, Management, and World Markets’’ (Wilson, 1975; Wilkins, 1975). In Japan, at the first Fuji Conference that dealt with business history, held in January 1974, Wilson’s presentation was ‘‘The Multinational Enterprise in Historical Perspective’’ (Wilson, 1976; Kinugasa & Yonekawa, 1976). At the point when Vernon along with his students John Stopford, Larry Franko, Louis Wells, Robert Stobaugh, Michael Yoshino and Yoshi Tsurumi were shifting their focus from U.S. business abroad to ‘‘foreign’’ multinational enterprises, business historians were similarly asking questions about the history of European and also Japanese multinational enterprises. Indeed, Vernon’s students were innovative in this regard and, in 1974, the Business History Review, published at Harvard Business School, was providing a forum for Stopford and Franko to present their research on the history of the British-based and continental-European headquartered multinational manufacturing enterprises (Stopford, 1974; Franko, 1974). So, too, books by Yoshino and Tsurumi on Japanese multinational enterprise offered a significant historical background (Yoshino, 1976; Tsurumi, 1976). During the 1970s, new attention was paid to a number of different aspects of the history of multinational enterprise. In 1973, Dorothy Borg and Shumpei Okamoto published their prize-winning Pearl Harbor as History. Diplomatic historian Borg had planned this book in the late 1960s, held a conference at Lake Kawaguchi in Japan in July 1969 and was interested in where multinationals fit in her story. As for me, I wrote an article on ‘‘The Role of U.S. Business’’ for the Borg and Okamoto volume (Wilkins, 1973) and another piece on the history of private business (including multinationals) and the diffusion of technology (Wilkins, 1974b). When Vernon published in 1976 his edited volume The Oil Crisis, there was a chapter on the oil companies in historical perspective, which included both U.S. and European multinational enterprises (Wilkins, 1976). In 1976, Harvard University’s Ernest R. May and John K. Fairbank convened a conference, supported by the National Committee on
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American–East Asian Relations, which dealt with the history of U.S.–China trade. I wrote for it an article on the ‘‘Impacts of American Multinational Enterprise on American–Chinese Economic Relations, 1789–1949.’’2 The well-established historian of Latin America, D. C. M. Platt published in 1977 an edited volume entitled Business Imperialism, 1840–1930. Its title notwithstanding, this was not a left-wing denunciation of imperialism but a sober collection of archive-based studies on British business in Latin America: it included two articles by Charles Jones, one on commercial banks and mortgage companies and another on insurance companies. Linda and Charles Jones and Robert Greenhill wrote on public utilities in Latin America, while Rory Miller considered British firms and their relationships with the Peruvian government (Platt, 1977). During the 1970s, a number of trained historians began to look closely at the histories of European and Japanese multinational enterprises and, by that decade’s end a sizable group of economic and business historians were offering fresh insights (for examples, see the archive-based works of Reader (1970, 1975) and Fieldhouse (1978)). There were also new histories of banks and insurance companies that included their international business activities. Journalists and popular historians wrote on the history of ITT, United Fruit and other firms – far too many histories to list in a short chapter. It should be said, however, that in the 1970s and subsequently, the quality of the business histories ranged from the serious to the expose´, from the well footnoted to the glossy table-top anniversary presentation. All were useful in different ways. Among professional business historians, there came to be specialists in the history of international business. In the 1980s, Geoffrey Jones began publishing and holding numerous conferences on this subject.3 He took the leadership in urging business historians to pay attention to this field of inquiry. Alice Teichova, a Czech economic historian, convened a conference at the University of East Anglia in 1985, attended by forty-three scholars from fourteen countries, which resulted in a Cambridge University Press volume, Multinational Enterprise in Historical Perspective, which explored a wide range of topics on the history of international business (Teichova, Le´vy-Leboyer, & Nussbaum, 1986). A 1986 Business History Conference meeting was devoted to the history of multinational enterprise with Chandler presenting a paper entitled ‘‘A Framework for Analyzing the Modern Multinational Enterprise and its Competitive Advantage’’ (Chandler, 1987). Thus, during the 1980s, and then even more during the 1990s and into the twenty-first century, books and articles on the history of international
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business multiplied. As Richard Caves wrote about the literature on multinational enterprise in general, so too ‘‘the stock of knowledge’’ on the history of multinational enterprise has been growing apace (Caves, 2007). Geoffrey Jones published in 2005, an excellent overall history of international business titled Multinationals and Global Capitalism: From the Nineteenth to the Twenty-first Century (Jones, 2005a).4 There were new historical studies of individual multinational businesses, many of them archive-based. It is impossible herein to document the formidable outpouring but I will provide a sample of the directions that the literature is taking (more details are given in Wilkins (2001, forthcoming)). The Unilever history, for example, was brought up-to-date (Jones, 2005b). Numerous articles offered case studies of businesses in particular markets (see, for instance, Bonin, Bouneau, Cailluet, Fernandez, & Marzagalli, 2002). Students of the history of multinational enterprise paid attention to multinationals in specific host regions and countries – in China and Japan but also in the United States, Canada, Europe, Latin America, Australia and other parts of Asia – including my own volumes on the history of foreign investments in the United States (Wilkins, 1989, 2004, in process). There were studies of multinationals from developing and transition economies, and some of the former had quite long and continuous histories. Attempts were made to understand where the multinational enterprise fit into the histories of nations and regions. Some books and articles dealt broadly with an entire host country or region, some considered a designated time period, others concentrated on investments in a particular sector from cigarettes to automobiles, bananas, chemicals, electronics, tin, aluminum, petroleum, palm oil, rubber and even the beauty industry (Jones, 2008). Business historians have grappled with marketing, financing, production, engineering as well as other functional areas; they have looked at offshore outsourcing and, they have relooked at the relationships between foreign direct and foreign portfolio investments within particular host countries (Wilkins, 1989, 2004) and more generally (Wilkins, 1999, 2003; Hausman, Hertner, & Wilkins, 2008). The range of inquiries has been great indeed.
FURTHER SAMPLES OF THE VARIETIES AND DISCOVERIES I did a series of articles in Business History Review on cross-investments, U.S. business in Japan and Japanese business in the United States,
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1930–1952 (1982), a study of Japanese business overseas before 1914 (1986) and a chronicle of Japanese business in the United States, 1879–1990 (1990). The material was at the time all very new. The one on cross-investments dealt with matters that I had not understood when I contributed years earlier to Pearl Harbor as History (see aforementioned) because it showed a far larger role of Japanese business in the cross-investments. The one on Japanese business abroad before 1914 revealed the very early role of Japanese multinationals and was replete with surprises on the extent, nature and geographical spread of these pioneer Japanese enterprises. The essay on Japanese business in the United States was written (and also published) at the suggestion of Tetsuo Abo who was studying the ‘‘hybrid factory’’ and contemporary Japanese business abroad in automobiles and electronics but who wanted historical context (Wilkins, 1982, 1986b, 1990; Abo, 1994; Abo, 2007). As noted, a number of studies done during the 1980s, l990s and early twenty-first century were entirely sectoral in nature. Geoffrey Jones, among business historians, took the initiative in spurring research on the history of service-sector multinationals (Jones, 1998, 2000; Jones, 1990, 1992, 1993). A number of historians, including Jones, looked at the history of different kinds of trading firms, from partnerships (within and outside a family) to corporate arrangements. Karl Moore and David Lewis wrote a book entitled Birth of the Multinational, which traced the beginnings of multinational enterprise to 2000 BC and put the accent on trading relationships (Moore & Lewis, 1999). Before their study, with one minor exception, the origins of the multinationals had been typically traced to those in the medieval times when traders and bankers developed business over borders (Wilson, 1976; Cameron & Bovykin, 1991). There came to be a discussion among business historians on whether the great trading companies – the East India companies, the Hudson Bay Company and so forth – could legitimately be called multinational enterprise (see, for example, Carlos & Nicholas, 1988). The arguments for including them involved their ‘‘giant-enterprise’’ characteristics and their cross-border expansion while the arguments for excluding them were associated with the problems of coordination and control in an era of slow communication. There were also debates on business within overseas empires and outside overseas empires and how the multinational enterprise paradigms fit. Historians considered the important British networks of trading firms and also the Japanese trading companies as multinational enterprise and they made comparisons (Chapman, 1992; Jones, 2000; Yonekawa &
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Yoshihara, 1987). D.K. Fieldhouse wrote on United Africa Company and its impact (Fieldhouse, 1994) but it became evident that it was necessary to scrutinize business organizations in ‘‘commodity [and other] chains’’ (Topik & Wells, 1998). Gordon Boyce wrote on supply chains (Boyce, 1998). What happens through time with internalized corporate trading and trading companies began to comprise a sizeable literature, which led to discussions on how trading firms fit into an analysis of business groups. Jones and Khanna offered material on the transformation of trading companies into broader business groups (Jones & Khanna, 2006). The trading-company literature not only opened doors to investigations of business groups, but also to studies of networks and alliances. As it pushed discussions back in time, it cleared the way for considerations of business culture, the nature of trust, the insiders’ familiarity with how business was done and it also widened the scrutiny to comprise family firms. The history of banks as multinationals has attracted the interest of many students of the history of multinational enterprises. There came to be a recognition of the need to distinguish why and where banks established multinational operations as well as their banking strategies and structures from the actual business of banking (Jones, 1992). Universal banking and its role in relationship to multinational enterprise came to be considered. It was not only banking that attracted the attention of business historians but also other financial services, insurance and securities markets (see, for example, Wilkins, 2007 on insurance history). In their Global Electrification: Multinational Enterprise and International Finance in the History of Light and Power, 1878–2007, William Hausman, Peter Hertner and Mira Wilkins looked at the history of multinationals in the spread of electricity around the world. Theirs is an extraordinary story that contributes to our understanding of the history of variety of business forms that multinational enterprises take in international expansion. It meshes the corporate-governance literature with the historical materials on multinational enterprise and sets out new horizons on the historical relationships between financial institutions and multinational enterprise growth, business groups, networks and industrial clusters. It has also much to say on the history of holding companies in international business (Hausman et al., 2008). Business and legal historians have dealt with intellectual property rights as well as with brands, trademarks and patents as intangible assets. They have studied antitrust, national security and other policy issues. These are matters highly germane to the success or failure of international business. They have also considered other facets of government and business
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relationships both within home and host countries as well as across national boundaries. They have monitored issues of nationalization and where multinationals fit into the more market-oriented thrust of laws and regulations in the 1980s, 1990s and early twenty-first century, always providing the historical context (Wilkins, forthcoming). There is an effort to consider performance over time and what that entails. Geoffrey Jones has pushed such queries and more specifically, whether there were historical lessons to be learned on the success or failure of cross-border acquisitions by multinational enterprises (Jones, 1986; Jones & Miskell, 2007). While business historians have never failed to be aware of contemporary circumstances, they have over the years tried not to be ‘‘Whig historians’’ who look back to see the past inevitably turning into the present. They hope instead that the past will cast light on the present. Most have tried to take the evidence at its face value. Thus, research on the free standing company, a special type of multinational enterprise that was very characteristic of British business abroad in the late nineteenth and early twentieth century, has enriched our understanding of clusters, business groups and alternative forms of ownership and control. The free standing company was a firm set up in a home country (with no activity in that country) in order to do business abroad. Many free standing companies operated within the British Empire (from Malaya to South Africa) but many were in independent countries (from the United States to Argentina, Belgium and Russia) (Wilkins, 1988; Wilkins & Schro¨ter, 1998). Jones and Khanna went so far as to suggest that free standing companies bore a ‘‘compelling resemblance’’ to today’s companies that have been characterized as ‘‘born global’’ (Jones & Khanna, 2006, p. 459). As it became popular to deal with the two great eras of globalization – that is pre-1914 and post-1989 – business historians also did research on the years in between. Thus, the second volume of my history of foreign investment in the United States (Wilkins, 2004) covered a period of great fluctuation in the course of multinational enterprises’ involvements (1914–1945) while Jones, in his Multinationals and Global Capitalism, documented the rise and fall as well as the restoration of globalization (Jones, 2005a). Business histories of individual firms do not neglect World War I, the interwar years and World War II. Each period provides great insights on how international businesses coped with adversities. There has come to be huge literature on post-World War II multinationals of all nationalities and the postwar years have now stretched to over sixty to become ‘‘history.’’ While not a business historian, Marina
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Whitman’s coverage of American business from the 1950s to the 1990s is business history at its best (Whitman, 1999). She is comfortable in surveying international business as part and parcel of her storyline. Regina Lee Blaszczyk and Philip Scranton published documents and essays in U.S. business history, and their book excerpted the work of Jones that explicitly incorporated U.S. business in the world from 1945 to 2005. The book made it clear that this international involvement of U.S. business was not new to the postwar years (Blaszczyk & Scranton, 2006).
THE FORUMS In the last two decades, sessions at the meetings of the Business History Conference (U.S.), the Association of Business Historians (UK), the European Business History Association, the European Association for Banking and Financial History and the Japanese Business History Society have very frequently considered aspects of the history of multinational enterprise with an ever rising tide of interest. This has also been the case of the International Economic History Association and of various preliminary meetings in advance of these huge worldwide gatherings. Thus, the 2007 meetings of the European Business History Association were specifically devoted to ‘‘International Business, International Organization and the Wealth of Nations.’’5
THE CHALLENGES In their 2006 JIBS article ‘‘Bringing History (Back) into International Business,’’ Jones and Khanna considered ‘‘four categories of reasons why history can illuminate conceptual issues of interest to scholars of contemporary IB.’’ First, ‘‘historical variation is at least as good as contemporary cross-sectional variation in illuminating conceptual issues’’ – or, said in my own terms: ‘‘history involves context’’ and recognizes uncertainties. As Douglass North put it, we live in a non-ergodic world where change is the norm. Hence, knowledge of the experiences of multinational firms over time provides insights into forms of business organizations and strategies that will or will not succeed. Second, ‘‘avoiding the spurious labeling of some phenomenon as ‘new’ and thereby understanding it only erroneously.’’ Once again, in my own rendition, as historians often say, those who do not know history are bound
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to repeat its mistakes. Third, we must confront and move beyond path dependency – that is, emphasizing the past elements too much. Again, in my own interpretation, historians understand that choices are limited, that human beings are constrained, that there is path dependency (a path that often precludes other paths) but also that there is no economic determinism. Nevertheless, there are major lessons to be learned. And, fourth, more generally, ‘‘history can help us expand the domain of inquiry of IB’’ considering problems in a long-run perspective. These four points of Jones and Khanna are splendid and the authors give refreshing examples (Jones & Khanna, 2006). To the issues presented by Jones and Khanna, I would like to include several additional ones. First, there is a range of public-policy questions that affect international business. Those business and diplomatic historians that have dealt with foreign-policy records can cast light on what works and what does not. Understanding the history of multinationals can help publicpolicy makers shape effective public policy. It can also present advance warnings to firms on issues such as transparency, antitrust, national security and affirmative action. Students of the history of multinational enterprise know a great deal about shifts from private to government ownership and the reverse. Their work can provide insights on sectors, timing and rationale behind host- and home-country policy shifts. Their research can also help scholars (and firms) anticipate where government–business conflicts may emerge. Their studies can identify ‘‘hot-button’’ issues that are bound to create public anxieties and, thus, attention to these inquiries may help in understanding how risk can be reduced. Second, sustainable growth, global warming and environmental problems are subjects that a firm in international business today cannot ignore. History helps us understand how the multinational does or does not (has or has not) effectively deal (dealt) with such matters. Third the history of multinational enterprises’ experiences under different foreign-exchange rate regimes casts light on contemporary issues. And, fourth, perhaps most important, studies of the course of international business history can help us understand the fundamentals of economic growth and development. Business historians are just beginning to ask very basic questions about the long-term role of multinational enterprise in such growth and development (Wilkins, 1998). The problems of today’s emerging countries and nations-in-transition are huge. A number of AIB members have thought about them and I would like to suggest that the history of multinational enterprise provides valuable signposts. In short, history does matter; it matters in many diverse manners; its study can, has and should have positive linkages. Hopefully, AIB Fellows
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and members will move in the direction of keeping studies by business historian in a prominent position.
NOTES 1. In my contribution to the Oxford Handbook of International Business, I mentioned specifically the AIB Fellows Mark Casson, Jean-Franc- ois Hennart, Bruce Kogut, Stephen Kobrin, Alan Rugman, John Stopford and Louis Wells. I could also have mentioned Robert Stobaugh, Donald Lessard, Eleanor Westney, John Cantwell, Robert Grosse, Stephanie Lenway, Jean Boddewyn, Peter Buckley, Lorraine Eden and Jose´ de la Torre as well as others (Wilkins, 2001, p. 25). Both Dunning and the now deceased Vernon continued to have an abiding interest in history (see, for example, Dunning, 1983; Dunning & Lundan, forthcoming, Chapter 6). 2. The actual book was not published until 1986 (Wilkins, 1986a). 3. His first book was The State and the Emergence of the British Oil Industry (Jones, 1981). 4. This was a greatly revised edition of a prior work (Jones, 1996). 5. Historians of international business engage in an extraordinary number of international gatherings where ideas are exchanged among scholars of different nationalities. Thus, for Harm Schro¨ter’s book on the history of the ‘‘European enterprise’’ (which involved 20 different contributions, written by 26 individuals of 13 different nationalities), there were seven preliminary meetings in Copenhagen, Frankfurt, Glasgow, Helsinki and Milan (Schro¨ter, 2008, p. v). For the volume of Hausman, Hertner and Wilkins on the history of global electrification, scholars from around the world were assembled and meetings were held in Argentina, Canada, Finland, France, Germany and the United States to discuss the book’s contents (Hausman et al., 2008).
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INTERNATIONAL BUSINESS AND FINANCE SCHOLARSHIP Raj Aggarwal ABSTRACT This chapter explores how scholarly work in the fields of Finance and International Business (IB) can be mutually supportive. First, it is clear that technology has been a major driver of modern developments in both Finance and IB. Second, Finance can provide many insights into IB scholarship since it has much to say about firm operations and strategy. Third, IB scholarship with its focus on culture also provides significant opportunities for a better understanding of the global aspects of Finance. Finally, it is contended that transaction-costs economics provides an excellent theoretical and fundamental basis for bringing together IB concepts and Finance scholarship. However, while the potential for Finance and IB scholarship to contribute to each other is great, such advances must await the removal of cultural barriers between the two disciplines.
INTRODUCTION The field of IB generally focuses on inter-national business, that is, business across national boundaries and, thus, in diverse institutional and cultural International Business Scholarship: AIB Fellows on the First 50 Years and Beyond Research in Global Strategic Management, Volume 14, 115–138 Copyright r 2008 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1064-4857/doi:10.1016/S1064-4857(08)00001-6
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settings. Consequently, IB deals with cross-border effects of changes in the environment of business such as the role of national differences in culture, legal and regulatory environments, institutional structures, and economic and monetary policies. This implies that IB scholarship generally deals with broader contextual issues of business as contrasted to the narrower focus of scholarship in each of the functional fields in business, such as Finance, marketing, or management. For example, Finance is more focused on the flow and allocation of funds while in a firm, it deals with the acquisition, allocation, and control of financial resources by a firm with the objective of maximizing shareholder wealth. In addition to this private role, finance also covers the national and international macro flows and allocation of funds, as well as the nature and functioning of financial markets – markets that value corporations and provide important signals for the allocation of assets within and among economic entities.1 A topic that has arisen in the IB literature in recent years concerns the appropriate role of IB scholarship in the wider context of business scholarship. How and to what extent can IB scholarship contribute in a world where scholarship in each of the business disciplines is increasingly recognizing the cross-border nature of the issues being considered within each of the disciplines? More specifically, many scholars are starting to question the continuing viability of the traditional IB research agenda (e.g., Buckley, 2002). This challenge is considered particularly acute as scholarly journals in the traditional functional disciplines such as the Journal of Finance, the Journal of Marketing, the Accounting Review, the Academy of Management Journal, and other publications in the functional fields of business, have started to publish a larger proportion of papers focusing on the international dimensions of their disciplines, leaving IB scholars to wonder about the role of the Journal of International Business Studies (JIBS) and other scholarly journals in IB. It is clear that IB is concerned both with inter-national and business issues – areas that have multiple dimensions. This chapter contends that perhaps the best role for IB scholarship is to be both integrative and cross-disciplinary. IB scholarship should focus on issues that benefit from understanding the broader contextual settings of business as well as issues that involve both more than one country and more than one business discipline – that is, studies that are both inter-national and address Finance and marketing, or Finance and strategy or some other combinations of more than one business discipline, leaving papers on the international dimensions of one particular
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discipline such as Finance or marketing or strategy to be published in focused journals in these disciplines. This broader focus will allow IB papers and their authors to make distinct and significant contributions to knowledge – contributions generally missed by the narrower disciplinefocused journals. Thus, scholarly papers in JIBS and other IB journals should ideally be both inter-national and inter-disciplinary.
THE RELATIONSHIP BETWEEN IB AND FINANCE In order to explore this issue, it is reasonable to ask how are the fields of Finance and IB related? Both Finance and IB are distinct fields with their own jargons, journals, and jingoists. Finance purists often claim that there is no reason to consider any concepts from IB because Finance theory is fundamental (universal) and should apply equally in any and all countries. Similarly, IB purists have their own self-contained theories that do not seem to need any Finance theory or concepts. These silo-type mentalities are largely reflected in the work of Finance and IB scholars, most of whom seem mainly to work independently of each other. Finance journals rarely cite papers from IB journals and IB journals rarely cite articles from Finance journals. Thus, there is little reason to believe that Finance and IB are related in any way or, more importantly, that the two disciplines may benefit from theories, concepts, and research developed in the other one. In this chapter, as in the movies, we suspend that disbelief as we contend that doing so may yield some fresh insights. We show that Finance and IB are indeed quite related and both fields can benefit from developments in the other field. First, it is clear that technology is a major driver of modern developments in both Finance and IB. Second, Finance can provide many insights into IB scholarship as it has much to say about firm operations and strategy. Third, IB scholarship with its focus on culture provides significant opportunities for a better understanding of the global aspects of Finance. Finally, it is contended that transaction costs are excellent theoretical and fundamental bases for bringing together IB concepts and Finance scholarship. However, while the potential for Finance and IB scholarships to contribute to each other is great in both directions, such advances must await the removal of cultural barriers between the two disciplines. While international-finance texts may do a better job in this regard (e.g., Stonehill, Eiteman, & Moffett, 2006), with minor exceptions (e.g., Oxelheim,
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Stonehill, & Randoy, 2001), very few Finance journals cite articles from IB journals and very few Finance journals are cited in IB publications. As contended earlier, it would be useful for both Finance and IB scholars to step out of their silos.
A SHARED FORCE MAJEURE: FINANCE, IB, AND TECHNOLOGY Finance and IB both face a shared force and large influence, namely technology. It is contended here that perhaps this shared force shaping both Finance and IB can also be a source of understanding how scholarship in the two disciplines can work to be mutually supportive. For example, while there may be many drivers of this process, all firms have to increasingly deal with IB issues as technology drives rising globalization. The next section explains the roles of technology in Finance and IB and how it encourages interdisciplinary and mutually supportive scholarship. Finance and Technology The nature and practice of finance are changing rapidly with most changes resulting from new communication and microprocessor-based technologies. The use of these technologies is making possible many innovations that then spread rapidly to transform various areas of Finance. While it is impossible here to assess completely the impact of technology on Finance, some examples are provided to illustrate the wider phenomenon. As one example, consider the process of securitization. It is now possible to securitize almost any asset or liability, that is, break a lumpy large asset or liability into smaller bite-sized pieces that can be sold to retail investors in smaller chunks (e.g., at $1,000 each). This process frees up the initial large and lumpy investment so it can be redeployed in other higher-return activities. Examples of assets that have been securitized include automotive receivables, credit-card receivables, and mortgage loans. This process immediately frees up the funds tied up in these assets that originally may have natural lives of 2–30 years. Thus, a bank can make 30-year mortgages and not tie up its money for 30 years. Similarly, other large and lumpy assets and liabilities can be continually securitized and the funds redeployed to their new best use. This process of securitization was not possible before the advent of inexpensive computing power.
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As another example, consider the use of modern technology to model risks and develop ever newer derivative instruments to distribute and hedge risks so that they are transferred to entities that are most willing to assume risks, thereby allowing for the better pricing of risks. Again, these developments would not be possible without modern information technology. Another way in which Finance has been transformed by technology is the increased reach of markets. For example, because of modern information technology, trades can originate from anywhere in the world. This makes markets with these larger numbers of participants more efficient as they bring together larger numbers of buyers and sellers than was possible without modern information technology.
IB and Technology There is relatively little recognition of the wide significance of the interrelationships between technology and IB. Indeed, as this brief review notes, to stay relevant IB scholarship must consider the wider impacts of technology more clearly. Driven by the fundamental forces of technology and economics, globalization has been the major trend for the last few decades, and this trend is likely to continue for the foreseeable future, expanding its reach and influence. Regardless of our feelings on globalization, we must deal with it. While globalization creates many new jobs and very attractive new choices for consumers, it also creates some challenges as an increasingly wider range of jobs in the United States and other rich countries are being outsourced to people in poorer countries. To understand these impacts, we must start by examining the close and mutually reinforcing relationship between technology and globalization – the two major trends in modern times. While there has been wide discussion of each of these two major trends, there has been very little discussion of their relationship (Aggarwal, 2007). First, technology makes globalization easier and more possible. For example, there have been great advances in the technologies of communication, making it easier and cheaper to communicate within a country and internationally (Cairncross, 1997). We can use e-mail (free), watch global events unfold instantly (mostly free), make international phone calls (almost free), and even travel overseas (ever cheaper in inflation adjusted terms).2 Information, market knowledge, and money are now transmitted across the globe instantly at almost no cost.
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While this ease of transmission is a significant change that is making markets more efficient and has many important implications, technology is also creating changes in the transportation of tangible goods. Because of advances in materials and engines, the moving costs for goods and people are also declining. At the same time, technology is making goods lighter and increasing their value-to-weight ratio so that transporting them internationally is cheaper and more sensible. As one manifestation of this phenomenon, it has been some time since most of us last bought an item of consumer electronics made in the United States. In addition to goods, information and money that are becoming ever cheaper to transport, people are also being moved internationally at ever-lower costs. Technology does indeed facilitate globalization by making it easier! Second, globalization in turn increases the value and availability of technology. Those who travel internationally have noticed the interesting phenomenon that people seem to listen to very similar music in many if not all countries, especially as exemplified by the music popular with teenagers who are harbingers of the next generation. This phenomenon is not limited to music since people now seem to dress similarly and increasingly buy similar goods and services – for example, note the global success of the Sony Walkman and now the Apple iPod. Increasing cross-border transport of money, goods, and people is now leading to the increasing homogenization in cultures, tastes, and demands, resulting in larger production runs and declining per-unit costs. Globalization is thus increasingly integrating markets and tastes across the globe. This process increases the size of the markets for any new technology and for products based on it. Globalization also means that smart people from many countries are increasingly contributing to the development of new technologies and related products, so that accelerates the development of new technologies and increases their value by enlarging its potential market. Globalization indeed supports and encourages the development of technology. As this brief discussion indicates, technology makes globalization easier and more possible, and thereby facilitates globalization. However, at the same time, globalization makes technology more valuable. Therefore, as shown in Fig. 1, there is a circular and mutually reinforcing nature to the relationship between technology and globalization: technology leads to more globalization and globalization makes technology more valuable, and this situation leads to further advances in technology – and so on in ever expanding, mutually reinforcing cycles! Hence, we are most likely to see ever-increasing globalization.
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The Technology–Globalization Reinforcing Circle. Source: Aggarwal (1999).
The trend toward increasing globalization is not only powered by its mutually reinforcing relationship with technology but it is also supported by fundamental economic principles that show that globalization creates new wealth by allowing countries to trade, specialize, and focus on what they do best and most efficiently. This process of specialization, powered by international trade and investment creates new wealth3 which shows up not only as higher average income levels (albeit with a different distribution among socioeconomic groups) but also as vast increases in the range and quality of available consumer goods. We increasingly buy Chinese-made electronics, Korean cars, Indian computer help, and Brazilian coffee. The proportion of our consumption that originates overseas continues to increase. Thus, there are three powerful forces supporting and increasing the pace of globalization: (1) the wealth-creating effects of globalization, (2) the enhancement of technology benefits with globalization, and (3) the facilitation of globalization by technology. These forces are mutually reinforcing and we continue to see accelerating advances in all three, particularly in both technology and globalization. Thus, it is clear that globalization is a powerful and continuing trend that is likely to be reversed only by equally powerful forces such as armed global conflict.4 As reversals in globalization is unlikely and undesirable – especially given how that may happen – we must understand its major effects and learn how to cope with them.5 For example, IB scholars must now consider the impact of technology in their work as technology and globalization are now
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inextricably integrated. While IB scholars have been reasonably successful in integrating cross-border factors such as culture and politics in their work, recent IB literature reflects relatively little integration of technology and IB. More generally, IB also needs to integrate better with other technologydriven fields such as Finance.
FINANCE AND INTERNATIONAL BUSINESS Finance and IB are linked ever more closely through modern technology. As is the case with many modern trends, technology is the main driver for the changes sweeping both Finance and IB. Thus, there is a natural and fundamental relationship between the Finance and IB fields. As one example, thanks to technological advances, Finance is increasingly becoming global. Global influences clearly drive financial markets, and financial activities are no longer just influenced by domestic forces. In fact, all finance is now truly international and it is impossible to ignore global forces in formulating financial policy and strategy. Hence, the understanding and practice of Finance will be improved by a better understanding of IB. The following sections clarify further how Finance scholarship can contribute to IB scholarship and how IB scholarship can contribute to scholarship in Finance. As this discussion indicates, for Finance and IB scholarships to be mutually beneficial, the two sets of scholars must stop working only in their own silos.
POSSIBLE FINANCE CONTRIBUTIONS TO INTERNATIONAL BUSINESS SCHOLARSHIP Just as globalization has been influenced fundamentally by technology, so has the field of Finance. Technology has influenced the latter by reducing transactions costs which, as discussed in a following section, not only have a profound and fundamental influence on the nature of Finance but, more fundamentally, also on the nature of the firm. Technology has made possible many new types of financial transactions, thereby greatly expanding the scope and influence of financial activities. For example, assets and liabilities that until recently had to be managed by a given organization for life and were not tradable, are now being packaged into marketable securities that allow the rapid redeployment of capital to its best use. Similarly, risks that
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until recently could not be mitigated, are being hedged and eliminated through the use of ever more exotic derivative instruments. Advances in technology are now powering a huge increase in the scale and scope of financial activities. There is a large body of literature that shows that financial development in a country contributes greatly to economic growth and stability (e.g., Levine, 1997; Raddatz, 2006). While somewhat less well understood, there is considerable agreement that financial development encourages economic growth through a number of mechanisms including better availability and allocation of capital in an economy and within a firm. Further, firms in many countries with less developed financial markets do issue stock in developed countries (often in the form of depository receipts such as ADRs) to increase their access to Finance, thereby reducing both financial constraints and the costs of capital (Lins, Strickland, & Zenner, 2005). Thus, while it is clear that financial development is a significant influence on the nature and scope of IB activity in a country, the next section presents a more systematic view of how Finance can influence IB scholarship.
The Strategic Role and Nature of Finance in a Firm The influence of Finance in IB can be understood and organized in a 2 2 matrix. First, Finance has two distinct functions of interest to IB actors: (1) Finance as a resource and as a control mechanism and (2) Finance as a decision guide, especially in asset allocation. Second, Finance operates in two distinct business domains: (1) Finance as a part of the environment of business and (2) Finance as an internal function in an MNC or other firm. Table 1 provides some examples of the 2 2 matrix that are useful in understanding the role of Finance in IB. As this framework indicates, IB scholarship needs to consider Finance as an important resource. For example, Finance is a resource that: (1) most likely provides a competitive advantage for many firms including MNCs, (2) influences the nature of the multinational expansion of a firm, and Table 1.
Resource Decision guide
Role of Finance in IB: Some Examples. Environment
Internal Function
Sources of capital Stock price
Capital structure (MNCs, subsidiaries) Net present value, real options analysis
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(3) has significant and important effects on the operation and control of foreign affiliates. The availability of this resource is impacted by hostcountry culture and institutional structures as well as by economic and regulatory environments, and so is the financial analysis that underlies resource-allocation decisions in MNCs and their subsidiaries (Agmon, 2006). Traditional discussions of business strategy focus on the actions and deployment of internal resources in a firm, given economic, industry, and product-market conditions. In contrast, the strategic aspects of Finance generally focus on the actions necessary to maximize shareholder value. While these two distinct approaches often do not intersect in the strategy or Finance literature, Finance plays a number of strategic roles in a firm. 1. Financial environment and market signals: Market signals are valuable guides in directing corporate strategy. All firms receive signals from product markets and markets for factor inputs such as labor and raw materials. Publicly listed firms, in addition, have available data on share prices and the valuation of the firm. All of these data are important guides for corporate policies and actions. In the context of IB, firms not only operate in financial environments that vary from country to country but firms also have to deal with border effects such as foreign exchange rates and political risk. 2. Finance as a resource: The strategy and operations of a firm are often constrained by the nature and availability of short- and long-term Finance. In addition to the issues involved with the timing and nature of the acquisition of external funds (e.g., bank loans versus security issuance), firms must also make decisions on the allocation of internally generated funds (profits and cash flows) to external payments (interest and dividends) versus growth investments (retained earnings). A multinational firm must account for these issues in a more complex context with multiple national financial environments and operating subsidiaries. 3. Finance and governance structure: The Finance literature also has a great deal to say about the nature of corporate governance and the compensation of senior executives. These two issues in a firm are influenced greatly by the need to manage the agency problems arising from the separation of ownership and management. In such cases, agency problems arise as the goals of a manager may differ from those of the owners, and there are also differences in goals between various providers of capital. Further, active markets for corporate control (e.g., M&A markets) are important constraints on non-performing managers. In a multinational context, firm governance is also driven by different national laws, regulations, and ethical and social norms.
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4. Financial substitutes for operating strategies: With the rise of financial markets and the development of new financial instruments such as derivatives, financial engineering is becoming an increasingly important substitute for operating strategies. For example, the ability to manage risk by using financial instruments allows much higher levels of operating risks and decreases the need for operating divisions to reduce risk, thereby leading to more operationally focused firms. As ever larger portions of the balance sheet can be securitized, firms gain greater operational flexibility and ability to pursue growth opportunities – for example, the sale of securitized receivables and other assets can allow continuing growth in the underlying operations. Similarly, firms are routinely restructured since operating divisions can easily be bought and sold via spin-offs and acquisitions in the increasingly liquid markets for operating entities. In a multinational setting, these issues become more complex as such financial strategies must account for differing national laws, regulations, and business environments. Finance theory has also provided additional innovative ways of looking at IB issues. As one example, real-options theory, developed in the Finance literature, has been found useful in understanding the activities of multinational companies that are especially related to the advantages of global expansion (e.g., Tong & Reuer, 2007). As this brief review and selected examples indicate, Finance has much potential to contribute to a better understanding of many issues in IB. Not only are both Finance and IB driven by the same fundamental forces of technology but Finance also has much to contribute to IB scholarship – especially about firm operating and strategic policies.
INTERNATIONAL-BUSINESS CONTRIBUTIONS TO FINANCE: ROLE OF TRANSACTIONS COSTS With its broader focus and specialized knowledge of cross-border effects and the variations in local contexts of business operations, IB can expand the types of environmental factors considered in Finance scholarship, such as the role of national differences in culture or national institutional structures. It can also expand the focus of Finance scholarship to consider the interactions between Finance and other business fields. In many cases, interesting financial questions can best be addressed in foreign or multinational settings. For example, by estimating the
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relationship between internal cash flows and investment levels in firms across many countries, the nature and impact of financial constraints and limited access to external Finance can be better understood (Aggarwal & Zong, 2006). Besides, important insights about the nature of internal financial markets were developed based on a study of Indian business groups because Indian accounting standards required disclosure of intrafirm financial flows – data not required to be disclosed according to US accounting standards (Gopalan, Nanda, & Seru, 2007). More importantly still, transactions–costs analysis provides a more general framework for integrating Finance and IB scholarships.
Finance and Transaction-Costs Economics In order to understand the relationship between Finance and IB, it is best to start by considering the fundamental nature of financial contracts that form the foundations for all topics in Finance and financial management. Financial contracts are influenced by transactions costs which, in turn, are influenced by the legal, ethical, social, and cultural characteristics of the environment. These latter characteristics are the province of, and form the topics generally discussed by IB scholars. Financial contracting is the basis for structuring and managing financing in a country or in a company and it involves the transmission of funds from one entity to another with contracts defining the terms of the exchange – that is contracts specify what providers of funds can expect in return from the users of such funds, and how they may enforce such contracts. Such financing contracts involve monitoring and collecting the funds provided when the providers and users of funds face differential access to relevant information and differential enforcement rights. Further, in many cases, modern organizations are managed by professional non-owner managers who may and often do pursue their own goals in contradiction with the goals of the owners. This separation of responsibilities between the providers and users of funds and between managers and owners means that financial contracts must resolve the resulting problems of asymmetric information, adverse selection, and optimal residual agency costs. According to North (1990), the cost of information needed for the measurement and enforcement of financial exchanges and the resulting contracts creates ‘‘transaction costs’’ which involve the costs of defining property rights and the costs of enforcing contracts – including costs of information such as search costs. ‘‘Transformation costs’’ are the costs
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associated with using technology and they reflect the efficiency of factor and product markets. Transactions costs involved in market exchange arise chiefly from efforts to reduce the uncertainties surrounding contractual relationships (Hart, 1995). Such transactions costs depend on a number of factors including transaction uncertainty and frequency, asset specificity, and the economic, cultural, legal, and ethical environments (Coase, 1937). These factors contribute to the costs associated with market exchange, such as search costs, the costs of developing and delineating choices and options, the costs of designing, negotiating and enforcing market-exchange contracts, and the costs of other economically valuable activities that facilitate economic exchange. Transaction costs may be high for two reasons: (1) difficulty in designing the optimal contract because of problems of information asymmetry and (2) difficulty in implementing the contracts because of a lack of control rights. As noted by Hart (2001) and others, given non-zero costs of contract design and enforcement, all optimal contracts are incomplete. Developing and enforcing perfect contracts that anticipate all eventualities is prohibitively expensive. Optimal contracts are designed in such a way that, at the margin, incremental contracting costs equal the incremental benefits of better contracts. The nature of optimal contracts (and the residual costs of inefficiency) will clearly depend on the institutional (economic, cultural, legal, and ethical) environments and the resulting nature of enforcement costs associated with financial contracts. The analysis of transactions and their costs is complicated by the ‘‘holdup’’ problem. The hold-up problem was analyzed by Klein, Crawford, and Alchian (1978). One party must make an investment to transact with another. This investment is relation-specific, that is, its value is appreciably lower (perhaps zero) in any use other than supporting the transaction between the two parties. Moreover, it is impossible to draw up a complete contract that covers all the possible issues that might arise in carrying out the transaction and could affect the sharing of the returns from the investment. The classic example, cited by Klein et al. (1978), involves the dies used to shape steel into the specific forms needed for sections of the body of a particular car model (say, the hood or a quarter panel). These dies are expensive (they can cost tens of millions of dollars) and they are next-to-worthless if not used to make the part in question. Suppose that the dies are paid for and owned by an outside part supplier. Then, this supplier will be vulnerable to ‘‘hold-up’’ by the buyer. Because any original contract is incomplete, situations are very likely to arise after the investment has been made that require the two parties to
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renegotiate the nature and terms of their future interactions. Such ex-post bargaining may allow the automobile manufacturer to take advantage of the fact that the dies cannot be used elsewhere to force a price reduction which grabs some of the returns to the investment that the supplier had hoped to enjoy. Consequently, the supplier may be unwilling to invest in the specific assets, or it may expend resources to protect itself against the threat of holdup. In either case, inefficiency results. because either the market does not bring about optimal investment, or resources are expended on socially wasteful defensive measures – internalization of the transaction is one solution since having the auto company own the dies solves the problem.
SOME EXAMPLES OF THE IMPACT OF TRANSACTIONS COSTS Consider the capital structure decision for a firm. From the point of view of the equity investor, obtaining reliable information about firms is innately costly and, to some degree, fallible. Transaction-costs economics (TCE) suggests that when the costs of market exchange are sufficiently high, firms can obtain cheaper financing through some other means. These costs will be shared with the supplier of equity, causing equity financing to be more costly to the firm. The alternative to market financing is typically through some sort of a prescribed arrangement such as a bank loan or, more broadly, through a prescribed transfer of resources through a horizontal or vertical network. Williamson (1988) along with Hart (1995, 2001) suggested that, from the point of view of the firm, the choice between debt financing versus equity financing resolves to a choice between the costs of complying with rules associated with debt versus the costs of ensuring contract reliability associated with equity financing. As another example, consider how TCE influences firm boundaries. TCE focuses on the notion that, when the transactions costs of market exchange are high, it may be less costly to coordinate production through a formal organization than through a market, – that is, it may be cheaper in many cases to use a hierarchy to reduce contracting problems and costs (Williamson, 1998). According to this theory (Coase, 1988; Williamson, 2000), firms should internalize operations when external markets are relatively inefficient, that is, when a firm faces higher transactions costs in external compared to internal markets. In other words, a firm is likely to
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find it optimal to internalize operations in businesses that face external market transaction costs that are higher than agency and other internal transactions costs. Thus, the balance between internal and external transactions costs determines firm boundaries (Hart, 1995; Holmstrom & Roberts, 1998; Madhok, 1998; Rugman & Verbeke, 2004; Aggarwal & Zhao, 2008). However, in developing countries, the business environment has been much less than perfect and the inefficiency of markets for many corporate inputs has meant that companies in developing countries have found it more efficient to diversify by internalizing a wide range of business activities. Consequently, most large, emerging-market businesses have been widely diversified and have vertically integrated group structures. Yet, these emerging markets face accelerating change, with economic deregulation and the adoption of Internet technology reinforcing each other. In this process, markets for corporate inputs are becoming more efficient with declining transaction costs, and the advantages of vertical integration and diversification are declining and are likely to become disadvantages. These changes are forcing significant and often sudden restructuring among the large and major conglomerates in emerging markets, and they show up in the rising volume of M&A activity in countries such as China and India.
Transactions Costs and the Institutional Environment The nature of institutions partially determines the costs of transacting and transformation. Whether social institutions lower or raise transactions costs has to do in part with the ability of participants to be informed and to understand the nature of the particular institutional environment. This includes not just understanding the nature of contracts and their enforceability but also the temperament and motivations of counterparties. Hart (1995, 2001) recognizes that the primary transaction costs of market exchanges stem from the uncertainties of contracts and the possible opportunistic self-serving behavior of counterparties to a contract that depends on institutional (economic, cultural, legal, and ethical) environments. As a practical matter, contracts are incomplete and not perfectly enforceable so that, many scholars have suggested that, for financial systems to function efficiently, contracts require some sort of extralegal binding agent. For instance, Hofstede (1980, 1997, & 2001) has shown that national cultural characteristics significantly influence economic
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transactions. De Soto (2000) contended that economic transactions depend critically on enforceable property rights. La Porta et al. (1998) showed that the origin of a national legal system is an important determinant of the nature of financial institutions and policies. Luhmann (1982) stressed that financial systems cannot function without some minimum level of public trust and Fukuyama (1995) suggested that societies that have less social trust available to bind contracts must do more contracting. The cost of this additional contracting effectively acts as a tax. Others have looked up to social capital as enhancing social trust and thereby facilitating financial markets (e.g., Hong, Kubik, & Stein, 2004; Guiso, Sapienza, & Zingales, 2006). In the absence of social capital or social trust, relationship financing via banks is a natural substitute for public markets. However, instead of a tax from lack of trust, firms may face higher financing costs because some providers of funds will be in a better position to demand rents (Rajan, 1992). Therefore, we might expect that levels of social trust would influence the nature of optimal financial contracts. In addition, there is some evidence that the nature of optimal contracts in a country may be influenced by attitudes toward risk. In understanding the role of national and regional institutional forces on transaction costs and, thus, on the nature and scope of Finance, it may be useful to distinguish between the primary and secondary determinants of transaction costs. For example, transaction costs are clearly influenced by the legal system and the enforceability of property rights in a given society. However, given the non-zero costs of accessing the legal system, other less formal mechanisms such as disclosure and transparency levels, press freedom and social, religious, ethical, and cultural values that constrain opportunistic behavior may play an important role in determining the extent and nature of transaction costs. As noted by Granovetter (1985), all economic activities are embedded in social structures and influenced by the values of the participating individuals. The field of IB has much to contribute in increasing our understanding of how these less formal mechanisms differ internationally and even how they influence the structure and operation of business firms. As this brief overview notes, in spite of vast advances in the extent of globalization in recent years, the ‘‘country’’ factor remains important. Nations differ in terms of social and personal values and, therefore, in terms of transaction costs. Further, social and cultural values in a country are reflected in, and influence the nature of the legal and institutional environments for business. Indeed, in the long run, national, social, and
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cultural values are the most important determinants of the legal and institutional environment for business in a country and the nature of financial transactions and financial structure in a country. Consequently, Finance and other business disciplines cannot assume that theories developed in the United States or any other country apply without modification in other countries. While the earlier section describes the potential contributions of IB to the field of Finance, the actual record is somewhat mixed. While it is true that finance scholarship has started reflecting international institutional differences, the role of IB scholarship in motivating these changes is not so clear – especially as there are few supporting citations from IB journals in the Finance publications. The next section makes some suggestions regarding possible new areas and directions for research at the interface of these two fields.
Some Persistent Puzzles at the Interface of Finance and International Business There are a number of topics in cross-border and international Finance that remain puzzles, that can perhaps be illuminated by contributions from IB scholars. First, many of these puzzles may be related to costly information and the particularly high cost of cross-border information flows. For example, consider one such puzzle, namely the persistence of ‘‘home bias,’’ the tendency of investors to invest too much in their home markets and to diversify inadequately. Lack of perfect international integration in financial markets and the home bias are said to be examples of information frictions, that is, the difficulty of cross-border flow of information needed by investors (e.g., Dvorak, 2005). Supporting this notion of costly information is the evidence presented in Mian (2006) that shows that geographic and cultural distances have a negative influence on the level of lending. Second, many unresolved questions in international Finance may be related to international differences in financial frictions – that is, international differences in the difficulty and costs of financial contracting. IB scholars may be able to contribute to the solution of such puzzles illuminating the nature and costs of cross-border information flows. For example, lower R2 for stocks in a country that lead to better capital allocation among firms (Durnev, Randall Morck, & Yeung, 2004) have been shown to be related to levels of transparency and financial stability (Jin & Myers, 2006) and to higher levels of information in equity prices due to better government and investor protection in a country (Morck, Yeung, & Wu, 2000).
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In addition to these puzzles associated with international Finance, there are persistent puzzles in international economics in areas related to international Finance (Aggarwal, 2004). They include deviations from theoretical values observed in spot and forward markets in foreign exchange as observed currency values persistently deviate from purchasing power and interest-rate parities. Other related puzzles include an unexplained large home bias against international portfolio diversification and frequent unexpected crashes and crises in international financial markets. These puzzles have been investigated in the traditional literature quite extensively without satisfactory resolution. Lately, some promising attempts to resolve these puzzles have included models based on non-rational participants whose decisions are driven at least partially by behavioral forces. Perhaps these departures from strictly rational and efficient market assumptions can be adapted to resolve other puzzles in international finance. Traditional Finance research has assumed that markets are efficient and has therefore focused mainly on developed markets where financial markets are more likely to be more efficient than in developing countries. In recent years, however, Finance research has started to increase its attention to research on emerging markets where it has to deal much more with market inefficiencies (Bekaert & Harvey, 2002). Even in developed countries, there is much evidence that financial markets are not entirely efficient or expectations completely rational (Aggarwal, Mohanty, & Song, 1995). In fact, a growing body of literature recognizes that financial markets are heavily influenced by social forces (Fligstein, 2001) and, as noted earlier, the nature and extent of these social forces vary greatly from country to country. Thus, in addition to the recent behavioral approaches, this increased focus away from the assumptions of efficient markets can also be seen in the increasing focus on bringing in the role of institutions even in research on developed-country financial markets (e.g., La porta et al., 1997; La Porta et al., 1998, 2000). As noted above, in spite of decades of advances in international financial integration and declines in cross-border financial barriers, country factors are still important. Despite the widely contended ‘‘flat earth’’ phenomenon (Friedman, 2005), the financial world is far from being flat. While crossborder financing is increasing in importance (Henderson, Jegadeesh, & Weisbach, 2006), international financial integration is limited by the problems of the twin-agency costs – that is, the ability of states (national insiders) and corporate insiders to use their power to expropriate wealth from owners (Stulz, 2005; Faccio, Masulis, & McConnell, 2006). Improved mechanisms for financial governance, financial development, and
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liberalization reduce these powers of expropriation (Morck, Wolfenzon, & Yeung, 2005). National variations in cultural, legal, trust, social, and political characteristics significantly influence international variations in the price of risk and equity premia (Aggarwal & Goodell, 2007). Thus, it has been contended that financial development is influenced by the interaction between various interest groups opposing and favoring (that is losing from and gaining with) financial development (Rajan & Zingales, 2003; Olson, 1982) and that greater turnover among large firms in a country is related to higher growth rates (Fogel, Morck, & Yeung, 2008).6
Opposing Assumptions Regarding Markets As this brief review of the nature and importance of the strategic aspects of Finance for a firm and the complexity of these issues in a multinational context indicates, IB has the potential to contribute greatly to the Finance literature and vice versa. However, the role of Finance in IB scholarship has been somewhat limited by a fundamental cultural and intellectual divide between the two disciplines. While much of both Finance and IB theories have roots in economic analysis (e.g., Caves, 1996), the view of economics used by the two disciplines is quite opposite. This may have limited the degree and extent of intellectual cross-fertilization of ideas between IB and Finance. Much of IB theory – especially, theory that relates to foreign direct investment (FDI) and the cross-border expansion of firms – assumes that markets are imperfect; with FDI being a mechanism for overcoming market barriers and other inefficiencies. An MNC uses FDI to seek rents not available to local competitors. In one view, FDI is the mechanism used to internalize the use of difficult-to-trade resources that have less than perfect markets. In other words, in IB theory, an MNC is structured to take advantage of market imperfections. Similarly, other IB activities, such as international trade, also depend on imperfections in markets, which allow trade-inducing international price differences to exist. Further, the riskreducing advantages of international diversification also depend on the assumption of a less-than-perfect correlation between different national financial markets. In contrast, most modern developments in financial economics have been dominated by theories based on perfect-market assumptions. All modern financial theory starts by assuming that a firm operates in perfect financial
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markets and is structured to minimize the impacts of any market imperfections. For example, the dominant asset-pricing paradigm is based on competition for assets in perfect markets, and the fundamental theory of capital structure starts by assuming perfect markets for the firm’s securities. Thus, IB and Finance start with diametrically opposing set of assumptions about the nature of markets. While these opposing assumptions about the nature of markets may be seen by some as a challenge to the development of mutually beneficial insights for Finance and IB scholars, in reality, attempts to reconcile these differences are most likely to lead to fresh insights and advances in both fields of scholarship. Indeed, there seems to be some movement in this regard as evidenced by the expanding literature on Finance and national institutional structures (such as legal origin, religion, and social trust). Naturally, further advances in both Finance and IB scholarship are most likely to result if scholars in either discipline can become comfortable working outside their narrow traditional disciplinary silos of Finance and IB.
The Role of the Journal of International Business Studies There is much discussion of the role of IB journals such as the JIBS now that scholarly journals in functional fields such as marketing, management, accounting, and Finance have begun to publish papers that involve crossborder issues related to their fields. It can be argued that articles in JIBS and other IB journals can and should ideally focus not only on issues that are cross-border in nature but also that cross fields and involve more than one field of business. In other words, articles in JIBS and other IB journals can make a significant impact if they cover cross-border issues while also being integrative across more than one field of business. Such articles are generally too broad to fit in the scholarly journals in each field of business and should be published in journals like JIBS and other IB journals. Scholarly publications in such journals should ideally be both inter-national and inter-disciplinary.
DISCUSSION AND CONCLUSION This chapter has explored whether and how scholarly work in the fields of Finance and IB can be mutually supportive. First, it was noted that
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technology is a major driver of modern developments in both fields. Second, Finance was shown to provide many insights into IB scholarship since it has much to say about firm operations and strategy. Third, IB scholarship with its focus on national institutions and cultures – that is, the contextual setting of business – was also shown to provide significant opportunities for a better understanding of Finance. Finally, it was contended here that TCE provides an excellent theoretical and fundamental basis for bringing together IB and Finance scholarships. This analysis fills an important gap in the literature as there is much interest in exploring how the fields of IB, Finance, and Accounting interact with each other. For example, the theme of the 2007 Finance and Accounting track at the annual 2007 conference of the Academy of IB was ‘‘to bring the country back in,’’ that is, to assess the importance of indigenous variables – from culture to politics and social structure in the context of a rapidly globalizing environment. It stressed the need to examine the ability of current theoretical frameworks and methodological tools to capture and leverage local elements, and to suggest ways of producing rigorous knowledge in this area. For example, how do national measures of variables like legal origin, legal enforcement, accounting disclosure, corruption, political risk, social trust, culture, press freedom, financial structure, and industrial structure influence classical financial concerns like capital structure, corporate governance, dividend policy, capital budgeting, working-capital management, and financing procedures?7 However, based on the discussion in this chapter, it is also clear that cultural barriers between the two disciplines currently limit the potential for Finance and IB scholarships to contribute to each other.
NOTES 1. Everybody may not agree entirely with these definitions of the fields of IB and Finance, but they seem to reflect the current consensus in the literature and are useful starting points for our discussion. 2. It has been contended that this increasing ease of communication contributed greatly to the recent widespread replacement of centrally controlled economies with market-directed economies. The almost one-hundred-year experiment with socialism that started with the 1889 Congress of Europe ended dramatically with the 1989 fall of the Berlin Wall. These changes not only led to increased rates of economic growth in China, India, and many other countries but also greatly expanded the physical and population domain of the field of IB. 3. Specialization can indeed create not only wealth but also many other advantages – some scholars claim that modern humans evolved to become dominant
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over the Neanderthals by their superior division of work between acquiring versus processing food and other resources. 4. We are only now approaching the levels of globalization (as measured by the percentages of national production moving across borders) that was achieved in the late 1800s and early 1900s, and which was reversed temporarily by the two world wars in the last century. For additional details see Harley (2000). 5. While globalization leads to the redistribution of incomes and wealth within and across countries, along with the advent of market-driven economies, globalization has also lifted hundreds of millions of people out of poverty (even improving Gini coefficients), especially in the developing countries such as China and India. 6. Interestingly, both the Finance or IB literatures have focused on traditional business firms and neither field has said much about the really big issues associated with globalization, such as poverty reduction, the global spread of diseases, crossborder human migration, and climate change. 7. Based on the track description by Raj Aggarwal, who served as Finance and Accounting Track Chair for that conference held in Indianapolis, IN, in June 2007.
ACKNOWLEDGMENTS I would like to thank Pankaj Ghemawat, Donald Lessard, Lee Radebaugh, Arthur Stonehill, Ingo Walters, and Bernard Yeung for their useful comments.
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REASSESSING GLOBAL MARKETING STRATEGY Susan P. Douglas and C. Samuel Craig ABSTRACT Rapid and dramatic changes in the global landscape have profound implications for marketing strategy. This chapter explores four key areas that impact global marketing strategy. The most fundamental change is a shift in emphasis from developed markets to those in emerging market economies. A related change is the increasing cultural diversity and heterogeneity in markets throughout the world. Third, marketers must develop mechanisms to transfer skills and learning from one market to others. Finally, the notion of configural advantage – that is, leveraging the geographic configuration of dispersed assets, capabilities and resources to compete more effectively in world markets – is proposed as a way to develop successful marketing strategies for the 21st century.
INTRODUCTION Moving into the 21st century, growth in developed countries is slowing. This situation coupled with further advances in communications technology
International Business Scholarship: AIB Fellows on the First 50 Years and Beyond Research in Global Strategic Management, Volume 14, 139–153 Copyright r 2008 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1064-4857/doi:10.1016/S1064-4857(08)00002-8
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as well as the increasing outsourcing of production and other functions to the developing world, have led firms to look further afield for market opportunities. The vast populations of China and India create large and potentially attractive markets for expansion for firms from developed countries. At the same time, new competitors are appearing on the global scene as firms from emerging-market countries increasingly compete on a worldwide basis. As a result, firms from developed countries must assess the adequacy of their strategies to deal with a dramatically altered landscape. Not only do they have to develop strategies to penetrate emerging-market countries and to contend with growing competition from emerging-market firms in their home market but they also have to consider how to deal with marketing to an increasingly diverse array of customers worldwide. This is further compounded by massive waves of migration of diverse ethnic groups and nationalities into developed countries, resulting in increased cultural heterogeneity within countries. Firms have to assess how they can respond to these challenges through leveraging skills, capabilities and strategies across diverse demand and market conditions. They must also manage and coordinate marketing activities at a global level in order to exploit potential synergies associated with operating on a global scale. This also implies that firms need to evaluate how to exploit the ‘‘configural advantage’’ that results from the geographic extent and scope of their operations, in penetrating existing and new markets, in competing in these markets and in developing relationships with both suppliers and distributors (Craig & Douglas, 2000). Our purpose is to suggest how changing market conditions call for a radical reassessment of a firm’s global marketing strategy. Fundamental changes in the location of future growth markets and increased cultural diversity within those markets require a rethinking of resource allocation and the balance of the firm’s global portfolio of countries, products and market segments. In addition to creating new and innovative products and marketing strategies to target new and increasingly fragmented markets, there is a need to organize and manage marketing activities differently. As markets become more integrated worldwide, it becomes imperative to establish a global market presence while at the same time retaining strategic flexibility to respond rapidly to change. The remaining part of this chapter elaborates on these new challenges and suggests how the firm can put in place an effective strategy to meet them.
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SHIFT IN EMPHASIS FROM DEVELOPED TO EMERGING MARKETS In the past, as firms expanded internationally, they placed primary attention on exploiting opportunities in developed countries, particularly in the United States, Western Europe and Japan which have affluent populations and well-developed marketing infrastructures. In recent years, however, markets in these countries have become saturated and rates of growth have slowed. As a result, attention has shifted to the emerging-market countries such as the BRIC countries (Wilson & Purushothaman, 2003). These markets account for nearly half the world’s population, with India and China alone accounting for more than two billion people. With the exception of Russia and in marked contrast to the developed world, a high percentage of the population is below the age of 15, suggesting that these markets will provide the major engine for growth in the future. Although current income levels in these countries are low relative to developed countries, ranging from $4,460 per capita in Russia to $730 in India, the underlying economic fundamentals suggest that future market potential is immense. Both India and China have a sizeable and relatively affluent urban middle class that constitutes a large market for goods and services, vast markets of rural poor and an increasing number of highly affluent successful entrepreneurs. As the Goldman Sachs Report (Wilson & Purushothaman, 2003) pointed out, if the current growth trajectory of these four countries continues over the next 50 years, they will become a dominant force in the world economy. Competition from firms based in these markets is also growing, posing new challenges. These firms are able not only to leverage the advantages of a low-cost base to build their position in global markets but they are also learning to adopt the technologies and management skills of developed country firms and in some cases surpass them in terms of innovative and creative skills. For example, Brazil’s Embraer has surged past Canada’s Bombardier to the number three spot in the aircraft manufacturing industry (Engardio, 2006). As a result, firms from developed countries need to counterattack in the home markets of these firms, both to undercut the position of their rivals in their home markets, as well as to take advantage of low-cost resources in these markets and master other sources of their rivals’ competitive advantages. The growing significance of emerging markets in the world economy suggests the importance of understanding the nature of customer demand
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and the challenges involved in marketing in these economies as well as the similarities and differences among and within markets. To date, primary attention has been placed on opportunities at the top end of the market, leveraging strategies used in developed countries with only minor modifications to target affluent urban consumers. The potential growth of the urban middle class as well as the size of the rural market suggest, however, the importance of looking beyond this situation to explore the opportunities and challenges associated with tapping a broader market base (Prahalad, 2006). Developing marketing strategies to tap mass markets in these countries, however, requires a radically new orientation. Firms need to start from scratch designing new products and building new strategies based on use of local resources, know-how and skills. Basic functional products are needed, which meet consumer demand and offer a product or service to those who would otherwise be unable to afford it and are happy to have a simple rudimentary version of products available to high-end consumers. Often collaboration with non-traditional local partners such as NGOs and other social organizations help provide information and insights into the social structure and social dynamics in rural areas as well as in educating consumers on the benefits of products not currently in use such as soap or iodized salt. New product and process technologies are needed to develop dramatically new products which can be sold to rural consumers at affordable prices. Computers and cell phones provide examples of two product markets where efforts have already been made to develop low-cost options utilizing sophisticated and innovative technology. Both Motorola and Nokia have, for example, developed low-cost phones priced below $25 for emerging markets (Reinhardt, 2005). Nokia has even developed models for illiterate users with a speaking alarm clock and iconic address book. Similarly, Nicholas Negroponte’s non-profit organization, One Laptop Per Child, is working on a low-cost children’s laptop, designed to be sold for $100 by the end of 2008 (Markoff, 2007; Einhorn, 2006). In rural areas without a reliable power source, windup products or products powered by solar energy may be needed. Products such as solar-powered chicken coops which provide illumination at night and encourage chickens to eat in the evening hours and thus fatten more quickly, can help to increase a rural farmer’s productivity (Murphy, 2002). Similarly, for example, Indian Tobacco Company (ITC), a large Indian conglomerate, has used solar panels to power a network of PCs to connect more than a million farmers in Indian villages to information on grain and produce
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markets. This technology enables them to check prices in different local markets and determine where and when they can get the best price. They can also access information on weather forecasts and agricultural best practices to determine when and what to plant and improve their productivity. The system has dramatically improved ITC’s logistical efficiency by cutting out middlemen margins and improving agricultural output, thereby enabling ITC to offer higher prices to farmers. This in turn has increased farmers’ income and hence their buying power. Innovative methods of promotion and distribution may also be needed. For example, a mobile phone or computer may be rented to a local entrepreneur who then sells time for phone use or Internet access. This strategy has, for example, been successfully used by Grameen Phone in Bangladesh with its Village Phone program, putting phones within reach of over 40 million Bangladeshis (www.grameenphone.com). Often consumers need to be targeted in groups in order to reduce distribution costs. Citibank, for example, targets its Suvidha banking accounts in India through ‘‘bulk sourcing’’ of customers. These accounts, which can be opened with as little as $20, are offered to all of a company’s employees and are served through ATMs and the phone, cutting overhead costs. New York Life is trying a similar system for selling $2-a-year life insurance in India through institutions such as fisherman’s co-ops. Other companies have developed localized sales and distribution networks for their products in areas which lack an established marketing infrastructure. For example, in India, Hindustan Lever has developed the shakti system to promote and distribute its products in rural areas (Prahalad, 2006). In the case of its iodized salt brand, Annapurna, which helps to remedy the iodine deficiency common in India, this approach involves a two-tiered system. A communicator, who is hired and trained by Unilever, goes from village to village within a region, educating women in community groups on the problems associated with iodine deficiency due to Indian cooking habits and on the value of using iodized salt. This system provides support for the local Lever distributor (typically also a woman who stocks and sells the product to consumers in local villages) and it has proven highly successful in selling Annapurna in India. This product has also been rolled out in a number of African countries such as Kenya, Nigeria and Mali which have similar iodine-deficiency problems. Frequently, a central problem in marketing in emerging-market countries is not only the need to innovate by developing low-cost affordable products using sophisticated technology but also in creating new ways to access and distribute products in potentially unexploited market areas. Often these
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have at best fragmented distribution networks requiring the need to use imaginatively whatever resources are available, for example, forming local community networks to educate consumers and empowering local women entrepreneurs to promote and market products.
COPING WITH CULTURAL DIVERSITY Expansion in emerging-market countries implies that firms have to cope with marketing to an increasingly diverse array of markets worldwide, ranging from the affluent Western economies to the teeming populations of Asia and South America. Markets within these countries are also highly diverse. Brazil as well as other South American countries has long been noted for its unequal distribution of wealth ranging from the poverty of the urban favellas and the rural areas, to the affluence of the gated communities of the urban elite. Similarly, a surging class of affluent nouveaux riches, many of them millionaires, is emerging in India and China. These individuals have lavish lifestyles and spending habits which contrast sharply with the mass of the population who eke out a subsistence living. At the same time, Western industrialized nations are becoming increasingly diverse as increased migration takes place from Latin America and various parts of Asia to the United States, from Northern Africa to France and Spain, from Turkey and Eastern Europe to Germany, Denmark, the Netherlands and other parts of Europe, and from India and Pakistan to the United Kingdom and the United States. These population shifts are characterized not only by transborder flows of population but also by movements of markedly different ethnic, cultural and religious groupings into a previously homogeneous national culture (Hermens & Kempen, 1998). Often there is sufficient mass so that groups retain their original cultural identity, habits and customs rather than adopting those of the host culture. The rising level of cultural diversity presents global marketers with unique challenges, particularly in relation to goods such as food, clothing and entertainment. The dramatically changed marketplace is a product of cultural interpenetration as immigrants bring with them the products, customs and lifestyles of their parent culture into the host country and these are absorbed into the mainstream culture (see Craig & Douglas, 2006 for an in-depth discussion of the dynamics of cultural change). In the United Kingdom, for example, chicken tikka masala has now replaced fish and chips as the most popular dish.
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Cultural pluralism is also evident as many immigrants retain the habits, values and customs of their cultural origins while at the same time adopting those of their host culture (Thompson & Tambyah, 1999). In the work place, school or social situations, they may follow host-culture customs and practices while retaining traditional habits and language in other situations, such as at family gatherings or with close friends and colleagues of the same cultural origin. This situation in turn stimulates cultural fusion and hybridization in which elements of multiple cultures combine to result in the creation of new cultural icons and artifacts (Pieterse, 1995; Featherstone & Lash, 1995). Increasing cultural diversity both among markets served and within these markets, results in increasing market segmentation and fragmentation. Instead of leveraging mass-market strategies from one country to another, with some adaptation to specific customer needs and local market infrastructures, marketers now have to develop and adapt products and strategies to target an increasingly diverse array of cross-national and national market segments. This situation results in increasingly complex and fine-tuned market segmentation strategies, where firms break markets up into a myriad of smaller segments both within and across national markets on a regional, multi-regional or global basis. Consequently, managing the diversity of products, brands and marketing strategies on a regional and global basis so as to achieve potential synergies becomes increasingly challenging. On the one hand, firms need to respond to competition from local firms who cherry pick and target local market niches and, at the same time, look for opportunities to leverage strategies tailored to specific cultural segments across national markets. As a result, national boundaries are becoming less critical in defining target segments although in some cases due, for example, to linguistic differences and regulation, some adaptation of marketing strategies may be needed. Instead of developing strategy on a country-by-country basis, emphasis needs to be placed on identifying and targeting similar segments on a transnational basis. For example, high-end luxury brands such as Prada, Gucci and Cartier target the same products to the affluent consumer elite worldwide. Similarly, demographic groups such as teenagers with similar skin-care problems such as pimples and acne or who share similar tastes in music and entertainment may be targeted globally. Promotional strategies can be designed using appeals, execution methods and media which are particularly effective in targeting this segment, as for example, viral marketing using mobile phones, creative campaigns based on video clips of consumers or celebrities using the product, clips and
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blogs uploaded on Internet sites, product placement in films targeted to this segment and other approaches. Equally, products developed in response to a specific cultural or ethnic group in one country may be marketed to similar markets in other countries. For example, cosmetic and hair-care products developed for the African-American population in the United States have been targeted to consumers in South Africa and other African countries. The hybridization of culture also suggests opportunities to develop products and positionings which combine elements from different cultures, as for example, the growth of Asian fusion cuisine in restaurants in the United States and Europe. Similarly, in entertainment, Asian influences are increasingly finding their way into hip-hop (e.g., Sanford Biggan) and classical music (e.g., Philip Glass). Japanese anime is increasingly inspiring the design and execution of promotional messages particularly on the Internet, while bunraku puppetry is being used in classical opera productions. As a result, national and local cultural influences are giving way to the complex interplay of global, regional and cross-national forces, thereby creating a new and evolving cultural dynamic.
TRANSFER OF SKILLS AND EXPERIENCE-LEARNING Traditionally, a central theme in international marketing has been the standardization of products and brands worldwide (Levitt, 1983; Buzzell, 1968; Jain, 1989; Yip, 2003). However, as firms expand further afield into more diverse markets and seek to grow their operations within these markets, the relevant issues become more complex. Rather than marketing products and strategies developed in the home market to other markets, particularly in targeting emerging markets, firms may focus on ‘‘disruptive innovation’’ – that is, developing basic functional products at affordable prices to meet consumer needs (Hart & Christensen, 2002). In some cases, these products utilize technologies developed in these markets, based on local resources and capabilities. Equally, new processes developed in one country may be transferred to other markets with similar conditions. SAB, for example, developed lowcost processes for brewing beer in South Africa in order to develop beers targeted to low-income consumers. These processes were then replicated in other countries in Africa and in other markets throughout the world with similar demand and resource conditions.
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Successful new product technology developed in response to specific customer tastes and needs or specific resource availability in one foreign market can also, in some cases, be re-introduced into the home market. For example, P&G adapted its low-temperature detergent technology to create cold-water detergents suited to emerging-market countries with no hot water (Chemical and Engineering News, 2005). This technology has subsequently been used in detergent variants targeted to the ecologically concerned consumers in developed countries and positioned as energy-saving. At the same time, new skills, capabilities and experience may be acquired in coping with different environmental conditions and resources. Opportunities to transfer these skills and experience to other countries need to be identified to take advantage of potential value-creating efficiencies and to facilitate the transfer of best practices. For example, McDonalds transferred personnel experienced in developing pricing and sourcing strategies to deal with inflationary market conditions in Brazil to Russia when rates of inflation in Moscow became particularly high and threatened to price McDonald’s out of the range of the average consumer. Similarly, skills developed in managing distribution in countries with highly fragmented distribution systems can be transferred to other countries with similar distribution infrastructures. In entering East-European countries, a number of consumer goods companies such as P&G, Colgate Palmolive and Unilever, used experience gained in managing similar distribution channels in Latin America. Effective transfer of skills and experience from one country to another also requires the establishment of effective mechanisms to stimulate the flow of knowledge relating to marketing operations and market conditions from one country to another (Gupta & Govindarajan, 2000; Foss & Petersen, 2004). One option is to develop a global information system to transfer timely information relating to marketing strategies and conditions in different parts of the world (Gwynne, 2001). Typically, this approach incorporates multiple levels including secondary data at the macroeconomic and product market levels as well as specific performance data for particular product categories, product lines and variants (e.g., flavors and package variants) as well as for advertising and promotional campaigns. In some cases, these may incorporate information relating to the introduction of a product, brand extension, a new positioning or promotional campaign in a given country in order to promote the transfer of ‘‘best practices’’ from one country to another. Increased mobility of marketing managers across countries and regions also stimulates the transfer of ideas and know-how within the corporation
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(Bartlett & Ghoshal, 1989; Roth, Sweiger, & Morrison, 1991). Here, the increasing interconnectedness of markets suggests the advantage of exposure to developments in other markets. Insights may be gained not only from exposure to different market conditions and competitors in other markets but also ideas generated with regard to the use of different competitive tactics to deal with the emergence of similar competition in other markets. Language can also be used as a strategic tool to integrate operations and align strategy across diverse market environments (Luo & Shenkar, 2006). Use of a common language throughout the company facilitates communication across boundaries, and stimulates a more external focus towards operations and practices in other countries and environments. In addition to facilitating horizontal communication among managers of different linguistic backgrounds, this approach also enhances manager mobility within the company. Siemens, for example, has recently introduced English as the common language to be used in its operations throughout the world in order to encourage greater orientation to world affairs (Ewing, 2007). Improved understanding of the impact of the environmental context on marketing practices and, in particular, how to identify similar market environments will also help in mastering when and how to transfer marketing strategies successful in one country to another. In this context the CAGE distance framework (Ghemawat, 2001) may be helpful as it identifies four dimensions of distance: cultural (including language, ethnicity, religion and social norms) administrative (monetary or political association, government policies and colonial ties) geographic (e.g., common borders, country size, physical remoteness, weak transportation or communication links and climatic differences) and economic (differences in consumer incomes, in costs and quality of natural resources, financial resources, human resources, information infrastructure, etc.).
BUILDING CONFIGURAL ADVANTAGE IN GLOBAL MARKETS The new complexities of dealing with a diverse array of markets, from the saturated product markets of the developed nations to the vast unexploited potential of the BRIC nations, create new challenges. The firm has to deal with operations spanning a much broader geographic scope and to coordinate these activities at different levels of the value chain, both vertically and horizontally, in some cases performing these internally and in other cases outsourcing them (The Economist, 2006). As a result, it has to
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manage relations with a complex network of other firms, suppliers, distributors and agents who vary in size, scope and cultural background and hence modes of responding. Consequently, firms need an overarching framework that will enable them to develop an effective global strategy. This should extend beyond the traditional approach focusing on the marketing mix (Zou & Cavusgil, 2002), to consider other elements of the value chain. Further, the firm needs to build a strong competitive position and market presence in key growth markets in order to establish a leadership position worldwide (Douglas & Craig, 1996). To compete successfully, the firm must consider the overall geographic deployment of key assets, resources and capabilities across different country markets and focus on ways to manage them effectively. The spatial configuration of these assets, capabilities and resources, along with the firm’s ability to manage and use these capabilities across the globe, is termed its configural advantage (Craig & Douglas, 2000). A key element of this strategy is not only the strength of the firm’s position within and across markets, but also its ability to manage value-creating activities across and within markets. The importance of effectively managing the spatial configuration of the firm’s operations in global markets is heightened as markets become interlinked and begin to operate as one. The lessening of trade barriers and the establishment of trading blocs has acted as a catalyst to the formation of regional or even global markets for many products and services. Increased mobility and communication among customers across national boundaries as well as the global expansion of firms of many different national origins further stimulates and increases the potential for market integration. Technological advances in communications such as the Internet, the growth of satellite communications, inexpensive mobile phone technology, all facilitate the integration of markets and provide new ways of reaching and marketing to customers. As a result, the ability to craft and manage strategy on a regional or global scale becomes crucial to success. In building the spatial configuration of resources in international markets, the firm has first to establish a position in key markets worldwide. Not only does the firm need to be involved in a large number of markets worldwide but it must also have a strong market presence in these markets. A broad spatial configuration enables a firm to rapidly roll out new products and product variants ahead of competition with a more limited distribution network. P&G has, for example, utilized its worldwide distribution network to establish global market leadership in products such as super-absorbent diapers and concentrated detergents, all products initially developed for the Japanese market by its rival Kao.
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The strength of a firm’s position in key markets is reflected in the market share of its top brands. Building an effective brand architecture consisting of global, regional and local brands establishes a firm’s identity in the marketplace, helps develop a customer and distributor franchise, and provides the base for brand extensions which further strengthens the firm’s position (Douglas, Craig, & Nijssen, 2001). Strong brands also provide important weapons to counteract the growing power of retailers as they too expand across international boundaries. In the case of MTV, for example, presence in multiple markets strengthens the visibility and perceived value of the brand to teens and adults. From the firm’s perspective, it also facilitates launching other cable channels outside the United States due to strong relationships with local media. The ubiquity of the brand and its projection of a common music culture create a nearly universal culture which bonds young adults in markets throughout the world. Flexibility in allocating and redeploying resources across world markets is another critical component of configural advantage. As market and competitive conditions fluctuate or change in different parts of the world, the firm must develop flexibility to adapt to these conditions and redeploy resources to take advantage of operating in a given location. Establishment of linkages among operations in different parts of the world is crucial in generating this flexibility to respond to change. Sourcing or production at multiple locations reduces risk exposure and dependence on a single supply location as they can be shifted to the most cost-effective locations to counter fluctuations in exchange rates and their impact on production or supply costs, work stoppages due to strikes and labor unrest, or changes in economic and political conditions. Companies such as Levi Strauss and VF link retail outlets to a global ordering and inventory system so that orders are sent directly to production locations operating below capacity. This improves efficiency and also dramatically shortens delivery times. Rapid deployment of assets and resources at different stages of the valuechain is critical. The firm needs to be able to move speedily in launching new products and responding to competitor moves, whether those of local or major global competitors. Firms need to have the resources to launch new products simultaneously in markets worldwide rather than rolling them out sequentially market-by-market in order to avoid leapfrogging by competitors. Zara, the Spanish fashion retailer centralizes most of its production around La Coruna in Northern Spain. A system of in-house production combined with flexible outsourcing to local firms enables it to translate the latest fashion trends into products which are in stores within two weeks of their design. Stores order and receive products with price labels already
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attached twice a week. The basic principle is zero inventory combined with short production runs.
DIRECTIONS FOR FUTURE RESEARCH Each of the four areas discussed in the essay offers promising opportunities for future research in two broad areas. First, given the dramatic shift in emphasis from developed markets to opportunities in emerging markets, there is a need for more marketing research in these markets. To date most research on international marketing has been conducted in developed countries, notably, the United States, Europe and Japan. Relatively less is known about emerging markets – particularly with regard to consumers living in rural areas and how most effectively to reach them. While this research is essential, the lack of a well-established research infrastructure in emerging markets makes it a greater challenge (Craig & Douglas, 2005). Similarly, increasing cultural diversity suggests new opportunities for market segmentation and for the development of hybrid products or marketing strategies which fuse elements of different cultures. Further research to assess the effectiveness of such strategies and to identify the characteristics of individuals who are most susceptible to culture-specific or hybrid-culture appeals is clearly needed. Marketing research provides a basis for understanding consumers in emerging markets. However, the second priority is the need to reformulate global marketing strategy. Progress in refining it will come with improved understanding of the conditions under which experience developed in one country can be transferred to others. An added benefit is that it will also improve a firm’s efficiency and ability to learn and manage operations in diverse markets. This is becoming increasingly critical as firms operate in a diverse array of markets worldwide. Furthermore, investigation of the competitive advantages and limitations offered by the spatial configuration of the firms’ operations is needed. As technological advances increase a firm’s ability to manage on a worldwide scale, so a firm needs to understand better how to manage and maintain spatially dispersed resources in order to compete most effectively in world markets.
ACKNOWLEDGMENTS The authors would like to thank Pankaj Ghemawat, Robert Green, Warren Keegan and Hans Thorelli for their insightful and helpful comments on an earlier draft of the chapter.
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REFERENCES Bartlett, C., & Ghoshal, S. (1989). Managing across borders. Boston, MA: Harvard Business School Press. Buzzell, R. (1968). Can you standardize international marketing? Harvard Business Review, November–December, 102–113. Chemical and Engineering News. (2005). Soaps and Detergents. Chemical and Engineering News, 83, January, pp. 15–20. Craig, C. S., & Douglas, S. P. (2000). Configural advantage in global markets. Journal of International Marketing, 6, 6–26. Craig, C. S., & Douglas, S. P. (2005). International marketing research (3rd ed.). Chichester, UK: Wiley. Craig, C. S., & Douglas, S. P. (2006). Beyond national culture: Implications of cultural dynamics for consumer research. International Marketing Review, 23, 322–342. Douglas, S. P., & Craig, C. S. (1996). Global portfolio planning and market interconnectedness. Journal of International Marketing, 4, 93–110. Douglas, S. P., Craig, C. S., & Nijssen, E. J. (2001). Integrating branding strategy across markets: Building international brand architecture. Journal of International Marketing, 9, 97–114. The Economist. (2006). How three large and successful companies are using their supply chains to compete. The Economist, June 17, p. 4. Einhorn, B. (2006). In search of a PC for the people. Business Week, June 12, pp. 40, 41. Engardio, P. (2006). Emerging giants. Business Week, July 31, pp. 41, 46. Ewing, J. (2007). Siemens’s culture clash. Business Week, January 29, p. 44. Featherstone, M., & Lash, S. (1995). Globalization, modernity and the spatialization of social theory; an introduction. In: M. Featherstone (Ed.), Global modernities (pp. 1–14). London: Sage. Foss, N. J., & Petersen, T. (2004). Organizational knowledge: Processes in the multinational corporation. Journal of International Business Studies, 35, 3. Ghemawat, P. (2001). Distance still matters: The hard reality of global expansion. Harvard Business Review, 79, 137–147. Gupta, A. K., & Govindarajan, V. (2000). Knowledge flows within multinational corporations. Strategic Management Journal, 21, 473–496. Gwynne, P. (2001). Information systems go global. Sloan Management Review, 44, 14. Hart, S., & Christensen, C. M. (2002). The great leap: Driving innovation from the base of the pyramid. Sloan Management Review, 44, 51–56. Hermans, H. J. M., & Kempen, H. J. G. (1998). Moving cultures: The perilous problems of cultural dichotomies in a globalizing society. American Psychologist, 53, 1111–1120. Jain, S. (1989). Standardization of international marketing strategy: Some hypotheses. Journal of Marketing, 53, 70–79. Levitt, T. (1983). The globalization of markets. Harvard Business Review, May–June, 92–102. Luo, Y., & Shenkar, O. (2006). The multinational corporation as a multilingual community; language and organization in a global context. Journal of International Business Studies, 37, 321–339. Markoff, J. (2007). At Davos, the squabble resumes on how to wire the third world. New York Times, January 29, pp. 1, 2. Murphy, C. (2002). The hunt for globalization that works. Fortune, October 28, pp. 163, 176.
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Pieterse, J. N. (1995). Globalization as hybridization. In: M. Featherstone (Ed.), Global modernities. London: Sage. Prahalad, C. K. (2006). The fortune at the bottom of the pyramid. Saddle River, NJ: Wharton School Publishing, Pearson Education Inc. Reinhardt, A. (2005). Cell phones for the people. Business Week, November 14, p. 65. Roth, K., Sweiger, D. M., & Morrison, A. J. (1991). Global strategy implementation at the business unit level; operational capabilities and administrative mechanisms. Journal of International Business Studies, 22, 369–402. Thompson, C., & Tambyah, S. K. (1999). Trying to be cosmopolitan. Journal of Consumer Research, 26, 214–241. Wilson, D., & Purushothaman, R. (2003). Dreaming with the BRICs: The path to 2050. Goldman Sachs Group. www.grameenphone.com Yip, G. S. (2003). Total global strategy II. Englewood Cliffs, NJ: Prentice Hall. Zou, S., & Cavusgil, S. T. (2002). The GMS: A broad conceptualization of global marketing strategy and its effect on firm performance. Journal of Marketing, 66, 40–56.
INTERNALIZATION THEORY AND ITS IMPACT ON THE FIELD OF INTERNATIONAL BUSINESS Alan M. Rugman and Alain Verbeke ABSTRACT Internalization theory explains the existence and functioning of the multinational enterprise. It contributes to understanding the boundaries of the multinational enterprise, its interface with the external environment and its internal organizational design. Much work in the international strategic-management sphere has unfortunately not taken on board internalization-theory thinking and lacks the insights provided by this comparative institutional approach. In this chapter, we show how wellknown international strategic-management models could be enriched and their normative implications altered by adopting an internalizing-theory lens.
INTRODUCTION In this chapter we examine several international strategic-management models revisited through an internalization-theory lens. Internalization theory explains the existence and functioning of the multinational enterprise
International Business Scholarship: AIB Fellows on the First 50 Years and Beyond Research in Global Strategic Management, Volume 14, 155–174 Copyright r 2008 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1064-4857/doi:10.1016/S1064-4857(08)00003-X
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(MNE) (Rugman, 1981) and it contributes to understanding the boundaries of the MNE, its interface with the external environment and its internal organizational design. Conventional internalization theory has focused primarily on explaining which parameters would stimulate firms to expand across borders, and on entry-mode choice. More recent internalization-theory extensions have focused on establishing linkages with strategic-management perspectives on the MNE and on describing differentiated-network MNEs. The great strength of internalization theory is its comparative institutional approach to assessing the efficiency and effectiveness of MNE choices in the realm of choosing firm boundaries, establishing linkages with the external environment and selecting a specific organizational form. Much work in the international strategic-management sphere has unfortunately not taken on board internalization-theory thinking, and it lacks the insights provided by this comparative institutional approach. In this chapter, after a brief review of the history of internalization theory, we will show how four well-known international strategic-management models could be enriched and their normative implications altered, by adopting an internalizing-theory lens. The four international strategy models revisited include: (1) the globalization model advocated by Levitt (1983) and Yip (2002); (2) the transnational solution model developed by Bartlett and Ghoshal (1989); (3) the evolutionary model of the MNE popularized by Kogut and Zander (1993) and (4) the S-curve model of the multinationality performance relationship hypothesized by Lu and Beamish (2004) and Contractor, Kundu and Hsu (2003). We will briefly describe the conceptual limitations of each international strategy model. We will also demonstrate that the managerial prescriptions resulting from each model are valid only in very specific contexts. In contrast, internalization theory is a general theory of the MNE. Building upon a limited number of foundational principles, it can easily be augmented to explain a wide range of recent international business phenomena.
THE HISTORY OF INTERNALIZATION THEORY Internalization theory was conceptualized by Buckley and Casson (1976). Their short book consisted of several working papers prepared at the University of Reading in the preceding two-year period. Chapter 2 of the book is titled ‘‘A Long Run Theory of the Multinational Enterprise’’ and
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Chapter 3 is called ‘‘Alternative Theories of the Multinational Enterprise.’’ These two chapters provide the first clear statements of internalization theory. Briefly, Buckley and Casson demonstrate that the MNE organizes bundles of activities internally such that it is able to develop and exploit firm-specific advantages (FSAs) in knowledge and other types of intermediate products. The proprietary ownership of such FSAs serves to overcome the externality of knowledge being a public good. Given the presence of market failure, internalization, that is, performing activities inside the MNE – acts as a governance mechanism to develop and exploit FSAs. Internalization is an alternative to the external market for developing and exploiting knowledge. In more general terms, Buckley and Casson (1976) demonstrated that any type of market imperfection (across both goods and factors markets) can lead to pressure for internalization by the MNE. Buckley and Casson (1976) is a rare original contribution to thinking in the field of international business. The core idea that the MNE can replace the market was developed completely independently of the thinking by Oliver Williamson (1975). Indeed, the linkage of internalization theory to the markets- and hierarchy-approach of Williamson was not resolved until publication of Hennart’s 1977 dissertation (Hennart, 1982). In many ways, the book by Hennart is a far superior explanation of internalization-theory principles within the Williamsonian context that builds upon concepts such as buyer uncertainty, asset specificity and bounded rationality. In particular, Hennart (1982) is able to develop models that distinguish between vertical and horizontal integration and to explore in greater depth the alternatives of firm-contracting versus market-exchange. Whereas the intellectual origins of Buckley and Casson’s (1976) internalization theory do not lie with Williamson (1975), they are deeply embedded in Hymer’s (1960, published 1976) work. Hymer developed the concept of FSAs. He also demonstrated that foreign direct investment only takes place when the benefits of exploiting FSAs across borders allow overcoming the additional costs of doing business abroad. Zaheer (1995) relabeled Hymer’s (1960, published 1976) concept of costs of doing business abroad as the ‘‘liability of foreignness.’’ However, whereas Hymer included in his concept the problem of information costs facing foreign firms vis-a`-vis host-country rivals, discriminatory treatment by their home government and foreign governments, and foreign exchange risks, the liability of foreignness concept is more narrowly focused on institutional differences among nations and the resulting hazards of unfamiliarity, discrimination as well as relational hazards (Eden & Miller, 2004). The end result is the same;
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however, irrespective of the precise sources of differences among nations, the MNE faces adaptation costs when doing business abroad. Hymer essentially adopted a firm level, industrial-organization approach to explain foreign direct investment. He was the first to contrast such firmlevel FDI with the prevailing orthodoxy by economists that explained FDI as a financial (portfolio) investment decision determined by interest-rate differentials across national borders (Dunning & Rugman, 1985). In other words, Hymer recognized that FDI is a firm-level strategy decision rather than a capital-market financial decision. This distinction still eludes many economists. In a related paper, Dunning (1977) also popularized the Hymer approach and contrasted this with the international-economics factor-cost explanation of international trade. Dunning (1981) later combined this thinking into his ‘‘eclectic paradigm’’ in which location advantages capture differences among countries and regions, while internalization and ownership advantages reflect firm-level strategy decisions and the outcomes thereof. In essence, internalization theory is a comparative institutional approach to the analysis of MNE behavior. It allows assessing the relative efficiency and effectiveness of alternative governance mechanisms to manage economic interdependencies. When the MNE is modeled as a network with a variety of strong and weak ties among subsidiaries and between parent and subsidiaries, it is possible to apply internalization theory thinking in order to evaluate the relative costs and benefits of managing these economic interdependencies across national (and conceptually regional) borders. This is an efficiency based, positive explanation of MNE functioning and organization. As such, internalization theory can be readily extended and linked to network analysis. It is fully compatible with explaining the boundaries of the firm and the organizational distinctions between markets, hierarchy, joint ventures, and other organizational forms. Yet, in doing so it should be recalled that the initial work on internalization theory, especially in Buckley and Casson (1976) and Rugman (1981), was concerned mainly with the development and exploitation of FSAs inside the firm vis-a`-vis the external market (which would entail the purchasing of technological knowledge on the input side or its licensing on the output side), that is, the economic benefits of internalization. While Hennart (1982) does address internal organizational issues, it was only later that scholars developed clearer analysis of alternative governance choices inside the MNE. This is not surprising given the historical context of the MNE in the 1960s and 1970s. At the time of Vernon’s (1966) product life-cycle model, the typical U.S. MNE was hierarchical and highly centralized in terms of its
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organizational structure. Vernon found that most R&D was undertaken in the home-country firm and that waves of technology went first to subsidiaries in Canada and Western Europe and only then to the world’s low-factor-cost areas, with each international expansion move leading to scope economies from operating across borders. Much the same centralized organizational structure was found by Rugman (1981) in his analysis of the subsidiaries of U.S. MNEs in Canada. For example, in Chapter 6 of his 1981 book, he explained that the Canadian subsidiaries of U.S. MNEs in Canada undertook only half the R&D of their U.S. parent firms. However, when a control group of Canadian MNEs of similar size was constructed, he found that these firms also did half the R&D of U.S. firms. Thus, a country factor was found to be more important than the firm factor: Canada in general did half the R&D of the United States. Rugman (1981) also extended internalization theory in a dynamic manner in Chapter 2 by contrasting FDI with exporting and licensing and constructing potential switchover points for each of the three entry modes over time. Besides, he explored the implications of internalization theory for corporate finance and conducted tests of multinational banking, using his thesis of international diversification. Rugman (1976, 1979) demonstrated that MNEs enjoyed a steadier stream of earnings than do domestic firms of similar size, while controlling for industry effects. As a footnote, it is worth noting that Rugman (1975) built upon the Hymer thesis of market imperfections, as explained in Kindleberger (1969), in an article which predates Buckley and Casson (1976). In Rugman (1975) there is a clear explanation of the market-imperfections hypothesis and its relationship to the risk-diversification hypothesis. However, Rugman (1975) does not develop the theory of internalization which remains an original contribution of Buckley and Casson (1976). Further popularization of internalization theory occurred with Caves (1982, republished in 1996). In this book which links industrial organization and international economics with a synthesis of the literature on MNEs, internalization theory takes center stage as a basic model of the MNE. Subsequent work on the resource-based view has been slow to incorporate internalization theory but Rugman and Verbeke (2003) demonstrated that dynamic capabilities and the resource-based view are fully compatible with dynamic extensions of internalization theory. It is also possible to extend internalization-theory thinking to analyze networks and other types of nonequity forms of FDI (see Rugman & Verbeke, 2003). Perhaps the most important publication linking internalization theory with more modern thinking on international business strategy occurs in
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Rugman and Verbeke (1992). Here, the authors contrasted non-locationbound FSAs (available to the entire network of the MNE) with locationbound FSAs (available only to certain affiliates, whether in the home country or host countries). The location-bound FSAs are idiosyncratic strengths with limited geographical deployment and exploitation potential. If developed at the subsidiary level, these location-bound FSAs allow national responsiveness in a host economy but they are not transferable to the network of the MNE. However, some location-bound FSAs developed in foreign subsidiaries can become ‘‘best practices’’ and be transformed into non-location-bound FSAs, although such practices are rare. The distinction between non-location-bound FSAs and location-bound FSAs was taken up in Rugman and Verbeke (2003) and it has the potential to further extend internalization theory into network analysis since the point is that each MNE affiliate commands idiosyncratic FSA bundles. It is precisely the content of these bundles as well as their development and exploitation trajectory over time that determines each affiliate’s role in the MNE and drives interactions with other affiliates. Finally, internalization theory is now being reconciled with the empirical observation in Rugman and Verbeke (2004) and Rugman (2005) to the effect that most of the world’s largest 500 firms operate within the home region of the triad of the EU, North America and Asia Pacific. The failure of even the world’s largest firms to operate globally, defined as at least a 20 percent share of total sales (or assets) in each region of the triad with less than 50 percent of sales in their home region, suggests that there is an ‘‘inter-regional liability of foreignness.’’ The data reported by these firms imply it is difficult to engage in aggregation, that is, to earn economies of scale and scope (e.g., branding or marketing advantages) across other regions of the triad, meaning that much of the so-called non-location boundedness of FSAs has actually been overstated since the exploitation potential of many FSAs is often restricted to the MNE’s home region (e.g., the European Union for a European firm). The data also suggest that inter-regional adaptation (i.e., being responsive to the requirements of host regions) is very difficult to achieve. Only arbitrage (i.e., exploiting national or regional differences as seen increasingly in the context of dispersed, vertical value chains) often appears feasible, with some upstream activities occurring in the most attractive locations worldwide (e.g., information technology services in India; manufacturing of commodity-type products in China, etc.). The above comment suggests that the inter-regional liability of foreignness exceeds the perceived benefits of globalization. The world’s largest firms appear to experience difficulties in gaining benefits of aggregation and
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reducing costs of adaptation across regions, as compared to what occurs in their home region. Only in the realm of arbitrage does it appear that some upstream activities can indeed often be performed anywhere in the world to benefit from generally available country-specific advantages (CSAs)/ location-specific advantages (LSAs), subject to the condition that the resulting production can be integrated efficiently in the MNE’s international supply chain, with downstream activities often concentrated in the home region (see Ghemawat, 2007). In a further section, we shall build upon this historical review of internalization theory and explore in more detail four areas in which internalization theory has been extended and successfully integrated into the strategy literatures. In the next section we consider the relationship between internalization theory and Dunning’s eclectic paradigm, and its linkages with normative public-policy issues.
IMPLICATIONS OF INTERNALIZATION THEORY In an important extension of internalization theory, Rugman (1981) synthesized and extended the firm-level analysis through a more in-depth focus on the FSA concept. He contrasted FSAs with country-specific advantages (CSAs). In Chapter 8 of this classic international business book, he developed the conceptual foundations of what has become the FSA-CSA framework (see Fig. 1). In Fig. 1, the horizontal axis examines FSAs which are either weak, not relevant or strong (always relative to rivals), and are a prerequisite for Firm-Specific Advantages CountrySpecific Advantages
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The Firm and Country Matrix. Source: Rugman (1981), Chapter 8.
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international expansion. As noted above, Hymer (1960, published 1976) was the first to discuss the FSA concept. The FSA concept was popularized by Kindleberger (1969), and formed a basic building block for the Buckley and Casson (1976) treatment of internalization. Subsequently, the resource-based view reinvented the FSA concept and relabeled it as capabilities and/or core competencies (for further discussion of this argument, see Rugman & Verbeke, 1992, 2002). The vertical axis refers to country factors, where these CSAs (again weak, not relevant or strong) reflect the strengths of particular locations relative to other ones. Such strengths do not only refer to the presence of conventional production factors or demand conditions, but may also relate to knowledge development processes embedded in specific locations or favorable social and institutional characteristics conducive to either outward international expansion of domestic firms or inward attraction of foreign MNEs. The resulting two-by-two matrix can be used for a variety of classification purposes, inter alia for positioning various conceptual approaches to the analysis of international business activities. In cell 1 of Fig. 1, we have the common perspective of international economics. Here, the possibility of strong FSAs held by specific firms is viewed as largely irrelevant, whereas the CSAs of the home country can reflect factor-cost conditions or the benefits of protectionist home-country government policy or discriminatory regulations in favor of home-country trade unions, etc. At the hostcountry level, this cell fully explains the current expansion of inward FDI for manufacturing in China that is largely driven by relatively cheap labor. In contrast, cell 4 is a resource-based view situation. Here, CSAs are largely irrelevant and FSAs alone are sufficient for success. Such FSAs may include proprietary technological knowledge, brand-name advantages and a variety of management capabilities that are entirely independent of the country axis. However, in cell 3 both firm and country factors matter. Here, firms with strong FSAs (the equivalent of capabilities in the resource-based view) select locations for exploiting or developing further their FSAs as a function of CSA strengths: this is a unique cell relevant to scholarly work on international business strategy. The main challenge for scholars studying international business strategy is to identify and analyze the various patterns of resource recombination in cell 3, where extant FSAs are melded with CSAs, leading to new or augmented FSA bundles. The MNE’s ability to engage in such continuous recombination of firm and country factors represents a higher-order FSA, that is, a dynamic capability.
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Fig. 1 can be reconciled with the OLI Framework of Dunning (1981). In his eclectic paradigm, Dunning distinguished among location factors (L), internalization factors (I) and ownership factors (O). The location variable (L) is entirely consistent with the vertical axis of Fig. 1. The CSAs can be relabeled as LSAs in order to better link to the eclectic paradigm. Indeed, given the finding that many MNEs operate largely within their home region of the triad, which implies that national borders are less important than triad borders, it would make sense to replace CSAs by LSAs. In addition, in the area of technological-knowledge related FSA development, clusters often arise at the sub-national level, implying again that the concept of LSAs rather than CSAs is to be preferred even though the logic of the axis remains entirely the same. The horizontal axis shows the unique capabilities of the firm, called FSAs. We see little value in distinguishing between the O and I aspects of FSAs. Clearly, property rights (O) need to be established to overcome market imperfections, especially in the pricing and protection of knowledge, and imperfect markets trigger internalization (I) by an institution such as the MNE. Thus O and I, in practice, are integrated features of FSA management within the MNE, that cannot be decoupled in strategic decision making. While in principle the conceptual analysis of MNE evolution can indeed distinguish among O, L and I, the more reductionist focus on FSAs and CSAs/LSAs alone provides an equally powerful conceptual tool whereby any observation of internalization/de-internalization can be explained on the basis of the nature of FSAs and CSAs/LSAs, and the interactions between these two sets of parameters. The reader should be aware that John Dunning does not fully accept this reappraisal of his eclectic paradigm. In our view, this is because Dunning uses the eclectic paradigm much more broadly than we use internalization theory. For example, Dunning argued that internalization theory has a focus upon the static efficiency of the MNE, whereas his OLI approach can better accommodate the evolutionary growth path of the MNE. Two elements are particularly important here. First, Dunning (1990) argued that the role of government in fostering economic development by policies complementing MNE FSAs need to be brought out explicitly. While Dunning is correct, his observation simply means that cell 3 of Fig. 1 is indeed important – with government policies being a critical component of the CSAs/LSAs and instrumental to FSA development and exploitation processes (e.g., in the form of patent protection). His point is that the interactions between MNEs and governments evolve over time and that the vertical axis of CSAs/LSAs can actually affect the strength of an MNE’s
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FSAs. The opposite, meaning that the horizontal axis of Fig. 1 can influence the vertical axis, is also true: the presence of several firms with strong FSAs in a particular location can create clustering advantages potentially benefiting future new entrants in that location. Second, Dunning argued that the act of internalization is critical to dynamic innovation processes, a point already made by Buckley and Casson (1976). By collapsing the distinction between O and I, the danger arises that scholarly analysis would focus solely on internalization to protect existing FSAs. However, we are keenly aware of the fact that any internalization decision needs to take into account not only the MNE’s present stock of FSAs but also the potential contribution of internalization to future FSA development, whether in the form of conventional asset-based FSAs or transactional FSAs. The latter would include strengths derived from the firm’s multinationality (e.g., the ability to manage effectively new affiliates added to the existing network or the ability to reconfigure activities as a function of external circumstances, in accordance with Dunning & Rugman (1985). The point is thus simply that the FSA-CSA matrix needs to be used in a sophisticated way, with a deep understanding of the possible interactions that might occur between O and I on the horizontal axis of Fig. 1. The initial internalization-theory model developed by Rugman (1981) was economics-based and therefore efficiency-driven. Following Buckley and Casson (1976), it was shown that foreign direct investment takes place when its benefits exceed its costs. As mentioned earlier, Chapter 2 of Rugman (1981) developed a temporal model of the choice of entry mode in which net present values of exporting, FDI and licensing are considered over time. An optimal entry-mode pattern is developed using simple assumptions about the changes in net economic benefit over time among the three modalities. This efficiency-based approach differs from the basic transactioncost-minimizing approach of Williamson (1975). A similar model was developed at the same time as Rugman and published by Buckley and Casson (1981). One of Rugman’s (1981) insights was to add government regulations as a type of ‘‘unnatural’’ market imperfections. He argued in Chapters 7 and 8 of Rugman (1981), that government regulation – in particular, tariff and nontariff barriers to trade – serve to segment national markets. Such barriers cause exporting to be replaced by foreign direct investment. Thus, unnatural market imperfections are just as powerful as Coasian natural market imperfections in preventing the efficient operations of markets (Coase, 1937). Both lead to internalization and the development of MNEs. There are clearly additional normative public-policy implications from this analysis, which led Rugman to argue that internalization in practice, as an efficiency-based
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approach adopted by firms, can help to offset the hidden economic costs of protection and discriminatory regulations. This is why he argued that ‘‘multinationals are always efficient: regulation is always inefficient’’ (Rugman, 1981, p. 156). This thinking led to subsequent work on MNEs and Canadian and U.S. trade policy, much of which is summarized in Rugman (1996). This work was largely empirically based. It highlighted that U.S. MNEs operating in Canada obviously brought in inward FDI but they were also responsible for a large share of U.S.-Canadian trade. For example, following the CanadaUnited States Automotive Agreement (Auto Pact) in 1965, the big three U.S. auto firms in Canada became responsible for as much of one-third of Canada’s imports and exports. There was two-way intra-industry trade and FDI. Such an empirical observation is fully consistent with the internalization theory analysis of MNEs as efficiency-driven institutions. It suggests that trade and FDI are complements rather than substitutes as commonly assumed in basic international-economics theory.
EXTENSIONS OF INTERNALIZATION THEORY In this section we shall briefly explore four influential models of international management strategy and reinterpret them using internalization theory. Here, we should note that both Buckley and Casson (1976) and Rugman (1981) can be classified as ‘‘old’’ internalization theory where the focus is upon economic efficiency and the development, deployment and exploitation of FSAs to overcome natural and unnatural imperfections. In contrast to Hennart (1982), this work basically ignored internal governance issues and organizational structures. Subsequently, the ‘‘new’’ internalization theory explained by Rugman and Verbeke (1992, 2003) makes explicit the need to model the MNE’s internal organization and its network capabilities, in addition to focusing on stand-alone FSAs such as strengths in R&D, manufacturing and branding. In this context, Rugman and Verbeke (1992) made a fundamental distinction between FSAs that are non-location-bound and those that are location-bound. Basically, all the FSAs developed by the parent firm in the home country, often based on R&D and other head office capabilities, are assumed to be transferable to subsidiaries and deployable abroad so that they are non-location-bound FSAs. In contrast, the FSAs in national responsiveness developed at home or in subsidiaries are specific to each host country. Such subsidiary FSAs are location-bound. The strategy issue
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becomes to what extent the network of the MNE can transform such specific location-bound FSAs into non-location-bound FSAs. In addition, Rugman and Verbeke (2003) explored the conditions under which the internal MNE organization and its network can be utilized to develop dynamic capabilities such that an optimal mix of non-location-bound FSAs and location-bound FSAs is achieved. We will now turn to the other three international strategic-management models and their relationships to internalization theory.
Globalization versus Regionalization Internalization theory can help in the contemporary debate about globalization. It has been argued for many years (e.g., by Levitt, 1983) that the world is flat – that is, there is an increasing commonality across national borders such that firms can think of selling the same product or service in the same manner around the world. As evidence of such increased homogenization, it is argued that the world’s trade, FDI, international transportation and international telecommunications activity have all increased over time. Yet, Rugman (2000) demonstrated that such increases occur predominantly with each broad region of the triad and that there remain substantial barriers to trade and FDI among regions of the triad. Indeed, Rugman and Verbeke (2004) and Rugman (2005) have shown that the world’s 500 largest firms average 72 percent of their sales in their home region. Over the period 2001– 2005, it has been shown by Oh and Rugman (2007) that there is no trend towards globalization but that the world’s largest firms remain highly intraregional in their sales and assets. Basically, Levitt (1983), Yip (2002) and other advocates of global strategy assume that there are non-location-bound FSAs (see the discussion below on the ‘‘transnational solution’’), which can be easily transferred, deployed and exploited around the world. They suppose that these FSAs are expressed in standardized products, production processes and marketing routines that can easily overcome distance, and that there are economies of scale and scope arising from ever expanding international operations. Yet, the new internalization theory suggests that the non-location boundedness of FSAs may have been overstated since, in many cases, a strong liability of foreignness remains at both national and regional levels, leading to difficulties in FSA transfer abroad, and even more in the effective deployment and profitable exploitation of FSAs across borders. The benefits and costs of internalization thus need to be considered, especially as
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economic, cultural and institutional distances increases. The costs of doing business abroad cannot be assumed away as they have been by simplistic proponents of global strategy. The reality of today’s international business is that doing business across both national and regional borders still has a cost. Within both the European Union and NAFTA, the national border costs have been reduced but not to zero. For example, there remain problems in the distribution of pharmaceuticals within the EU as national health care systems remain in force. In NAFTA, health and many other service sectors are exempted from the provisions of national treatment which apply mainly to manufacturing industries. In Asia, there remain historical and cultural differences in addition to the lack of any region-wide, multilateral, trade and investment agreement. This situation suggests that MNEs still need to develop locationbound FSAs but the latter have been ignored by global strategy advocates such as Levitt (1983) and Yip (2002). The strategic challenge of today, as discussed in Rugman and Verbeke (2003), is for an MNE to achieve the correct balance between non-location-bound and location-bound FSAs. Indeed, as suggested recently by Rugman and Verbeke (2007), it is probable that the high degree of intra-regional sales and assets reflects the relative difficulty of overcoming the inter-regional liability of foreignness, as opposed to the traditional country-level liability of foreignness.
Turning the Transnational Solution into the Regional Solution How can the classic integration/responsiveness model developed by Doz (1986) and popularized by Bartlett and Ghoshal (1989) be improved with the use of internalization theory? This question was first answered by Rugman and Verbeke (1992) where they provided a re-interpretation of the integration/responsiveness framework within the lens of internalization theory. They classified the resource bundles allowing benefits of global integration (scale, scope and exploiting national differences) as non-locationbound FSAs and the resource bundles instrumental to benefits of national responsiveness as location-bound FSAs. Using this distinction, the so-called ‘‘transnational solution’’ becomes very difficult to achieve because, in that model, the MNE’s senior management is supposed to be able to classify all the firm’s affiliates in function of their idiosyncratic FSA bundles, and to make these affiliates function as a network through normative integration (socialization) rather than through a specific organizational structure allowing a mix of socialization as well as hierarchical and price-based
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coordination and control. In practice, most MNEs remain somewhat hierarchical (typical through a multidivisional approach to governance), do use internal pricing where possible and lack the organizational capabilities to implement and sustain the transnational solution. Based on their analysis that the vast majority of the world’s largest firms operate regionally rather than globally, Rugman and Verbeke (2004, 2007) attempted to develop a regional solution to replace the unworkable transnational solution. They suggested that the MNE should adapt its organizational structure and governance approach in function of its strengths and weaknesses in each triad region rather than try to impose normative integration through socialization across all country-based affiliates, with these affiliates being the key units of analysis. The reality is that most large MNEs exhibit real weaknesses when operating outside their home region and should therefore tailor their strategy and organization to fit their specific role in each region. The prime example here is Wal-Mart which has not adapted its business model outside of its home region of North America, and has therefore experienced little success abroad (see Rugman, 2005).
Rethinking Combinative Capabilities and Tacit Knowledge The important article by Kogut and Zander (1993) suggested that the MNE exists and evolves because it constitutes a superior governance mechanism for knowledge generation and transfer across borders. Three elements explain this superiority, according to the authors. First, the firm is a repository of embedded knowledge, with internal routines allowing effective knowledge transfers. Second, when the MNE transfers knowledge, this process can act as a platform (real option) for future knowledge generation. More specifically, the knowledge-transfer process is itself a learning process whereby the firm’s existing knowledge base is combined with location-specific factors. Third, the social context within which knowledge is developed, exploited and transferred is often important: more specifically, high tacitness of the know-how involved (in terms of its codifiability, teachability and complexity) may make the firm a superior vehicle for knowledge transfer, given that knowledge is grounded in social discourse. However, making the general statement that the MNE is a superior vehicle for knowledge transfers as compared to external markets appears somewhat simplistic. When the MNE originally chose to develop some tacit technology itself – rather than to purchase this technology, outsource its development or pursue co-development – the firm made this decision based upon its FSAs.
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In other words, the alleged superiority of internal knowledge transfers (i.e., internalization) vis-a`-vis the use of external markets may be valid only for a very narrow set of economic activities. This becomes clear especially in cases whereby the (tacit) technology to be transferred is supposed to act as a platform for future expansion and thereby can allegedly trigger large benefits accruing to the MNE. Here, alternative transfer mechanisms to internal transfer should obviously be considered. For example, working with a jointventure partner may provide access to this partner’s complementary assets and even act a window on this partner’s broader technological competences. In this case, a focus on internal knowledge transfers would mean foregoing such access relative to the joint-venture alternative. Hence, the presence of MNE organizational capabilities allowing effective knowledge transfers is in itself an inadequate explanation for internalization. Essentially, Kogut and Zander ignored the essential driver for FDI. These are the MNE’s core FSAs related to very particular upstream technological knowledge, manufacturing knowledge and downstream marketing knowledge, most of which are developed independently of special (international) knowledge-transfer mechanisms embedded in the MNE’s organizational structure and processes. In addition, some MNEs have achieved an optimal level of diversification whereby complementary FSAs are provided by third parties. For example, in the flagship framework, developed by Rugman and D’Cruz (2001), it is possible for key suppliers, distributors and partners in the non-business infrastructure to cooperate with the MNE in an efficient method of de-internalization. In such a framework, the network linkages with these third parties act as an effective substitute for the internal combinative capabilities of Kogut and Zander. Our point is simply that, even in the case of tacit-knowledge transfers, alternative knowledge transfer modes should systematically be considered rather than assuming that internal transfers would always reflect the more efficient governance form.
Regional Aspects of Multinationality and Performance In the vast literature on multinationality and performance, it has mostly been assumed that there is a general linkage between the degree of multinationality (e.g., as measured by the ratio of foreign-to-total sales) and firm performance (e.g., as measured by return on assets). Yet, internalization theory suggests that the basic regression is mis-specified. Multinationality is really an intermediate variable, not an independent variable. If performance is the dependent variable, the true independent variables are
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FSAs. These FSAs can be measured through firm-specific data on R&D, advertising expenditures, sales (as a proxy for economies of scale), etc. These FSAs should never be used as control variables but as the true independent variables determining the performance of an MNE. In addition, the literature on multinationality and performance needs to be re-thought in terms of the new data available, which suggest that MNEs perform regionally rather than globally. Owing to changes in accounting standards over the last 10 years, most of the world’s largest firms now report their sales, assets and related data according to broad geographic regions such as Europe, North America and Asia. This allows the traditional internationalization metric, namely the ratio of foreign-(F)-to-total (T) sales, to be replaced by the ratio of regional-(R)-to-total (T) sales R/T. Furthermore, it is now possible to calculate the return on foreign assets instead of the return on total assets. Here, the final downturn in the S-curve, as detected by Contractor et al. (2003), to the extent that it reflects a genuine economic reality, may well be due to a regional effect. These points are discussed in Rugman (2007).
CONCLUSIONS Rugman (1981) argued that internalization theory is a general theory of the MNE. This book, focused on the MNE’s international expansion patterns and the economic rationale for FDI was a child of its times and exemplifies ‘‘old’’ internalization theory. In the 1960s and 1970s, most MNEs were hierarchical and centralized institutions and there was relatively little analysis of their organizational structures and internal functioning, a notable exception being Stopford and Wells (1972). At that time, Vernon (1966) and others found that MNE FSAs were generated in the parent firm in the home country and transferred in a sequential manner to their subsidiaries, first to other wealthy economies and then to subsidiaries located in developing economies where low-factor costs were critical to location decisions. Although Rugman’s (1981) book is called ‘‘Inside’’ the Multinationals, there was no analysis of the organizational structures and internal functioning of MNEs. However, a great strength of internalization theory is that it provides clear conditions for the choice of entry mode. International expansion through wholly owned subsidiaries takes place within the MNE when the benefits of internalization (in terms of developing, deploying, exploiting and augmenting FSAs) outweigh both the costs of doing business abroad at both national and regional levels, and the resulting net benefits are higher
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than those associated with alternative entry modes (exporting, licensing or joint ventures). This focus on FSAs predates the resource-based view by some 15 years, yet is fully compatible with the implications of the resourcebased view with its emphasis on core competencies, dynamic capabilities and knowledge transfers. Extensions of internalization theory have focused upon filling in the black box of the internal governance mechanism choices. It is important to understand that ‘‘old’’ internalization theory did not focus on the Williamsonian opportunism concept but was much more concerned with issues of bounded rationality (meaning ‘‘scarcity of mind’’). In fact, ‘‘bounded reliability,’’ meaning the ‘‘scarcity of effort’’ to make good on open-ended promises, irrespective of intent, is usually more relevant (Verbeke, 2003). The ‘‘new’’ internalization theory of Rugman and Verbeke (2003) integrates the transaction-cost economics perspective of old internalization theory with the resource-based view’s focus on competence generation, transfer and exploitation as well as competence rejuvenation. However, the emphasis is always on the trade-offs involved in choosing among alternative governance mechanisms, each with specific properties than can aid or hinder the efficient and effective management/recombination of resources. Here, MNEs can be analyzed as they engage in internalization arbitrage (Ghemawat, 2007). Basically this involves analysis of how FSA bundles are melded with location factors through artful orchestration by senior managers in the home country and in the MNE’s subsidiary network. This chapter has shown that, in the last quarter century, the field of international business has extended internalization theory to include better analysis of internal MNE governance. For example, contemporary MNEs can be better modeled as networks than as firms driven solely by singular hierarchical coordination. We have developed the concept of locationbound FSAs which are critical to understand the role and functioning of MNE subsidiaries. We have explored the literature that considers the MNE as a network organization, consisting of a variety of affiliates with idiosyncratic bundles of location-bound and non-location-bound FSAs, whereby only the latter have the potential for international transfer, deployment and exploitation outside of the place where they were developed. Yet, even with non-location-bound FSAs, effective international transfer, deployment and exploitation of these FSAs can be very difficult. Indeed, we argue in Rugman and Verbeke (2004, 2007) that the ability of an MNE to transfer, deploy and exploit effectively non-location-bound FSAs is often achieved only within the MNE home region, rather than globally since the MNE’s international expansion often appears hampered by interregional liabilities of foreignness.
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The key challenge facing most MNEs is to design organizational mechanisms allowing the extant bundles of non-location-bound FSAs to be recombined with newly created, location-bound FSAs, thereby improving these firms’ competitive position in at least one other region of the triad in addition to the home triad region.
ACKNOWLEDGMENTS We are pleased to acknowledge helpful comments on an earlier draft from Mark Casson, Jean Franc- ois Hennart, John Dunning and Peter Buckley. The latter commented that: ‘‘The principles of internalization remain the same but the environment changes so that we can observe more or less externalization as markets and factor prices change, while the principles of analysis are constant’’ (private communication to the Editor).
REFERENCES Bartlett, C., & Ghoshal, S. (1989). Managing across borders: The transnational solution. Cambridge, MA: Harvard Business School Press. Buckley, P. J., & Casson, M. (1976). The future of the multinational enterprise. London: Macmillan. Buckley, P. J., & Casson, M. (1981). The optimal timing of a foreign direct investment. Economic Journal, 91, 75–87. Caves, R. E. (1982). Multinational enterprise and economic analysis (republished 1996). Cambridge, UK: Cambridge University Press. Coase, R. (1937). The nature of the firm. Economica, 4, 386–405. Contractor, F. J., Kundu, S. K., & Hsu, C. (2003). A three-stage theory of international expansion: The link between multinationality and performance in the service sector. Journal of International Business Studies, 34(1), 5–18. Doz, Y. (1986). Strategic management in multinational companies. Oxford: Permagon. Dunning, J. H. (1977). Trade location of economic activity and the MNE: A search for an eclectic approach. In: B. G. Ohlin, P. Hellelborn & P. M. Wijkman (Eds), The international allocation of economic activity: Proceedings of a nobel symposium held at Stockholm (pp. 395–418). London: Macmillan. Dunning, J. H. (1981). International production and the multinational enterprise. London: Allen & Unwin. Dunning, J. H. (1990). Globalization of firms and the competitiveness of countries. In: J. H. Dunning, B. Kogut & M. Blomstrom (Eds), Globalization of firms and the competitiveness of nations, Crafoord lectures (Vol. 2). Lund, Sweden: Lund University Press. Dunning, J. H., & Rugman, A. M. (1985). The influence of Hymer’s dissertation on the theory of foreign direct investment. American Economic Review, 75(2), 228–232.
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Eden, L., & Miller, S. (2004). Distance matters: Liability of foreignness, institutional distance and ownership strategy. In: M. A. Hit & J. L. C. Chen (Eds), The evolving theory of the multinational firm. Advances in international management (Vol. 16). Amsterdam: Elsevier. Ghemawat, P. (2007). Redefining global strategy; crossing borders in a world where differences still matter. Boston, MA: Harvard Business School Press. Hennart, J-F. (1982). A theory of multinational enterprise. Ann Arbor, MI: University of Michigan Press. Hymer, S. H. (1960). The International operations of national firms: A study of direct investment. Unpublished doctoral dissertation, Massachusetts Institute of Technology, Cambridge, MA. Hymer, S. H. (1976). The international operations of foreign firms: A study of direct foreign investment. Cambridge, MA: MIT. Kindleberger, C. P. (1969). American business abroad: Six lectures on direct investment. New Haven, CT: Yale University Press. Kogut, B., & Zander, U. (1993). Knowledge of the firm and the evolutionary theory of the multinational enterprise. Journal of International Business Studies, 24(4), 625–645. Levitt, T. (1983). The globalization of markets. Harvard Business Review, 61(3), 92–102. Lu, J. W., & Beamish, P. W. (2004). International diversification and firm performance: The S-curve hypothesis. Academy of Management Journal, 47(4), 598–609. Oh, C. H., & Rugman, A. M. (2007). Multinationality and regional performance, 2001–2005. In: A. M. Rugman (Ed.), Regional aspects of multinationality and performance. Research in global strategic management (Vol. 13). Oxford: Elsevier. Rugman, A. M. (1975). Motives for foreign investment: The market imperfections and risk diversification hypotheses. Journal of World Trade Law, 9(5), 567–573. Rugman, A. M. (1976). Risk reduction by international diversification. Journal of International Business Studies, 7(2), 75–80. Rugman, A. M. (1979). International diversification and the multinational enterprise. Lexington, MA: D.C. Heath. Rugman, A. M. (1981). Inside the multinationals: The economics of internal markets (Reissued by Palgrave Macmillan, 2006). New York: Columbia University Press. Rugman, A. M. (1996). Multinational enterprises and trade policy. Cheltenham, UK: Elgar. Rugman, A. M. (2000). The end of globalization (Paper Edition, 2001. Also published by McGraw Hill/Amacom, 2001). London: Random House Business Books. Rugman, A. M. (2005). The regional multinationals. Cambridge, UK: Cambridge University Press. Rugman, A. M. (Ed.) (2007). Regional aspects of multinationality and performance. Oxford: Elsevier. Rugman, A. M., & D’Cruz, J. (2001). Multinationals as flagship firms: Regional business networks (Paper edition, 2002). Oxford: Oxford University Press. Rugman, A. M., & Verbeke, A. (1992). A note on the transnational solution and the transaction cost theory of multinational strategic management. Journal of International Business Studies, 23(4), 761–772. Rugman, A. M., & Verbeke, A. (2002). Edith Penrose’s contribution to the resource-based view of strategic management. Strategic Management Journal, 23, 769–780. Rugman, A. M., & Verbeke, A. (2003). Extending the theory of the multinational enterprise: Internalization and strategic management perspectives. Journal of International Business Studies, 34(2), 125–137. Rugman, A. M., & Verbeke, A. (2004). A perspective on regional and global strategies of multinational enterprises. Journal of International Business Studies, 35(1), 3–18.
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Rugman, A. M., & Verbeke, A. (2007). Liabilities of regional foreignness and the use of firmlevel versus country-level data: A response to Dunning et al. Journal of International Business Studies, 38, 200–205. Stopford, J. M., & Wells, L. (1972). Managing the multinational enterprise. New York: Basic Books, Inc. Verbeke, A. (2003). The evolutionary view of the multinational enterprise and the future of internalization theory. Journal of International Business Studies, 34(6), 498–504. Vernon, R. (1966). International investment and international trade in the product cycle. Quarterly Journal of Economics, 80, 190–207. Williamson, O. E. (1975). Markets and hierarchies: Analysis and antitrust implications (London: Collier Macmillan). New York: Free Press. Yip, G. (2002). Total global strategy II. Upper Saddle River, NJ: Prentice Hall. Zaheer, S. (1995). Overcoming the liability of foreignness. Academy of Management Journal, 38(2), 341–363.
THE INTERNATIONALIZATION OF MULTINATIONALS Yair Aharoni and Ravi Ramamurti ABSTRACT This chapter examines the internationalization of the national origin of multinational enterprise (MNEs), starting with European firms at the turn of the 20th century, US firms after World War II, Japanese firms after the 1980s, and, most recently, emerging-market firms, including those from low-income countries such as China and India. The acceleration of this trend in recent decades has been driven by changes in government policy, technology, capital markets and international social networks. As a result, MNEs are being spawned in more countries, in more industries and at earlier stages of a firm’s evolution than before. These changes have also transformed the established Western MNE from raw-material-seeker and tariff-jumper to efficiency- and innovationseeker. Therefore, going forward, the MNE must be viewed as a heterogeneous entity, distinguished by national origin, size and raison d’e.ˆ tre – from resource-seeking firms to knowledge-generating and processing firms. The chapter concludes with important questions raised by these developments for future IB research.
Consider the following facts. In 1914, four European countries – the U.K., France, Germany and the Netherlands – accounted for 93 percent of the International Business Scholarship: AIB Fellows on the First 50 Years and Beyond Research in Global Strategic Management, Volume 14, 177–201 Copyright r 2008 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1064-4857/doi:10.1016/S1064-4857(08)00004-1
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world’s stock of outward foreign direct investment (OFDI), with the U.K. alone accounting for 50 percent of the total (see Table 1). In 2005, these same countries accounted for only 34.7 percent of the world’s OFDI stock, with the U.K.’s share falling to 11.6 percent and it now took 20 more countries, including the United States and Japan, to account for the same 93 percent share of global OFDI. Furthermore, the first survey by the United Nations in 1973 identified 16 countries as having outward FDI; by 2005 that number had grown to 129, of which 94 were developing countries (UNCTAD, 2006, Annex B). These figures demonstrate that, over the last century, the national origin of multinational firms has
Table 1.
Share of Worldwide Stock of Outward FDI (OFDI), Various Years.
Region/Country Europea UK France Germany Netherlands United States Japan Emerging Markets Worldwide OFDI stock (US $ Bill) Number of countries required to account for 93 percent of global OFDI stockb
1914 (percent) 93 50 43
1969 (percent)
6 0 0 na
43.2 16.2 na na na 55 1.3 0 na
4b
9b
1980 (percent) 41.1 14.1 4.2 7.5 7.4 37.7 3.4 12.7 571
1990 (percent) 49.5a 12.8 6.1 8.5 6.0 24.3 11.2 8.3 1,791
2005 (percent) 58.5a 11.6 8.0 9.1 6.0 19.2 3.6 11.9 10,672 24b
Sources: Data for 1914 from Buckley and Casson (1985, p. 200); for 1969, from UN (1973, p. 139); for remaining years from http://www.unctad.org/Templates/Page.asp?intItemID ¼ 3277&lang ¼ 1 Table on ‘‘Outward FDI Stock by Host Region and Economy (1980–2005), World Investment Report 2006, 16/10/06.’’ a Europe’s share fell secularly from 1914 to 1980 but then began to reverse course, possibly because of growth in intra-EU FDI, following the Single European Act (1986) and the creation of the euro currency. b The countries involved were as follows: in 1914, the UK France, Germany and the Netherlands; in 1969, the previous plus United States, Canada, Switzerland, Sweden and Italy; and in 2005, the previous nine countries plus Australia and nine EU nations (Belgium, Spain, Norway, Italy, Denmark, Ireland, Finland, Austria and Luxembourg) and five emerging economies (Hong Kong, Russia, Singapore, Taiwan and Brazil).
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broadened considerably. We refer to this trend as the ‘‘internationalization of multinationals.’’ On the basis of such OFDI shifts, we identify four waves through which national enterprises have internationalized, starting with European firms in the 19th century, US firms from 1950 on, Japanese firms after the 1980s and small as well as giant firms from many countries, including several emerging-market (EM) ones, after the 1990s. In other words, today’s multinational enterprise (MNE) is a very diverse species including firms originating in low-income countries such as China and India, and many quite tiny enterprises in all parts of the world. To be sure, a handful of developing countries still account for most of the outward FDI from emerging markets but we expect this concentration to also decline in the coming decades. At the same time, because of technological changes, firms are becoming multinational relatively sooner in their lives and at relatively smaller sizes. In this chapter, we discuss the drivers behind the internationalization of multinationals during these four waves of OFDI, paying closer attention to the last wave. We assess the future outlook forEM-MNEs, given that resistance to further globalization of trade and investment may be rising in developed countries even as it is falling in emerging economies. Unless the underlying anxieties are adequately addressed, the further spread of EM-MNEs may well be slowed by protectionism and xenophobia in the advanced countries. We also speculate that, in the future, MNEs will not be perceived as monoliths but as a heterogeneous collection of organizations distinguished by national origin, size and their raison d’e.ˆtre – from resourceseeking firms to knowledge-generating and processing firms. We conclude with several issues that future IB scholars might explore in their research.
FOUR GENERATIONS OF MULTINATIONAL ENTERPRISE The importance of MNEs in the global economy has grown exponentially, especially in the post–World War II period despite short-term ups and downs. From merely a few billion dollars per year in the 1950s, global FDI inflows grew to $40 billion per year in 1980s, rose to a peak of $1.4 trillion in 2000, and fell sharply in the following three years to US$ 655.8 billion. No previous FDI downturn was as severe as the one following 2000 or lasted more than two years. But a recovery began in 2004, taking worldwide FDI
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inflows back up to $916 billion in 2005 and an estimated $1,335 billion in 2006 (Economist Intelligence Unit, 2007). In 1980, the ratio of FDI to worldwide gross fixed capital formation was just 2 percent but, by 1999, it picked up to about 14 percent (UNCTAD, 2000), and in 2005 stood at 9.4 percent (UNCTAD, 2006, p. 307). The number of MNEs in 2005 was 10.6 times that in 1969 and in 2003, the sales of foreign affiliates of MNEs ($18 trillion) were double that of world exports ($9 trillion). During this first generation of MNEs, the growth in FDI has come about not only because existing MNEs have spread their tentacles globally but because wholly new MNEs have emerged in different countries at different times. One of the oldest MNEs was the Dutch East India Company, which was granted a monopoly in 1602 for 21 years to carry out colonial activities in Asia. It operated for almost two centuries and was formally dissolved in 1800. The British East India Company – a private enterprise backed by the British crown – operated in the East Indies from 1608 until its dissolution in 1858. French, Portuguese and Spanish firms also invested in their respective nations’ colonies. At those times, the major motivation for internationalization was to extract, transport and process natural resources which usually flowed from the colonies to the colonial center, with manufactured goods flowing in the reverse direction. A few US firms were also starting to globalize. Thus, around 1900, Rockefeller’s Standard Oil ventured abroad in search of oil reserves (Wilkins, 1974), followed by still other U.S. oil companies (Yergin, 1991). Between 1870 and 1913 – the golden age of rapid growth—a few U.S. manufacturing firms pioneered foreign operations in search of markets, led by Singer Sewing Machine and followed later by others such as Ford Motor Company. Yet, MNEs from Europe dominated the world stage, accounting for 93 percent of worldwide FDI stock, having built international networks on the backs of their home governments’ colonialism (see Table 1). The United States’ share at this time was estimated at only 6 percent (Buckley & Casson, 1985, p. 200) Technological advantage, built on the industrial revolution, which began in Europe, not only gave European firms ownership advantages over foreign rivals but also enabled their home governments to establish military superiority and build global empires. One outlier was Switzerland (Agmon & Kindleberger, 1977). Regarding the second generation of MNEs, the two world wars and the collapse of empires devastated the European MNEs as foreign subsidiaries were seized by rival powers or nationalized by newly independent countries. In the postwar period, European leaders were determined to foster policies that would prevent a third world war. They initiated a series of
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market-integrating programs that stimulated intra-European FDI as well as FDI from countries outside the bloc, principally the United States, to take advantage of the new opportunities. U.S. firms, which already operated multidivisional and multiregional organizations at home U.S., transferred those capabilities relatively easily to the fledgling Common Market in Western Europe. For approximately two decades, between 1949 and 1971, the economies of the developed nations grew rapidly. Thus, reconstruction raised European GDP growth to 5 percent per year while Japan galloped along at 10 percent per year and the U.S. economy grew at 3.8 percent per year. In the same period, growth in international trade outstripped growth in world output as FDI grew at twice the rate of GNP. European multinationals rebuilt their global presence but the vast majority of new FDI came from the United States, based on the technological and managerial superiority of its giant firms so that the latter led this second wave of MNEs as the stock of outward FDI by U.S. MNEs rose sharply from $7.2 billion in 1946 to $74.4 billion in 1970. One result was a growing anxiety about the possible dominance of MNEs over countries. The World Economic Survey of 1971 noted that ‘‘while these corporations are frequently effective agents for the transfer of technology as well as capital to developing countries, their role is sometimes viewed with awe, since their size and power surpass the host country’s entire economy’’ (quoted in UN, 1973, p. 106). On July 1972, the United Nations Economic and Social Council in Resolution 1721(LIII) requested the Secretary General to appoint a group of eminent persons to study the role of multinational corporations and their impact on the process of development. The result was one of the first systematic efforts at data gathering by the United Nation. This study found that of the 7,276 parent MNEs in the world in 1969, as many as 33.9 percent were from the United States, 23.3 percent were from the United Kingdom and most of the rest were from other Western European countries (UN, 1973, p. 138). The same report also showed the book value of global FDI stock at US$ 108.2 billion, of which 55.0 percent was from the United States, 16.2 percent from the United Kingdom and only 1.3 percent was from Japan (United Nations, 1973, p. 139). The report also noted that ‘‘a further central characteristic of multinational corporations is that they are in general the product of developed countries. Eight of the 10 largest multinational corporations are based in the United States’’ (UN, 1973, p. 7). Note, however, that 3,357 out of the 7,276 firms – nearly half the total – had affiliates in only one foreign country (Vernon (1971) required a firm to have
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subsidiaries in at least six countries to be considered an MNE). Only 678 firms had affiliates in 10 or more countries. The early 1970s was an inflexion point for international trade, world investment and globalization. On August 15, 1971, President Nixon decided to abandon the gold-exchange standard and, two years later, to give up entirely on the Bretton Woods fixed-exchange regime. Currencies in the developed world moved to a full float, followed by two oil crises in 1973 and 1979, a decade of high interest rates in the United States and, eventually, the Plaza Accord which saw the overvalued dollar slide to more sustainable levels against the Japanese yen and other major currencies. Meanwhile, Japan was successfully rebuilding its shattered economy. When U.S. occupation left Japan in 1952, the government launched an ambitious program to create national comparative advantage. For two decades, Japan was the best modern example of a ‘‘miracle economy’’ and her prowess in manufacturing skill- and capital-intensive products was established in these years. Between 1950 and 1990, Japan’s real income per capita in constant 1990 prices grew by 7.7 percent per annum to reach US$ 23,970 (Economist, 1993). Japan’s exports grew even faster than her GDP as firms took advantage of access to markets in the United States and Europe that were opening up as a result of successive rounds of GATT negotiations. The rate of growth of exports averaged more than 15 percent a year between 1950 and 1968, with a progressive shift in the direction of exports from low-income to high-income markets. The favorable trade balance enabled Japan to increase overseas investments but it was not until the Plaza Accord and a very strong yen that Japanese firms began to shift production from Japan to assembly plants in export markets (rich countries) and component factories in low-cost Asian neighbors (developing countries). Japanese experience conformed to the theoretically expected pattern: through deliberate industrial policy, Japan first built the technical competences of its companies, particularly in production – what is sometimes called ‘‘created assets.’’ The resulting exports to rich countries were followed a few decades later by FDI that sought to protect access to those markets. This additional FDI was of the efficiency-seeking type, directed at low-wage countries for production of products that could no longer be made in high-cost Japan (Farrell, 2000). FDI outflows from Japan rose from a mere US$5 billion in 1980 to a peak of US$89 billion in 1989. In this decade, FDI grew at unprecedented rates of 20–30 percent per annum, more than four times as fast as world GNP but the United States was no longer the dominant source – quite the contrary,
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it became the largest recipient of FDI inflows, including several large investments from Japan. By the late 1980s, the third generation of MNEs had emerged and the multinational firm was very much a Triad phenomenon (see Table 1). The fourth generation of multinational firms took off in the 1990s as economic liberalization measures in many countries forced firms even in developing countries to experience global competition for the first time in the postwar period (Amsden, 2001) while, at the same time, new IT technologies facilitated the creation of ‘‘born globals.’’ Both these trends convinced many entrepreneurs that, to be successful, they had to invest abroad and become internationally competitive. In China, economic liberalization began as early as 1978, albeit on an experimental basis, with Chinese leader Deng Xiaoping declaring ‘‘to get rich is glorious.’’ Initially, China received FDI mainly from overseas Chinese based in places like Hong Kong, Singapore and Taiwan. By the 1990s, inward FDI flooded in from other countries and, following China’s accession to the WTO on December 11, 2001, FDI skyrocketed to US$ 72.4 billion in 2005. In the 1990s, Chinese firms, including several that were partly or wholly state-owned, began to invest overseas in search of raw materials or markets and in the 2000s those investments included acquisitions in Europe and the United States. When the Berlin Wall crumbled in November 1989, the Soviet Union disaggregated and its different components moved toward liberal economic policies. At about the same time, several Latin American economies began to cut government spending and subsidies, privatize state-owned firms deregulate industry and push their economies into export-oriented free market strategies. So did other long-time bastions of protectionism, such as Ireland, Israel and India, all of which opened their market in the 1990s to more competition, foreign trade and inward FDI. In India, for instance, this development forced many old-time firms to upgrade their products and services, trim costs, benchmark themselves against best-in-class global competitors and buttress their positions in the home market against foreign competitors that were entering India. Several of these firms then also ventured abroad in search of markets and resources (Ramamurti & Singh, forthcoming). At the same time, a new breed of postliberalization Indian firms competed globally from the beginning (Pradhan & Sahoo, 2005). Many of India’s leading firms were not in labor-intensive manufactures, as in East Asia, but in skill-intensive products and services such as IT services, pharmaceuticals and engineered products and services (Kapur & Ramamurti, 2001; Boston Consulting Group (BCG), 2006).
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From being a Triad-dominated phenomenon, the fourth generation of MNEs saw the multinational firm become a much broader phenomenon in terms of the geographical distribution of home countries, the explosion of FDI in service industries and the size of individual MNEs. Although developing countries remained net importers of FDI, several of them become important outward investors. Total FDI outflows from firms in emerging markets reached $133 billion in 2005 – ten times that in 1990. This represented about 17 percent of world outward flows in 2005 while, in 1990, that share was only 5 percent. In terms of outward FDI stock, with $1.3 trillion in 2005, emerging markets accounted for 12 percent of the world’s total (see Table 1). Three-quarters of the top-100 MNEs from developing countries hailed from Asia. As a result of these generations of new MNEs, the number of MNEs worldwide mushroomed by 2005 to 77,175 parent corporations, of which only 2,418 were from the United States, compared to 20,238 parents from developing countries (UNCTAD, 2006, pp. 270–271). The other striking trend in these numbers is the very large number of small- and medium-sized enterprises that are multinationals. In the 1970s, multinationals were regarded as giants with sales that dwarfed the GNPs of many countries. Although this is still true of the largest MNEs, the vast majority of firms counted by UNCTAD as MNEs are small in size by now.
CHANGING DRIVERS OF MULTINATIONALIZATION Several interesting questions arise from the above data. For example, why did the parentage of MNEs spread as and when it did – that is, why did European firms become multinational when they did, or U.S. and Japanese firms when they did? Why did developing countries join this trend in the last decade and not sooner? A related question is whether it matters that the national origin of MNEs is broadening – for example, do MNEs headquartered in different countries behave differently? Equally interesting is the question of why small multinationals have flourished only in the last decade? Finally, which industries and activities (including services) are prone to be dominated by multinationals rather than national firms and why? After years of research, mainstream theories in international business (IB) offer partial answers to such questions. Dunning’s (1979) OLI framework has highlighted the need for a firm to have ownership advantages that offset
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the search and transaction costs and the ‘‘liability of foreignness’’ (Hymer, 1976; Zaheer, 1995) which refers to the costs borne by firms operating outside their home country. The timing of when firms in a country multinationalize may therefore be explained partly by when those firms acquire sufficient international competitive advantages to offset the cost of multinationalization. This, in turn, may depend on when a country’s firms are exposed to international competition and opportunities. Vernon’s (1966) product lifecycle hypothesis, which helps explain the postwar spread of U.S. MNEs, highlights the role of location-specific factors in creating firm-specific advantages – the reasons why exports may be a prerequisite for FDI – and explicitly recognizes the role of tariffs and transport costs in promoting FDI. It also advances the notion that technological advantage stems from innovations that respond to unique local needs such as serving rich consumers or having access to a large national market. The Uppsala model sees internationalization as an accumulation of foreign experience, starting with exports (Johnason & Vahlne, 1977, 2000). The investment development path (IDP) model (Dunning, 1981) speaks specifically to the question of why some countries produce homegrown MNEs before others. One idea introduced by this model is that inward FDI into a country must grow before outward FDI can take off. Each of these theories explains aspects of the rise of European, U.S., Japanese and ThirdWorld large MNEs but less so the explosion of ‘‘born globals’’ – that is, firms that immediately aim at international markets without first growing through a domestic phase. None of these theories considers explicitly the role of general technological change which has reduced the cost of overcoming distance and timezone separation, and expanded the range of goods and services that can be traded internationally. The railroad, the refrigerator, the steamship, the telegraph and the laying out of the first transatlantic cable in 1866 expanded the scope for trade and investment at the end of the 19th century. In the 20th century came the radio, transcontinental telephones, giant tankers and airliners and, later satellites, computers and the Internet. Technological change reduced significantly the cost of international transport, communication and computing as well as the liability of foreignness, all of which promote the multinationalization of firms. New technologies also allowed firms to outsource more activities from the least-cost location. Aside from economic liberalization and technological change, another factor that has helped certain firms become multinationals is improved access to capital. High savings in Asia, coupled with high raw-material
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prices (which boosted the current account surpluses of resource-rich countries) and low interest rates combined to fuel the internationalization of local firms. Besides, the globalization of capital markets improved access to capital for firms in many parts of the world. Another important factor has been the availability of a large number of overseas nationals who could be approached for help to gain access to foreign markets. There are about 50 million Chinese living outside China, mostly in other parts of Asia. When China opened up, it was these overseas Chinese that helped China ramp up its exports of manufactured goods by transferring their technical expertise, capital and marketing know-how to small assembly operations in China’s special economic zones. Likewise, overseas Indians, many of whom were knowledge workers based in the United States, helped India grow its exports of knowledge- and skillintensive services (Kapur & Ramamurti, 2001). Today, skilled professionals from both countries circulate between Silicon Valley and their home countries, helping to close the knowledge gap between developed and developing countries (Saxenian, 2002). Technological change and economic liberalization have also promoted the growth of ‘‘micro-multinationals’’ (Copeland, 2006). For instance, the popular website Craigslist.com is a U.S. company with an estimated $100 million in sales that reaches customers online in a few dozen countries but employs only 20 people. In fact, technological development and better knowledge of management methods allowed the rise of ‘‘born global’’ smalland medium-sized firms, whose competitive advantage was based on the ability to divide the value-chain activities and disperse it across different countries (Knight & Cavusgil, 1996). In this sense, they have created a ‘‘Lego world’’ of value-chain building blocks. Even a relatively small firm headquartered in country A can manufacture components in countries B and C, assemble them in D and E, perform R&D in F and G and sell the finished products in still other countries. An example is Vast.com, whose 25 employees work in four nations in order to tap into the best expertise at the lowest cost. In the post-dot.com bubble era, venture capitalists expect startups to tap into the best locations worldwide for every task from the very beginning. This business model has become feasible because of the rise of specialized intermediary firms to which many steps of the value chain can be outsourced and offshored. A sharp decline in IT and communication costs have put the IT systems necessary to coordinate complex supply chains within the reach of even small firms. Further, domestic firms in many small countries such as Switzerland and also Finland, Norway, Denmark and Israel have become multinationals in
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growing numbers in the last two decades (Aharoni, 2006). Most MNEs from these countries are small compared to giants like General Electric and depend much more on IB for survival. Nokia, to cite one example, derives 97 percent of its sales from outside Finland. These firms developed competitive strengths unrelated to the location advantage of their home countries but achieved scale economies by using the world as their oyster. Most important, they gained world competitiveness by acquiring a ‘‘portfolio of locational assets’’ (UNCTAD, 1995), thereby reaping the benefits of an international division of labor, with each part of the value chain produced in the most efficient location. They also raised capital in foreign markets, while retaining corporate headquarters and the top management in the home country. Over the next few years, other MNEs from many more economies are likely to join their ranks as firms realize that focusing operations exclusively in the home country may deprive them of major efficiency gains associated with other locations and hence hurt their competitiveness (Dunning, 1996). Consequently, the MNE will become an even more important institution in the global economy. The United States and the EU still account for major shares of the world’s GDP and therefore also global FDI flows. It is well known that the world’s largest three or four hundred MNEs account for about 90 percent of the world stock of FDI. During 2006–2010, FDI is projected to grow at 8 percent per annum, reaching $1,407.3 billions, or 2.4 percent of world output (Economist Intelligence Unit [EIU], 2006). The main driver is expected to be a surge in cross-border mergers and acquisitions (M&A) with the main recipient country being the United States which is expected to get 23 percent of all FDI inflows. This percentage is very close to the United States’ share of world GDP in PPP terms – namely 21.4 percent – but lower than its 29.0 percent share at official exchange rates (US Central Intelligence Agency [US CIA], 2006). Small countries are not likely to have large shares of global FDI inflows or outflows but some are disproportionately active on the FDI front; for example, Israel has 0.1 percent of the world’s population and 0.25 percent of the world’s GDP but accounted in 2006 for 1.02 percent of the world’s cross-border M&A activity. Some IB scholars tend to dismiss the value of studying small MNEs if it does not direct the reader toward analysis of the larger MNEs, which dominate IB today as they have for the last 50 years. We disagree because, in our view, IB theory should explain not only the obvious dominance of giant firms and countries but also the flourishing of MNEs from many countries, the growth of born-global MNEs and the emergence of MNEs from emerging markets.
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MULTINATIONALS FROM DEVELOPING COUNTRIES Although MNEs from developing countries have appeared on a significant scale, only since the 1990s was there in fact a spurt in the number of such firms in the 1960s and 1970s. That spurt involved annual FDI outflows from developing countries in the hundreds of millions of dollars, not billions of dollars, although by 1980 it had risen to $3 billion. The next spurt did not occur until the 1990s, and accelerated thereafter, peaking in 2000 at $147 billion, followed by a slump until 2002 and a recovery since 2003. By 2005, as stated earlier, outward FDI from developing and in-transition economies had risen to $133 billion (UNCTAD, 2006, p. 108). The latest wave of MNEs from developing countries raises several interesting questions. In what ways was the second spurt of outward FDI from developing and transition economies similar to or different from the first spurt? In what ways is their outward FDI similar to, or different from, that which took place from developed countries (e.g., Mathews, 2002)? Specifically, how do the competitive advantages and strategies of MNEs from developing countries compare with those from developed countries? We offer some facts and a few educated guesses on these questions. One obvious difference between the first and second spurts in outward FDI from developing countries is that the second one has involved substantially larger flows even if one excludes countries that serve as waystations for FDI flows from other countries (‘‘overseas financial centers,’’ such as Bermuda, the British Virgin Islands, the Cayman Islands and, to some extent, Hong Kong). Netting out overseas financial centers, FDI outflows from developing countries reached $87 billion in 2005, compared to $3 billion in 1980 and $13 billion in 1990. In a sample of five countries, UNCTAD reported a 4.5-fold increase in outward FDI from the early 1990s to the early 2000s, with China and India registering 8-fold increases (UNCTAD, 2006, p. 122). Since FDI from developed countries also rose sharply in the 1990s, the share of emerging markets in outward FDI flows and stocks did not register a steep increase, and it stood at 12 percent in 2005. But outward FDI from emerging markets has grown faster than inward FDI into those countries – in 2005, for instance, outward FDI was fully 40 percent of total inward FDI. So-called South-South FDI also became quite important because about three-quarters of the FDI from developing and in-transition economies went to other poor countries. For some host countries in Africa, South-South FDI represented 30 percent or more of their total inbound FDI.
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South-South FDI is entirely consistent with the expectation that capital would flow from richer to poorer countries – inasmuch as most of these flows occur from a handful of the more prosperous and advanced developing countries (e.g., Hong Kong, Taiwan, Singapore, Malaysia, Brazil and Mexico) to dozens of less prosperous developing countries. This kind of flow is qualitatively similar to that observed by Wells (1983) and is based on EM firms having products and using processes that are better suited to developing countries than those possessed by Western MNEs. It is also consistent with the expectation that firms will first invest in their own regions before venturing farther away (Johnason & Vahlne, 1977). Perhaps, as Rugman (2005) has argued, many firm-specific advantages are more readily transferred to countries in the same region. Another similarity in the outward FDI of developing countries in the 1970s and 2000s has been the high degree of concentration: in both periods, the top 10 countries accounted for 80 percent or more of outward FDI. However, the relative importance of different regions changed – for example, Latin America lost its place as the leading source of outward FDI. Thus Brazil, which was the number one source of outward FDI in 1980 dropped to 6th place by 2005, and both Argentina and Mexico lost their top-5 spots. Taking their place were several Asian economies, notably Hong Kong, Singapore, Taiwan and Malaysia (UNCTAD, 2006, p. 113).1 One surprising development in the 2000s was that about one-fourth of the outward FDI from developing countries went to developed countries and, in some years, that share was as high as one-third. This is unprecedented and such substantial flows from poor to rich countries runs counter to economic theory that argues for flows in the opposite direction and to the expectation that firms in poor countries cannot possess technologies or applications of value to developed countries. The rapid increase in outward FDI from low-income countries, such as China and India, or even middle-income countries such as Malaysia and Mexico, does not fit the predictions of the ‘‘investment development path’’ (IDP) model (UNCTAD, 2006, p. 141). Outward FDI from developing economies has occurred sooner than IDP theory would predict so that the relationship between level of development (measured by, say, per-capita income) and outward FDI, or that between inward and outward FDI, are more complex than IDP theory suggests. For instance, the recent surge in outward FDI by developing countries has come not from the countries that received the most inward FDI in the past – namely, those in Latin America – but rather from countries in Asia, some of which were quite closed to FDI earlier on (e.g., India).
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Such mismatches are also evident in the experience of industrialized countries: Spain, for instance, though quite advanced relative to developing countries, did not become a major source of outward FDI until it joined the European Union in 1986 (Guillen, 2005, p. 68) and Japan emerged as a major supplier of outward FDI after the mid-1980s without ever being fully open to inward FDI. As Barba Navaretti and Venables (2004, p. 5) noted, ‘‘Japan’s economy is virtually closed to foreign MNEs, which account for less than 1 percent of manufacturing employment.’’ The important determinant of outward FDI may not be the level of development per se but home-country economic policies toward trade as well as FDI and natural endowments such as the supply of local entrepreneurs (e.g., see the discussion in Thomas & Meuller, 2000, pp. 289–291). If a government exposes the economy to greater competition from domestic and multinational firms, its firms are more likely to become internationally competitive. Once these firms develop ownership-specific advantages, they will exploit them overseas or augment them by acquiring complementary or knowledge-based assets abroad. Government policies allowing or encouraging outward FDI are also important. In the past, many governments viewed outward FDI as an undesirable transfer of capital and jobs to other countries but, in the 2000s, they have viewed it as a way to build globally competitive firms. Thus, the Chinese government reportedly encouraged state-controlled firms to build global organizations (Buckley et al., 2006) as did the Singaporean government. India (UNCTAD, 2004, pp. 8–10), South Africa (Goldstein & Pritchard, 2006, p. 11) and many other governments simplified procedures and increased the size of overseas investments that their companies could make. Firms in-transition economies experienced a radical change in national policies for FDI, compared to the years before 1989 when their economies were closed to FDI from outside the Soviet bloc. There are a myriad of other examples. In 2006, EM-MNEs were to be found in many industries. Some were resource-seekers looking for oil, gas or minerals, often in competition with developed-country counterparts; others operated in knowledge-intensive businesses, financial services, infrastructure services or products not easily traded such as cement (Cantwell & Barnard, 2006). Still others were in industries highly exposed to global competition, such as automotives, fastmoving consumer goods, white goods or pharmaceuticals (for more on this see Ramamurti & Singh, 2008). There is surely more room for growth of such firms. For one thing, significant parts of the world are still outside the domain of free markets.
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Countries like Cuba, North Korea and parts of Sub-Saharan Africa are not integrated into the global economy, nor are poor peasants in rural China or India as integrated into it as counterparts in prosperous urban areas. As pointed out by Stiglitz (2006), poor countries that do not have the roads or other infrastructure to move products cannot enjoy the fruits of open markets, nor do they have the skills to maximize their interests in complex international negotiations. Moreover, despite deregulation and major reductions in tariffs and government intervention, many economic activities are still highly protected in all countries – for example, farmers are subsidized in most developed countries, and airlines still operate in a regime that does not allow foreign ownership of national carriers (Aharoni, 2002). Another pocket of under-globalized firms involves state-owned enterprises (SOEs), many of which were created by governments as instruments of national policy and still enjoy preferential access to public resources and contracts. Quite a few are already involved in international production in industries such as in aerospace, armaments, energy and consumer durables (Aharoni, 1980, Anastassopoulos, Blanc, & Pierre, 1987; Vernon & Aharoni, 1981) while others have already been privatized. However, over time, many more will be placed squarely in private hands as a result of which they are likely to become more aggressive players in international markets (Vernon, 1979). In China, one can see such aggressive behavior even among SOEs that have been partly privatized or that have entered into joint ventures with foreign firms (Park, Li, & David, 2006). One indicator of the status of MNEs from any country is a comparison of its share of worldwide FDI outflows and worldwide GDP. By this yardstick, emerging markets are still under-represented in global FDI outflows: in 2005, at official exchange rates, they accounted for 25 percent of world GDP but only 17 percent of world FDI outflows. Using purchasing power parity (PPP), the gap was much bigger because developing countries accounted for 44 percent of the world’s GDP in real terms. However, the gap was closing and, in another decade or two, the shares at official exchange rates were likely to be closely matched. Even in 2005, MNEs from emerging markets were represented in a growing number of global mega-deals ($1 billion or more). In other words, globalization still has a long way to go before it achieves its full potential. As it does so, the national origin of MNEs is likely to diversify even further, the size distribution of MNEs will become more skewed and the number of industries in which MNEs operate will increase.
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A NEW BACKLASH AGAINST MNEs? MNEs have not always been seen as a positive force in society. In the 1960s and 1970s, anxiety about the growing power of U.S. MNEs was high around the world, including in Europe, while in the developing world that anxiety applied to foreign MNEs of all stripes. The proliferation of MNEs in the subsequent three decades should not be misunderstood to mean that the old fears about MNEs in host countries have dissipated. Quite the contrary, many of the old fears still persist but with one key difference as we see it: namely, that today those fears are high not only in emerging economies but also in the developed world, including the United States. In the 1970s, the rallying cause was the fear that MNEs would dominate the weaker and less sophisticated nation-states (Boddewyn, 2005). Their ability to move resources across borders or to use transfer pricing to minimize tax liabilities were resented. Servan-Schreiber (1967), in his bestselling book Le De´fi Ame´ricain, warned that U.S. MNEs would take over the European economy. Latin American economists railed against dependencia (e.g., Evans, 1979) and others feared the MNEs’ control of the commanding heights or the strategic sectors of the economy. Since the 1980s, new views of the MNE took hold, as governments substituted regulation and intervention with greater scope for free markets and competition. The welfare state and the state-owned national champion lost their lure, while private entrepreneurs became the new darlings of policy makers. In one country after another government failure came to be regarded as a worse evil than market failure. Deregulation, privatization and competition became the major slogans everywhere. The collapse of communist regimes and the breakup of the Soviet empire silenced any remaining skeptics of free markets and competition. Transition economies moved as quickly as they could to a market economy and integration with the world economy. Accordingly, governments all over the world chose to ignore tensions with MNEs and instead to court them to invest within their territories (Ramamurti, 2001). The advantages of additional jobs, technology transfers, exports and knowledge creation were perceived as outweighing the risks such as loss of national sovereignty, tax evasion through transfer pricing, ‘‘crowding out’’ of local private enterprise, sub-optimal technology choices or other negative spillovers in the host economy. UNCTAD documented in its annual World Investment Report the proliferation of investment promotion agencies, the mushrooming of bilateral investment treaties and the tendency to create a more hospitable environment for MNEs through regulatory changes.
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At the dawn of the 21st century, there was considerable anxiety about globalization in the developed economies at least as much as in the developing economies. This reversal of the traditional roles – in which the rich countries championed free markets and international openness, while the poor countries resisted it – occurred over the previous two decades. Going forward, there may well be a serious backlash against globalization in the EU and the United States. If that were to happen, the expansion of MNEs from emerging markets into developed countries may get slowed down. FDIs from countries such as China or India are already viewed with some suspicion in the West, and arguments of national security may be advanced to limit the acquisition of developed-economy firms by MNEs from developing countries. This was seen, for instance, in Lenovo (China)’s acquisition of IBM’s global PC business in December 2004, where the risk of China acquiring dual-use technologies or obtaining a U.S. platform for industrial espionage were among the concerns of the Committee on Foreign Investment in the United States (CFIUS), a multi-agency federal panel. Dubai Ports World, a firm owned by the UAE government, got quick CFIUS approval for its indirect acquisition of U.S. ports when it purchased the British firm P&O Steam Navigation Co. but later ran into a storm of protests from Congress and had to abandon its quest: Congress introduced various bills, which in some cases specifically addressed the DP World transaction – for example, to force a 45-day investigation, or to block the deal entirely. Other bills more generally addressed perceived problems with the oversight of foreign direct investment in the US – for example, to move the chair of CFIUS into DHS [Department of Homeland Security] and DOD [Department of Defense]; to establish a more active role for Congress in overseeing foreign investment decisions, including giving Congress the same veto power currently held by the President; or to require majority American ownership of US critical infrastructure (including divestiture of critical infrastructure currently not majority American owned). (Jackson & Dion, 2006)
Wolf (2004) and others identified several grounds on which acquisitions by EM firms in developed countries might be opposed. The foreign owner might be accused of competing unfairly, spoiling the environment, of shifting jobs from the United States or Europe to low-wage workers back home or of being unqualified to run the acquired operations. However, the most common worry is that the acquisition would threaten national security, especially if a foreign government owns the MNE. Actually, three-quarters of the Chinese firms in BCG’s list of the Top-100
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MNEs in emerging markets were partly or wholly owned by the state (BCG, 2006). The potential loss of jobs to emerging economies is yet another source of anxiety for rich countries. In the 19th century, people moved freely across borders in search of jobs and better opportunities. During the1890s, the inflow of immigrants to the United States equaled 9 percent of the initial population, in Argentina 26 percent and in Australia 17 percent (Baldwin & Martin, 1999, p. 19). In the century following 1815, around 60 million people left Europe to find better lives in the Americas, South and East Africa and Oceania (Hirst & Thompson, 1999, p. 23). In the 20th century, however, products, technology and capital began to move freely across borders but the movement of people became more restricted. In such a world, workers could not move to where the jobs were but it became easier for jobs to move to where the workers were. In rich countries, this boosted fears that jobs would move to places where they could be performed at the least cost, thereby ‘‘hollowing out’’ industries in the rich countries. Digitization and improvements in communications and computing technology made many services, including knowledge-intensive activities and even R&D, susceptible to the same kind of global optimization, striking fear in the hearts of not just blue-collar workers but white-collar workers as well. Indeed, in one developed country after another, protectionism has raised its head more in the investment area than on the trade front. Both U.S. and European governments have sought to check takeover bids, citing security reasons. Predictions of the demise of the nation-state and the creation of a borderless world have not been realized (Ohmae, 1995). Expectations that national business systems would converge to form a seamless global system have not materialized. According to Doremus, Keller, Pauly, and Reich (1999), multinationals continue to be shaped by the policies and cultures of their home countries even though they globalize their assets and liabilities. It is thus highly likely that developed countries will attempt to restrict what they would perceive as the takeover of their precious assets by foreign firms (Hitt, 2007). In this sense, we may encounter a selective globalization wherein some areas of economic activity are governed by market forces while others are restricted on the grounds of ‘‘fair trade,’’ market failure or national-security considerations. Economic reasoning is not the only rationale for a nation’s policy making. The first wave of globalization was shattered by four years of world war followed by decades of protectionism and beggar-thy-neighbor policies. Let us hope these mistakes will not be repeated!
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CONCLUSIONS AND FURTHER QUESTIONS Multinationals have proliferated since they first appeared, in numbers, areas of operations and national origin. They have changed considerably in response to four major shifts in the environment. 1. Government policy, which has become increasingly more welcoming of FDI, especially in emerging markets and not just in manufacturing but also in services. 2. Improvements in information and communication technologies, which have vastly reduced the cost of managing and integrating a globally dispersed value chain. 3. Bigger and more efficient capital markets, which have broadened access to capital for small- and medium-sized firms, including those in developing countries. 4. The strengthening of cross-border social networks among locals and overseas nationals (sometimes referred to as Diaspora), which has accelerated the cross-border flow of information and tacit knowledge and helped firms internationalize. As a result of these trends, MNEs are being spawned in more countries, in more industries and at earlier stages of a firm’s evolution than before. The vast majority of the world’s MNEs are small and, in the extreme, some are ‘‘born-global’’ firms. These changes have also transformed the well-established Western and Japanese MNEs. As the industrial world has given way to a knowledge- and information-driven world, established MNEs have learned how to manage across national borders and how to adapt to different markets and cultures. They have also learned how to collaborate in strategic alliances rather than seeking to be stand-alone superstars. More important, from a start as raw-material-seekers and tariff-jumpers, they have become efficiencyseekers and innovation-seekers. Today, Western MNEs seeks knowledge and ideas as keenly as they once sought natural resources or access to closed markets. They have learned to scan the world for new ideas, acquire startups, absorb knowledge from foreign subsidiaries and to integrate knowledge acquired in all parts of the firm. Their competitive advantages are based less and less on hard assets – such as factories, inventories or production skills – and more on intangibles, such as knowledge, intellectual property and relationships. These developments raise several questions that future research must address. A necessary condition for becoming an MNE is that the firm
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possesses firm-specific advantages relative to competitors. Precisely what ownership advantages do the newer MNEs from emerging markets enjoy and how did they develop those advantages in a relatively short period of time? What enables EM firms to invest ‘‘up-market,’’ that is, in countries richer and more advanced than their home countries, as opposed to ‘‘downmarket’’ as the product lifecycle theory would predict? And, how do the strategies of these firms resemble or differ from those of European, Japanese or U.S. MNEs? What is in fact the impact of an MNE’s country of origin on its strategy? We have educated guesses on these issues (e.g., Khanna & Palepu, 2006; Ramamurti & Singh, 2008) but more research is needed to provide definitive answers. Existing theory is not very clear on why some countries spawn MNEs and others do not, and precisely why the number of countries spawning MNEs has proliferated in the last two decades. Aliber (1970) suggested that the home country’s advantage is related to the strength of its currency. Other explanations are related to the supply of local entrepreneurial talent, the behavior of managers, the ability of the firm to innovate and the impact of governmental policies as well as the impact of technological changes. Another intriguing issue is whether the world will be dominated by a handful of mega corporations as Larry Bossidy, former Vice Chairman of General Electric, predicted in 1989: ‘‘By the latter part of the 1990s, there may well be fewer than 25 mega corporations in the world, about equally divided among United States, European and Far Eastern companies y The medium-to-large-size-generalists, serving a limited geographic market and without a specific niche, won’t be around anymore’’ (p.10). Yet, as we discussed, the number of multinationals in the world increased more than 10-fold after 1969. In contrast to Porter’s (1986) prediction, giant firms do not dominate many economic fields, even in global industries which are sometimes populated by a large number of domestic players. One example is the accounting industry but this is also true of some other service industries (Aharoni, 1999). Rugman (2005) would recommend that scholars focus only on giant firms since other firms are unimportant in the overall picture of world MNEs. We have strongly argued that the emergence of new born globals, the expansion of home countries to many more nation-states and the emergence of MNEs from developing economies may not be earthshaking in size but must have a place in IB theory. Such a theory should guide managers and policy makers in small firms and states as well as in the large ones. We thus suggest other questions for future research: How and why do small firms survive and thrive in a global world? When are they doomed to
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be acquired by industry giants and when can they quickly develop and sustain competitive advantages that allow them to remain independent? How does the behavior of large and small MNEs differ? What are the implications for IB theory as firms become MNEs not necessarily to seek resources but also to gain markets, increase efficiency, absorb new knowledge or be service-centered MNEs? More research is also needed on the relationship between MNEs and politics, including their impact on national sovereignty. As early as 1969, Charles Kindleberger (1969) claimed that ‘‘the nation state is just about through as an economic unit.’’ The expansion of globalization since the end of the cold war was seen by some scholars as making the nation-state obsolete. Yet, the last century has seen, on the one hand, the amalgamation of states into larger blocs such the European Union and, on the other hand, the fragmentation of states into smaller countries. The number of countries has more than doubled in the last three decades of the 20th century, rising from 96 in 1960 to 192 in 1998. The number of countries with less than one million people has almost tripled – from 15 to 43. Contrary to expectations, the MNE does not dominate host countries and globalization has not made states impotent. Why did earlier predictions prove incorrect? The relationship between globalization and the importance of the nation-state thus deserves more research. Most economists seem to agree that the benefits of FDI exceed its costs (Oxelheim & Ghauri, 2004, p. 10) and that both inward and outward foreign investments are beneficial, contributing to growth that might + otherwise not occur (Moran, Graham, & Blomstrom, 2005; Kokko, 2006). Others have argued for putting limits on foreign investments, such as restricting outward FDI that impinge on national security although defining the national-security interest is often controversial, or restricting inward FDI in the ‘‘commanding heights of the economy’’ although this seems to have lost much of its former appeal. Underlying these policy choices is the assumption that a firm’s nationality matters but this too deserves more study. For instance, what changes occur when a U.S. firm such as Ford or General Motors acquires a Swedish firm such as Saab or Volvo? Robert Reich (1990) claimed that what really matters is where economic activities are carried out rather than who carries them out because, at the end of the day, the outcome of interest is employment and job creation. For him, a Japanese firm producing in the United States is more beneficial to the U.S. economy than a U.S. firm producing (and thus creating employment) in Asia. Yet, a U.S.-owned Intel may be readier than an Israeli-owned firm to close a factory in Israel. These questions and
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comments, however, are hypotheses that need to be thought through carefully and tested in future studies. There are also a host of questions about the welfare implications and political fallout from globalization. How and why is globalization affecting income inequality across countries and within countries? Is globalization sustainable if income inequality within countries increases as globalization intensifies? The sustainability of globalization depends on finding satisfactory answers to policy questions of this sort. The next 50 years will undoubtedly offer opportunities for many fascinating studies as the internationalization of MNEs continues. Hopefully, researchers will be careful in defining the population they study, remembering that MNEs are now quite heterogeneous in terms of their national origin, size, reasons for overseas investments, industries in which those investments are made and perhaps also their strategy and structure.
NOTE 1. One should not make too much of such rankings because FDI data, especially stock data, for developing countries is not very reliable (see e.g., qualifications to UNCTAD’s data in its annual World Investment Reports, reported in http:// www.unctad.org/TEMPLATES/Page.asp?intItemID ¼ 3157&lang ¼ 1). We are grateful to Alan Rugman for bringing this point to our attention.
ACKNOWLEDGMENTS We thank the editor as well as Nakiye Boyacigiller, Mark Casson and Alan Rugman for useful comments on an earlier draft. All remaining errors are our own.
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OBSTACLES TO GLOBALIZATION: A RESEARCH AGENDA Jack N. Behrman ABSTRACT The potential benefits of globalization – seen as progressive worldwide economic integration – have been touted by many economists, government officials and journalists, but the obstacles to its acceptance are seldom assessed against its putative advantages. Some opposing observers, protest groups and a few governments have warned about the inequities and burdens of globalization. However, few have focused on the multiple obstacles to, or on the necessary policies and attitudes for, successful moves to globalization. International Business researchers need to encompass the multiple aspects in the political, social and cultural realms that are affected by, and involved in, the process of globalization and require acceptable treatment. A fundamental reconciliation is required between socio-economic systems based on relationships and those based primarily on market signals in order to reduce conflicts and achieve the necessary community of interests.
INTRODUCTION Globalization is hailed and cursed continuously. However, we must understand its scale and scope, roots and implications, threats and
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opportunities in order to evaluate its impact on practically everybody and everything now and later. Many research endeavors can stem from this search for understanding, evaluation and betterment. Among writers on globalization, there is no clear agreement as to what is to be ‘‘globalized.’’ As the world becomes more integrated economically, other facets of society are impinged upon, challenged or altered. A globalized economy cannot stand by itself; mankind does not live by economics alone. Global integration is similar to what exists within most countries that have achieved a ‘‘civil society’’ and is sought within the European Union (EU). Nations continue to pursue: (1) relative wealth and power (material growth, with order, security and stability), and (2) a community of interest that provides social cohesion through identity and respect accorded to individuals and the values underlying their culture that defines their concept of ‘‘the good society’’ (Financial Times, November 8, 2006, p. 11; The Economist, December 9, 2006, p. 58). These goals give rise to differences in national strategies that become obstacles to more extensive and intensive interdependence among nations. The pursuit of wealth and material progress through an open-market system is contrary in many aspects to the desire for social solidarity. These two goals have become major factors in determining the reception of globalization and thereby the role of International Business (IB) in moving the world toward peace and prosperity. Globalization is being encouraged by the United States, Europe, Canada, most advanced countries, plus intergovernmental institutions such as the World Trade Organization (WTO), International Monetary Fund (IMF) and World Bank. It is seen by these proponents as widely beneficial and virtually inevitable while much of the rest of the world may see it as eventually inevitable – but not NOW and not as projected by the advanced nations! The economic obstacles include disputes over trade policies, foreign direct investment (FDI), capital movements (especially short-term), exchange-rate policies, intellectual-property rights, movement of peoples, etc. Non-economic conflicts arise over equity in the distribution of benefits and burdens of adjustment, environmental disturbances and differences in cultural patterns and fundamental values. Economic integration cannot stand on its own and, the further it is pursued, the more political, social, cultural and psychological issues surface, making the process more complex. A major objective of globalization is the achievement of peace – as within the federated United States and within the EU. Member states of these and other integrated nations do not go to war with each other. Such integration
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does not resolve all problems although the arena and the processes of resolution are changed. Thus, even though some of the obstacles discussed must be removed or mitigated in the run-up to globalization – if it is to be gained – many will remain to be addressed within a globalized society. The research proposed here should be significant in making the moves to globalization more acceptable. The obstacles I will discuss are evidence of widely varying levels of progress among nations toward globalization, of their inability or unwillingness to adjust to changes in the world environment or international competitiveness, of the resources available within countries and their accessibility through trade leading to efforts to secure adequate supplies through non-market agreements, of their openness to movements of population and of the varying ability of governments to form appropriate policies to changing environments and competitiveness. The present situation is one of spotty integration along lines which are both restricted and potentially temporary – as with financial movements and immigration. This reversibility of global activities is key to the prospect for globalization, for the more it involves ‘‘temporary’’ collaboration or integration, the less has globalization actually been adopted. Research should focus on the ease of reversal and the likelihood of it taking place by an examination of the specific activities that are ‘‘flighty’’ in fact or in prospect. Besides, an assessment is needed of the impact of policies – such as regulations on FDI, accounting standards and intellectual property – that may support a more effective globalization or discourage it. Since economic integration (a key element in globalization) is principally put into effect by IBs, including financial institutions, IB academics have an important role to play in elucidating the promise and pains of globalization and suggesting ways through which governments and businesses can maximize the benefits and minimize the burdens of adjustments. Companies can act on their own in many ways to ease the anxiety over globalization, for example, by emphasizing social responsibility (Financial Times, October 6, 2006, p. 2; Business Week, January 29, 2007, pp. 50–64), self-regulation and ethical codes of conduct; these subjects are entering B-school curricula (Financial Times, January 15, 2007, p. 15), but they are often ‘‘honored by word but not by deed’’ among companies. However, governments are the overriding actors in setting supporting policies and imposing regulations to alter the results of globalization. Therefore, in analyzing the means of building an acceptable global economy, it behooves academics to make recommendations on government–business relations that would enhance the prospects of success.
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THE CONCEPT OF GLOBALIZATION In focusing on research agenda, the content of globalization must be delineated so as to focus on its operative elements and avoid confusions arising from inclusion of irrelevant activities or issues. For example, ‘‘globalization’’ has at times been said to include all exchanges across borders (communication, finance, trade of all sorts, transport and tourism), intergovernmental agreements and even peacekeeping operations. Many of the purported attributes of globalization are, in fact, nothing more than cooperative arrangements or concerted action among nations that are not ‘‘integrative’’ and do not increase the mutual dependence that would lead to a ‘‘community.’’ There are numerous intergovernmental agreements (reportedly 500 bilaterals between the United States and another country, and over 5,000 overall) and institutions that have done little to integrate the world – e.g., in meteorology, in the postal arena, on intellectual property, on wages and working conditions, on migration and acceptance of refugees, on airlines, on the oceans and fisheries, on global warming, etc. – but have increased efficiency or helped resolve issues among nations. And there are other issues that require collaboration but are not integrative – such as terrorism, disasters, piracy, protection of human rights and the Internet (Financial Times, March 17–18, 2007, p. 7, where national controls are said to dominate). The Internet is merely a process and is not itself integrating: the medium is not the message; it carries any and all messages, contradictory and conflicting, moral and immoral. In fact, historically, trade was not integrative but was rather, a process of maintaining separation of economies through the exchange of products and services based on comparative advantages, instead of merging the resources and activities of nations, which changes the comparative advantages. But, today, a large portion of world trade is between a parent company and its affiliates abroad and among these affiliates, implementing an integration that was one of the corporate objectives.1 It can also be questioned whether the activities of the World Bank, the IMF and other intergovernmental financial institutions have a goal of greater integration since it was not in their charters. Integration, as evidenced by the formation and activities of the EU, implies extensive commonality of policies and practices – particularly, those expanding the freedom of movement of capital, resources and peoples to achieve greater efficiency and potential progress. Mobility, in this context is a key element in both social and economic integration. These purposes are buttressed by a community of interests broad and deep enough to permit and elicit
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compromises rather than conflicts or separatist policies on many issues. Not even the EU community, however, is strong enough to accept a more integrating constitution. Unification is not necessary in all aspects but harmonization and accommodation are, at least. The world is far from the extent of integration even in the EU, and there are major obstacles within it that slow its internal progress and still others that make accession of other countries difficult. The world today is one in which the advanced countries have drawn closer economically through FDI (with China and India rapidly, Russia more slowly and Brazil still more slowly), the merging of financial institutions across borders and technology transfers that link productive resources among nations – not those that merely pass know-how that buttresses a competitor in the local market. But the emerging economies lag behind in all three aspects, leaving the world far from ‘‘Flat!’’ It may not even be desirable to gain a ‘‘flat world,’’ because considerable diversity would likely be lost. A useful research project (not mentioned as an obstacle below) could assess the benefits of diversity in political, social and cultural realms, as with diverse comparative advantages. Nor is it likely to be feasible to achieve the oft-stated goal of a ‘‘level playing field’’ of open opportunity, because national resources and personal capabilities are not readily (or desirably?) meshed toward equality – again, research is needed to guide public policies and the urgings of companies. Even more difficult (and so far unsought) is an accommodation among the underlying values pursued by each country and its operative leadership. Globalization would provide a structure for continuous cooperation and collaboration, involving commitment not to withdraw from the agreed-upon structure and diminishing control by the national members (Business Week, November 20, 2006, pp. 57–62). In this sense, sovereignty is reduced, but autonomy remains – as among the 50 states of the United States – producing problems that require resolution through harmonization and tolerance of differences (Financial Times, March 27, 2007, p. 15). To the extent that the sovereign act of withdrawal from the globalized structure is feasible, to that extent globalization has not been accomplished.
RESEARCH DESIGN In seeking accommodations that make globalization acceptable, the research on obstacles discussed below should focus on four facets of each. First, an agreement on the facts as to the nature of the issues and the bases of opposing views. Research should begin with an assessment of the opposing
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policies of national governments and the protests of non-governmental groups. Dissatisfaction with the present circumstance will be a catalyst for change. But if dissatisfaction is not sufficiently pervasive, an allencompassing threat may be required to generate significant dissatisfaction and willingness to change worldviews. In analyzing each obstacle, is there a threat and what is its nature? Will it be environmental disasters involving major elements or areas of the earth such as global warming or water scarcity? A totally disruptive migration of peoples seeking a better ambience and environment for themselves? Over-population? Depletion of energy sources that alter life-styles and opportunities? Would replies to threats lead to the loss of freedoms through acceptance of authoritarian governments for the sake of security, thereby diminishing the prospects for globalization? Second, a vision of an acceptable adaptation to the goal of globalization. Does this vision imply the expansion of individual and organizational freedom of choice and action for all people in all aspects of life? The offering of dignity and equal opportunity to all individuals? Does freedom have a complement in ethical responsibility and tolerance of others, recognizing that ‘‘The only idea or action that tolerance cannot tolerate is intolerance’’? How does mitigation of the obstacle studied fit with these objectives? Are there underlying requisites of mutual responsibility such as Trust, Honesty and Integrity that lead to Balance and Harmony in personal life and in relations with others, with candid and forthright communication, fulfillment of promises and agreements, an equitable resolution of conflicts, and a pattern of cooperation in competition based on compromise, compassion and collaboration?2 Can a realistic vision for a globalized world anticipate generalized peace and prosperity through the removal of the ills of society (poverty, disease, squalor, ignorance and environmental degradation), that includes not just material choices but balanced development of all aspects of life (individual and societal)? Is this a realistic and catalytic vision? If not, what is it for each obstacle? Would removal of the obstacle help in the progressive integration of economies and of societies through exchanges of all dimensions and political harmonization through mutual sharing and community building? Third, the means of closing the gap between present circumstances and globalization. All proposed means should be tested under criteria of realism, relying on both theoretical and empirical analyses and applying tests of ‘‘reasonableness’’ – i.e., logic and rationality modified by cultural imperatives among the participating nations. These should lead to recommendations for the accommodation of differences through international standards,
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harmonization of policies and practices, greater equity in benefits and burdens and compensation for remaining inequities. An assessment should be made of the difficulties (economic, political and social) of making the recommended adjustments to policy and practice by governments, business and society – whether unilateral, bi- or multi-lateral, or through regional or intergovernmental organizations. For example, can the adoption of acceptable behavior (ethics), the acceptable distribution of benefits and burdens (equity) and the threats of exclusion merge into a single strategy that moves toward a reconciliation of differences among nations and peoples? Fourth, means of generating the ‘‘will to action.’’ The lack of will has been a major stumbling block for reform through the centuries, as seen recently in EU’s ducking the issue of ‘‘burden sharing’’ (Financial Times, March 10–11, 2007, p. 2). At times, the will can be catalyzed by incentives and sometimes through threats (as with the European Coal and Steel Community, leading to the European Community and later to the EU) – either might encourage advance toward the agreed goal. Does the generation of sufficient will require the presence of a dominant leader or is leadership from the people feasible as with the Velvet and Orange Revolutions in Central Europe? In meshing the research on the various obstacles and means to alleviate them, it will be necessary to determine the characteristics of globalization that are acceptable to all participating nations that is, what is their vision of a world at peace and pursuing a pattern of progress wider than mere material consumption? This complex goal can be researched by focusing on each obstacle but each must eventually be framed within the totality of greater mutual interdependence in pursuit of common objectives and non-conflicting values. This holistic orientation has not been encompassed by academic research in business schools or institutes, but globalization is a systemic process requiring a synthesis that promotes the ‘‘common good.’’
OBSTACLES3 Through an analysis of the policies, protests and environments relevant to globalization, a number of obstacles can be discerned. The most critical is the existence of armed conflict within and among nations. War and armed riots prevent the capitalist system from working and consequently block globalization, which requires market economies as participants. However, remedies for such conflicts are not normally within the purview of IB academics. It is, simply, that peace among the participating nations is a prerequisite for globalization while the integration involved in globalization would perpetuate peace.
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The obstacles noted below are directly important to the pursuit of IB within globalization and are within the research capability of academics. They are categorized by the major characteristics of nation-states: political, economic and social/cultural – in reality, these are not clear distinctions because they overlap. Within any country, they are meshed in a variety of ways; hence the need to keep a focus on interplay and inter-reliance of these elements as assessments are made and recommendations are formed.
Political Obstacles Incompetent Governance – Corporate and Government – and Different Abilities in Policy Formation in Various Types of Government Governance has been defined by Paul Wolfowitz, former Director of the World Bank, as ‘‘the combination of transparent and accountable institutions, strong skills and competence, and a fundamental willingness to do the right thing.’’ The World Bank has expressed concern over incompetent and corrupt (‘‘abuse of public provision for private gain’’) governance and has offered recommendations for improvement. The coalitions in Italy from deals among core shareholders are a case in point (Financial Times, March 28, 2007, p. 9). The emerging countries have the greatest need for improvement in corporate governance because of the recent rise of larger commercial and industrial organizations,4 a lack of traditional patterns that would facilitate the introduction of appropriate procedures and the absence of regulatory requirements for good governance. There remains much to be desired also among corporations in advanced countries (Financial Times, May 27 and June 3, 2005; The Economist, January 22, 2005, pp. 3–22.) However, good public governance is prerequisite to that in corporations because governments make the regulations and provide enforcement.5 Inadequacies in governance within governments are seen in corruption, incompetence, lack of appropriate institutions or even in institutional structures that can be adapted appropriately for the many different missions, and also in the absence of enforcement mechanisms such as are usually found in regulatory and judicial systems. Research on government institutions and behaviors should include assessment of the various laws and regulations covering property rights, torts, incorporation, accounting and audit, reporting and transparency, board composition and responsibility, rights of unions in bargaining and provision of social services by companies. For the purpose of analyzing their impacts on globalization, the significance of differences among procedures of governance should be assessed
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along with the minimum requirements for harmonization to mitigate conflicts or adverse conditions. Research should demonstrate the extent of such inadequacies in all countries, whether they are sector-oriented, culturebased, or failures of ethical norms. It should also address the damage to progress in globalization and the potential remedies. Inadequate or Lack of ‘‘Civil Society’’ President Putin of Russia avowed that he wished to institute ‘‘civil society’’ in order to join fully in the world economy. He recognized that establishment of the rule of law, human rights, protection of private property and contract, clear and appropriate regulations, transparency, freedom of speech, etc. were basic to the major democratic countries, and Russia has wanted to be seen again as ‘‘a Great Country’’ and among the leaders. The existence of ‘‘civil society’’ in a country is a strong attraction to FDI and the long-term contractual relations offering technology transfers. Besides, it provides a ‘‘favorable climate’’ for business (domestic and foreign) that is recognized as valuable by the advanced countries and provides a potential harmonization of basic values underlying the economic, political and social systems. Since no country has been able or willing to institute all the elements of ‘‘civil society,’’ research should focus on the extent to which each aspect is ‘‘key’’ to making further globalization acceptable. Over the past few decades, there seems to be a ratcheting-up of requirements within ‘‘civil society’’ but the extent to which they are involved in promoting globalization is not clear. Thus, multinational enterprises (MNEs) have considered dictatorships to be, at times, quite favorable to their interests and have moved into those economies even though the longer-run results are not always felicitous. For example, some U.S. companies were attracted to Iran under the Shah, getting favorable receptions and concluding that the government was stable but both conditions were later eliminated. Presently, multinationals are attracted to China which is far from a ‘‘civil society’’ but, again, they are attracted by opportunity and presumed stability. Useful research can be conducted on the risks in China from the absence of human rights, free speech and transparency, and from the existence of corruption, complex and confusing laws and regulations (frequently changed), and the conflicts between national, provincial and city governments – and, of course, the extent to which these gaps affect the progress of globalization. Studies of Brazil, Russia, India and China (the BRICs) which are projected to take leadership in the world economy in the next decades, as to the likelihood and timing of their introduction of the tenets of ‘‘civil society’’
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would be instructive of the prospects for globalization (The Economist, September 16, 2006, pp. 3–30.) Their integration into the world economy will be significantly at the hands of MNEs (U.S. News and World Report, July 31, 2006, pp. 42–48). Political Populism The historic objective of populism in politics is to gain support of the mass of the population by raising expectations of greater benefits from the government. The promise of relief to the populace has been used in many countries, especially in Latin America where the culture has emphasized the responsibility of the Patron to take care of and guide the lives of workers on a plantation or in a company, but also in east Europe (Financial Times, October 1, 2006). Populism frequently involves the nationalization of former private corporations, especially if foreign-owned. Such ‘‘takings’’ may reduce (integrating) direct investment inflows by signaling aggressive policies even toward domestic enterprise (e.g., Venezuela and Bolivia in 2006/2007 and others in the 1970s).6 Populism, if it involves a re-distribution of income and wealth through government action, may have untoward effects on the process of globalization. However, such effects may be precisely those sought by the government to stop or mitigate globalism. Research should assess what impacts such populism has on globalization and whether or not the promised benefits are likely producible and provided. Inadequate ‘‘Community of Interest’’ A community of interest is required for cohesion of any group and is necessary both within and among nations to maintain an acceptable modicum of peace. When such a community is absent, some nations have adopted autarky, seeking to isolate themselves from others. Autarky may be employed to gain and maintain tighter control over the domestic economy and society because foreign entanglements make authoritarian and dirigiste approaches less feasible. Hence, attainment of a functioning and continuing community of interest is necessary for successful globalization. But how much integration and in what aspects are needed to gain a functioning community of interest? It obviously stops short of political federation although the EU is still struggling with the concepts of ‘‘functioning and continuing’’ in their community. Is there one progression of integration that is more effective than others – such as economic before political or social?7 How can pursuit of ‘‘the common good’’ in a cooperative and collective manner become the norm? Is a change in attitudes or ‘‘worldview’’ a
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prerequisite to the formation of a community which encourages people to ‘‘do the right thing,’’ seeks ‘‘equality of opportunity’’ for its members, permits the securing of mutual benefits, and encourages compromises that enhance equitable sharing in the benefits and burdens of adjustment? If mind-sets are changed more readily by threats/fear than by potential gains, what new circumstances must be adduced and perceived that are strong enough to cause re-assessments and a willingness to change? Are collective pressures more catalyzing than single issues? Are perceptions of worldwide challenges more catalyzing than regional or bilateral ones? How can attention be focused equally on longer-term issues, compared to short-term and proximate ones? What is necessary for the people (as followers) to come to the same convictions as those attempting to lead the desirable changes toward globalization? That is, how to broaden the bases of support for globalization in pursuit of ‘‘the common good’’ through globally acceptable means? Does the appropriate mind-change require ‘‘a New Man’’ – not ego-centered, not highly materialistic, not discriminatory among peoples, treating others as they would like to be treated (as urged by all major spiritual leaders) and willing to open opportunity to all who accept the same tenets of ‘‘Civil Society?’’ Can a globalized world accept the isolation of some nations which do not establish Civil Society? Is democracy required for successful globalization or can authoritarian governments adapt appropriately? For example, can stateowned companies participate fully in a global market-system or will political elements be injected into markets to skew the results? Quite specifically, can China and Russia (and more recently Bolivia and Venezuela) be fully accommodated in a global polity, economy and society? Research, therefore, is necessary on the forces which help develop such a community of interest and the factors in play in individual nations, which reduce their participation in such a community. To address the multiple issues involved, what is the size and composition of the community required to include all participants having a stake in each issue? Different issues will need different groups, so that recommendations need be addressed only to those related to the issue. And not all issues need to be addressed simultaneously. In the longer run, what major issues will need to be globalized to provide sufficient cohesion for continuing success? Power and Security During the 18th, 19th and 20th centuries, the prime objectives of nationstates were wealth and power: wealth to gain military power and military
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excursions to obtain wealth through control over resources and markets – generally through colonialism. Both goals encouraged expansion, as under Mercantilism. But more recently, especially under threats of terrorism, nations and individuals have placed a higher order on security to hold what they have as is especially the view of some leading elites. This shift of emphasis has direct impacts on the process of globalization through a reduction of cooperation in some fields and an expansion of cooperation in others. Research should focus on the issues in each category to determine what might be done to enhance cooperation and mitigate the concerns over security – beginning with a determination of what is to be made secure and the means of doing so for each nation or group of nations acting in association. Will lack of security and respect for a nation or culture encourage its opting-out? Leadership What sources of leadership are likely to form for moves toward globalization? Given the obstacles discussed earlier, it can be recognized that there is a paucity of leadership with a vision of a more peaceful world supported by a more competitive/collaborative world economy (Financial Times, September 27, 2006, p. 15; The Economist, September 30, 2006, p. 11). Since any such extensive and intensive changes as would occur under globalization will require strong and cohesive leadership among participating countries, research should focus on how such leadership can be generated, come into high positions and promote and support policies appropriate to the mitigation and removal of obstacles. Many leaders have asserted that they are committed to globalization – George Bush, Tony Blair, Angela Merkel, Vladimir Putin, Shinzo Abe and Hu Jintao – but their actions speak louder than their words, which are sometimes more obstructive than supportive, evidencing a strong doubt about the cost/benefits of globalism. Are the leaders the ones who embody nationalistic fervor and the protection of national sovereignty – protecting their own positions of prestige, power and wealth – or are these endemic in the populace? Recommendations are needed as to how to choose competent leaders with new attitudes and commitment to globalization – or how to change mindsets of existing leaders and their supporters. Research could draw up a balance sheet of supporting and delaying policies and practices, nation by nation, to show where the most difficult transitions are yet to be made and what modes of leadership would be required by the arms of government or the private sector.
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Bureaucratic Rigidity in International Economic and Political Institutions Support of globalization by intergovernmental institutions should follow from the priorities of government members. Yet, such roles are not primary in the United Nations (UN), the World Bank (IBRD), the IMF, the World Health Organization (WHO), the Food and Agriculture Organization (FAO), the World Intellectual Property Organization (WIPO), the WTO, the EU and the Association of Southeast Asian Nations (ASEAN) (Financial Times, October l3, 2006). These institutions reflect the views of national governments but also have independent responsibilities and policies that are relevant to globalization. Yet, many of these institutions have tended to become more rigid in their policies and practices than is appropriate for the flexibility needed in moves toward globalism. Internal differences have slowed progress within the EU and new initiatives will be needed (Financial Times, March 21, 2007, p. 13). Reform is necessary in their goals and approaches, and it has been urged on most of them (from within and without) with respect to specific programs and structures. Research on each of them is needed to determine their appropriate roles and how they might be induced to redirect their efforts. Does the fact that they have not done so already imply that member governments are reluctant to take steps through them to accelerate the introduction and implementation of policies supporting globalization? Given that the activities of many of these institutions are tied together in their pursuit of policies that cross their mutual lines of interests, research should be coordinated so that the resulting recommendations take into account the responsibilities and prospects of all in an integrated fashion.
Economic Obstacles Inequitable Distribution of Benefits and Burdens Equity within and among countries is a prime requisite for the acceptability of globalization. Questions of equity have been studiously avoided by academics in the social sciences, especially economists and business professors.8 Yet, both companies and governments must offer some semblance of equity to gain acceptance of their roles in the economy and society. The lack of domestic equity can be an obstacle to globalization through claims by groups for resources that might otherwise be directed to a stronger competitive position internationally – as is the present case with India. A report by the World Bank on prospects for East Asia concludes
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that insufficient ‘‘domestic integration’’ is an obstacle to growth in the region which is urged to spread wealth more evenly (Financial Times, November 15, 2006, p. 5). Domestic inequities often arise from the lack of a middle-class that prevents the distribution of income and wealth from being bi-polar. The distribution and re-distribution of incomes is a critical element in the economic orientations and power of the people – affecting not only consumption patterns and the availability of exports but also the structure of production, opportunities for employment and the level of corruption. They also affect the educational orientations in a country, especially the pursuit of knowledge-based careers. Research should focus on the impediment to globalization from internal disputes over income inequities – ‘‘equality’’ is never the real issue although the word and concept is often urged in the dialogues – thereby seeking to help mitigate the inequities that encourage opposition to globalization. The sources of inequities are usually based in domestic policies and structures, rather than international, but globalization is often protested as increasing the levels of poverty – both within and among countries. In this research, analyses will be needed of the factors enhancing economic growth, since equity issues are more readily resolved in an expanding economy than in a stagnant one. Inadequate Data, Information and Transparency The role of information – adequate, accurate, timely, relevant and understandable – is key to an efficient market economy. For rational decisions in a market, both buyers and sellers must have equal access to information. Trade, investment and technology transfers will be more satisfactorily transacted if information is gathered, processed and distributed with the above characteristics. This responsibility devolves on all those generating information through business activities and those recording and storing information – namely accountants, auditors, market researchers, financial analysts and government agencies. A major field of research is the need for harmonized standards and the difficulties of obtaining sufficient harmonization to make cross-border decisions information-based. A second one is the increasing moves to take major decisions out of the realm of public information through hedge funds, private-equity groups and special financial instruments – such as derivatives. Research needs to elucidate the effect of covert information and activities on market opportunities and, thereby, on the ability of both advanced and emerging countries to be informed appropriately. The potential connection
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between lack of information and poverty within and among countries should be examined, and the relation between information and power – economic and political – is an important research topic, given that many countries are without well-functioning markets and instead rely strongly on ‘‘relationships’’ in decision-making. Do those with appropriate information have superior power in decisions, plus the ability to pass on selective information and thereby skew market results? Finally, research should focus on the attempts to manipulate the gathering and dissemination of information and the impact of such efforts – especially if successful – on globalization’s acceptability. Finance versus Manufacturing The overarching emphasis on speculative finance compared to the attraction of manufacturing is a relatively recent phenomenon. Advanced economies have moved more strongly out of manufacturing into services and more recently into financial speculation and gambling. Is the increasing activity among financial institutions generating an appropriate globalization or a higher level of risk and uncertainty that may reduce the attraction of integration elsewhere in society? Does the speculation in asset prices (as in housing and commodities) and in stock markets lead to dangerous bubbles as an increasing percentage of the populations in advanced countries turn towards ‘‘making money’’ instead of ‘‘making products,’’ ‘‘building a career’’ or even ‘‘creating a life’’? Does the extreme of the speculative bent in the attraction of gambling – among sports events, in casinos and on TV – become a diversion away from desired elements of economic growth and globalization? Academic research seeking to understand the underlying forces affecting competitiveness among nations (and thereby their willingness to accept globalization) should turn its attention to the impacts of speculation versus investment in the structure and growth of all countries – but especially the advanced economies. For example, what is the reality between disturbing and equilibrating speculation and its impacts on globalization? Does the pursuit of ‘‘money and power’’ damage real growth prospects or does it enhance the sources of finance to oil the wheels of production and commerce? Bilateral Agreements and Regional Associations Are partial integrative moves substitutes, necessary steps toward or detours to divert from globalization? The benefits of open markets and economic integration are so well recognized that many nations have entered into
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bilateral or regional agreements to gain them because globalization appears less attractive or more difficult to achieve. At the same time, there are problems in opening economies and societies even within the regional associations already formed – as in the EU and the ASEAN agreements. The difficulties within these groupings can be pointers to the obstacles that will arise in globalization. These problems need to be researched to determine whether they are steps toward globalization or have been structured so that they will make it more difficult to achieve worldwide integration? Research projects would include the desirability of an international monetary system (with or without a global central bank),9 international laws on incorporation, harmonization of anti-trust laws and regulations on restrictive business practices, common regulations on working conditions, standardization of accounting practices, the mitigation of global warming, reduction of pollution of the air and water, technology transfers and behavior of multinational corporations.10 Finally, how damaging to globalization would be the ‘‘opting out’’ of such agreements on the part of ‘‘key’’ countries or the emerging countries en masse. How likely is such an event? Protectionism The current international environment is rife with protectionism versus open economies. Protectionist reservations have long existed in trade and tariff negotiations for national security, infant industries, agriculture, health and sanitation, dumping and key industrial sectors (Financial Times, October 7, 2006, p. 13; The Economist, December 9, 2006, pp. 73–75). Moves to globalization have seemed to intensify protectionist sentiments in virtually every country – the United Kingdom may be an exception (The Economist, February 3, 2005, pp. 3–16). Protection has recently been used to prevent important resources and technology from being exported, to subsidize sectors where significant unemployment is threatened and to support ‘‘corporate national champions’’ (through trade or FDI restrictions) aimed at achieving worldwide competitiveness for them or preventing foreign incursions – United States, France, Germany, Italy and others in steel, aircraft, airlines, electronics, resources, etc. National regulations on crossborder mergers and acquisitions have been used to circumvent the authority of the EU Commission. Research would include an assessment of whether such protectionist policies or practices relieve the angst against foreign incursions so as to gain support for globalization in other aspects or impede the progress toward globalism overall.
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Inadequate Education and Skills-Training The entry of emerging economies into international transactions has uncovered a lack of education in science and technology and the associated skills necessary to support new enterprises (The Economist, October 7, 2006, pp. 3, 24.) These inadequacies also affect the ability to identify and absorb technologies needed in global competitiveness. In some countries, the discriminatory treatment of women and various minorities adds to other inadequacies since potentially valuable capabilities in entrepreneurship and jobs are lost. Virtually all countries show the effects of low standards of education, high drop-out rates of students, low accomplishments in key disciplines of math, science and language, but emerging countries remain further behind. The consequences of these inadequacies in each country are researchable and lead to predictable attitudes and abilities to adjust to the process of globalization. Remedial policies may be difficult to elicit, but realistic recommendations should be offered. Adverse Impact on Wages Complaints are heard in both advanced and emerging economies that globalization is holding down or reducing wages, especially in the sectors involved in trade, out-sourcing of services or stages of production and in those directly affected by FDI and technology transfers. In advanced countries, the complaint is that competition from low-wage countries is forcing unemployment and reducing wages. If unions or workers press to maintain their wages and working conditions, they are faced with a threat of relocation of production to overseas suppliers. Closing of plants for these reasons has severely damaged affected communities. In emerging countries, the opportunities for increased local production and exports should result in higher employment and wages but labor moving from rural to urban areas is sufficient in many countries (e.g., India and China) to keep wages low. However, working conditions are frequently sub-standard, leading to what was called in the 1930s ‘‘social dumping.’’ The benefits of globalization become questionable in the face of such inequitable results for workers.11 Some research has been conducted on the impacts of MNEs on wages and working conditions in emerging economies but less has been done on the impacts on labor in advanced countries. Whereas labor groups in the United States used to be in favor of freer trade, supporting the negotiation of reduced tariffs and trade barriers, they are now increasingly protectionist. Business professors have tended to leave labor and labor unions outside the
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purview of their research. They can no longer do so if they are concerned to assess the benefits of, and obstacles to, globalization. Uneven Environmental Impacts and Policies There is increasing agreement that threats to balance in global ecology are significant in potentially reducing growth by damaging the resources of the earth and the ability of humans to remain productive. The threats are most critical in the arenas of global warming, scarcity of water, pollution of air and water, deforestation, damage to estuaries, fisheries and sea life, extreme weather conditions and arid deserts. Although business researchers may not have expertise in these subjects, they are capable of assessing the potential damage to global business and the willingness of companies to help mitigate these dangers. Research should focus on the reality of the threats, the means to mitigate them (regulations and their impacts), the responsibilities of business (particularly, MNEs), and the policies and practices of governments – with an analysis of costs and benefits and of the diverse recommendations proposed by various concerned groups (e.g., NGOs). Increasing Risk New risks have arisen in the world from the increasing spread of market decisions. Movement from economies and societies based on ‘‘relationships’’ to those dominated by market-signals produces turbulence (within and among countries) in adjusting to the new structures, policies and practices of globalization. If each takes measures independent of others to mitigate these risks, the results are likely to be dis-integrative. Such risks are likely to lead to protests against globalization, especially because they will be borne inequitably – the rich are able to bear the costs and sustain some losses while the poorer groups have less reserves and options. The result is likely to generate a fear of the competitive challenges and of the unknowns arising from changing market signals and potentially turbulent economic cycles. The research should address the difficult task of reducing risks or mitigating their adverse impact on individuals and countries. Inadequate Infrastructure and Energy Lack of adequate transport facilities – roads and trucking, airlines and airports, shipping and ports – and of alternative sources of energy militate against some countries’ willingness to join in globalization. Despite increases in investment, infrastructures remain inadequate. Only communication services are accelerating the options for integration among peoples
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and among multinationals through increased intra-company trade and technology transfers.12 The competing costs of infrastructure and social programs have slowed infrastructure investment in some major countries – e.g., India, where social solidarity and humanitarian programs are pressed as proper alternatives to improved infrastructure. Besides, little assessment has been done of the impact of alternative energy sources on globalization.
Social/Cultural Obstacles Corruption in Public, Private and International Institutions In the words of James Wolfensohn, former President of the World Bank, corruption is ‘‘a cancer on the development process’’ (Financial Times, September 26, 2006, p. 5). There is enough research on the existence of corruption within and among corporations (Financial Times, May 7, 2007, p. 1), government ministries and agencies and international institutions to document its pervasive and deleterious impacts. (On corruption within and by the World Bank itself, see The Nation, May 14, 2007, p. 10 and Financial Times, May 7, 2007, p. 9.) However, there is little demonstrating how it makes globalization less acceptable or effective in bringing progress to the world. Research into the effects of such practices in the BRICs, Indonesia, Israel, Italy, France, Germany, the U.K. and the United States should catalyze the voting public in any democratic country to insist on means of reducing or eradicating corruption. The World Bank has admonished members evidencing corruption but the latter is deeply imbedded in both emerging and advanced countries and even the UN. It will require direct and strong public evidence of its costs in thwarting economic and democratic sustainability before sufficient pressure will be built to correct the situation. It is such a significant obstacle to the building of community that the following aspects of a research project are offered on the sources and locus of corruption: Ministries and agencies that impose stringent requirements on business or individuals for the purpose of obtaining bribes (formerly called ‘‘ripper laws’’) and practicing extortion; Evidence of pervasive corruption, country-by-country and institution-byinstitution, with evidence of its deleterious effects through diversion of resources or consumption, that inhibits improving the lot of the poor; Assessment of the different perceptions of corruption in various cultures – its acceptance, even if disliked or illegal;
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Pure greed among private companies, with lack of regulatory enforcement and inadequate auditing; The pervasive desire to obtain wealth or privilege that cannot be obtained (or obtained only with considerable effort or good fortune) under market signals; Eagerness to avoid the constraints of the market through nepotism, coalitions, cartels and anti-competitive restrictions; Evidence of the damage to participatory democracy and the willingness of aid donors to provide needed capital assistance; Recognition of the extensive efforts by some governments, corporations and institutions to minimize or eradicate corruption in various forms, Proposals for further reduction of corruption in all societies, so as to enhance the acceptance of interdependence within a global society and economy. There have been several conferences between President Putin and entrepreneurs in Russia on the damage of corruption to economic growth, some held in Washington with interested institutions, and there are numerous articles in the professional journals and the media but a focus on its hindrance to globalization and establishment of civil society is often lacking. All civil societies include procedures for the correction or punishment of miscreants but advanced countries (with higher GDP and lower growth rates) control corruption more tightly than the emerging economies. Research should encompass an assessment of what will be necessary to expand such procedures to cover corruption abroad by companies and individuals, including corruption in multi-countries by the same actors. Identity One of the principal elements of any culture is the psychological issue of ‘‘identity’’ – to what group, community or nation do I belong, from which I obtain my feeling of who I am? The question of the ‘‘identity’’ of individuals and peoples is seemingly paramount in their minds, leading at an extreme to conflicting ethnicities (The Economist, October 21, 2006, p. 68). Although national and cultural identities are being broken down within MNEs, outsiders affected by the MNEs do not accommodate as readily. Consequently, ‘‘love-hate’’ reactions occur toward FDI expansion involved in globalization, especially if they substitute for local entrepreneurs or organizations rather than adding innovative activities. Research should focus on the experience within the EU of changing ‘‘identities,’’ especially in the younger generation, since many have claimed
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to have become ‘‘citizens of Europe’’ instead of (or in addition to?) their home countries. To become a ‘‘citizen of the world’’ is much more difficult and unlikely to occur for some time. However, the impact of the search for identity is one of the most critical elements in a globalized world for it tends to separate people. Isolation within a selected (i.e., ethnic) group is in opposition to the integration involved in globalization; but in what ways and to what extent is this issue researchable? What changes are needed in personality and loyalty to expand the ‘‘identification’’ of peoples to encompass multi-cultures? Ethical Behavior An adjustment of ethical systems will be required from being culture-bound in each society to harmonized behavior across national cultures. The headlined cases of unethical behavior within and across countries have caused business schools to emphasize courses and other means of raising awareness of the ethical expectations of executives (present and future) at home and abroad and of corporate responsibilities (Financial Times, January 29, 2007, p. 5). Leadership is now being modified by the adjective ‘‘ethical’’ but followership must also be ethical to achieve a ‘‘civil society.’’ Research should focus on the differences in ethical systems among nations seeking to participate in globalization and on the extent to which they might be harmonized with others or are likely to run into irreconcilable differences. Some corporations have instituted codes of (ethical) behavior but have not always applied them effectively, and several of them are exposing their executives to cross-cultural aspects of management and values (Business Week, October 30, 2006, pp. 84–100). Research exists on these issues within the United States, but cross-cultural research has not adequately addressed this underpinning of civil society, as would be needed in globalization. Migration of Peoples Impacts of migration of peoples (in groups or by individuals) on both the exited and entered countries needs further research because their effects are being contested. Migration has been a fact of life in world history, caused by a variety of pressures. More recently, as a result of a turbulent world and oppression within a country, large groups have sought havens in other more convivial environments. Whether such massive migrations bring orientations to globalism or add to the desire for isolation from past experiences and locations is important and researchable. In some instances, the immigration of groups with similar
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abilities to those of locals changes employment patterns and levels, causing a reaction against immigration. A further impediment arises from the lack of sufficient assimilation of the immigrants or their treatment as unlawful aliens. The cohesion of immigrants may become so strong that new communities are formed, leading to a conflicted ‘‘multi-cultural society’’ rather than one tolerant of such diversity. Further, ties with families left in the home country can affect funds flows across borders, altering exchange rates in ways that affect commercial exchanges and diminish receptivity to globalization. Research is feasible on the nature, forms and extent of assimilation among immigrant groups in the United States – English, Poles, Germans, Italians, Irish, Chinese, Japanese, Mexicans, Cubans and many others. When amnesty was granted in Los Angeles to undocumented aliens in the 1980s, citizens of 140 countries showed up. The experiences in the U.K., Germany, France, Italy, Japan and Australia are instructive as to the effect of the immigration of groups on domestic integration and, thereby potentially, on a globalized world. Fundamental Values Values are the foundation of every society and they help to form a country’s culture, its economic and political structures and goals, and they are strongly involved in the process of globalization. Clashes based on values are intensified by inadequate cross-cultural understanding and are exacerbated when religious beliefs are divergent and zealously strong. Values may be founded on traditional mores or arise out of life-styles adapted to the environment or its changes. Some values, of course, were adopted from colonial powers but also adapted to former value systems. The divergence of values around the world has exacerbated conflicts, despite the fact that there is a fundamental unity among all religions.13 Value differences are evident in the diverse ‘‘social safety nets’’ adopted by governments, in the emphasis on individual responsibility, in the priorities given to marriage and family (especially to the extended family and family-based enterprises), on the support of social solidarity and extensive relationships and in the choices of individuals between ‘‘making money’’ versus ‘‘building a career’’ versus ‘‘contributing to the social welfare’’ versus ‘‘living a full and virtuous life.’’ Thus, Plato, in The Republic has Socrates observe: ‘‘The more men value money, the less they value virtue.’’ Each of these patterns affects policies relevant to globalization – for example, full-employment policies and concomitant training programs generating (or not) a skilled workforce, welfare for the permanently
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unemployed, aid to developing countries and a general orientation to cooperation and collaboration within and among nations. Research on values and value-conflicts is, therefore, of critical importance in understanding the underlying differences in approaches to globalization and the obstacles noted above. The mitigation or removal of such obstacles may be feasible only with the harmonization (not necessarily ‘‘unification’’) of values, which implies tolerance of differences that are not harmful. The focus should be on the role each value plays in the economic–political–social realms and its impact on the adoption of globalism. It may be found that the extent of feasible global accommodation is limited by the unwillingness to harmonize the value-systems – as it appears today between fundamentalists exploiting the religions of Christianity and Islam. The impact of conflicts within and between these two extreme groups and their effort to inject their dogma into the political, economic and social/cultural realms requires close study directed at mitigating the intolerance evidenced in both.
CONCLUSION Among the obstacles discussed above, there are three actors – governments (including intergovernmental institutions), corporations (both domestic and multinational) and civic groups (non-government organizations and public protestors). For globalization to progress, each and all must find by agreed criteria what makes the pace and structure acceptable. Corporations have, in the main, left the initiative as to the rules of the game to governments although, during the 1980s, they opposed UN initiatives to develop international codes of behavior for multinationals and for technology transfers. However, they have more recently begun to express views on the major issues – such as trade negotiations under the WTO, the need to address global warming, problems of poor working conditions, means to alleviate poverty and even ethical leadership. Each of these could produce the closer cooperation needed in a global society. How and when such initiatives might succeed and the difficulties they face require study of these obstacles. However, a careful analysis of the conditions for globalization leads to the conclusion that governments still have the initiative and the controlling hand.14 Therefore, the strength of nationalism, sovereignty, security, ethnicity and the maintenance of desired economic and cultural characteristics rise paramount in the prospects for a greater community of interest. In most countries, the national community is based on a more or less tight
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system of relationships – the tightest being in Japan and China over the past decades but also pervasive in tribal-based societies. Even in the West, networks and coalitions (not familial or tribal) underpin business relationships outside the market system. Since a market system is essentially separatist rather than integrative – supposedly operating only on the fundamentals of supply and demand under ‘‘arm’s length’’ negotiation – it is a weak basis for the development of a community of interest. Yet, globalization requires an extensive and intensive community of interest that makes compromise relatively easy when divisions arise. Thus, within the process of globalization there is an endemic conflict – between relationship societies and those asserting the primacy of market decisions. Reconciliation of these opposing views will be a basic part of progress toward globalism. However, at present, the West appears to insist on the adoption of capitalism as the economic basis of global integration – despite the broad objections within and among countries to its inadequacies.15 One set of inadequacies is seen in the fact that the constituent institutions of capitalism are seldom fully developed and implemented. To constrain its overriding economic motivation of material gratification (greed), exemplified by the unbridled pursuit of profit and income (The Economist, December 23, 2006, pp. 33–35), the institutions of private property (with personal responsibility, liability and appropriate use for the community), free enterprise (with corporations to expand the resources employed), market signals (to permit freedom of choice in both supply and demand), competition (to limit profit and income to reasonable levels) and government restraints (through laws and regulations to impose and monitor these institutions) – they all constitute the incentive and constraining elements. In practice, companies and entrepreneurs have sought to avoid competition, to intervene in markets to alter decisions (through deception, the withholding of information, mergers, coalitions, cartels, etc.) and to circumvent tax laws and other regulations in the interest of power and profit. Thus, capitalism has lost much of it gloss, though it remains a prime system for efficiency and material progress.16 It was originally imbedded in a set of values that combined Christian virtues, with optimism in problem solving, scientific investigation, economic progress, plus liberalism and individualism. Whether these have become attenuated is yet to be seen (Financial Times, May 18, 2006). To mitigate the extreme individualism found in current capitalist societies, some countries are increasingly concerned about elevating ethical behavior, equity in market results and ‘‘balanced growth in all aspects of life – physical, emotional, mental and spiritual’’ (the WHO definition of ‘‘health’’). Thus, an adaptation will be required in relationship societies to
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efficiencies achievable through markets and in capitalist societies to a more effective community of interests. The difficulties and feasibility of each are researchable and will provide a better understanding of the prospects and the methods needed to proceed (The Economist, October 7, 2006, p. 63; Foreign Policy, November/December 2006, pp. 74–81; Financial Times, January 15, 2007, p. 11). Both are difficult and long-term but the history of societies is that of a progressive though halting expansion of the concept of community which is essential for successful moves toward globalization.
NOTES 1. This integration is a mirror of the domestic vertical and horizontal integrations effected by conglomerates or mergers – the purpose of which is to eliminate the necessity for trade exchanges in a market. Further, competitive markets are supposed to operate between and among unrelated individuals or organizations and to give no attention or benefit to ‘‘relationships.’’ Yet, ‘‘integration’’ produces relationships par excellence. 2. See John H. Dunning (Ed.). (2003). Making globalization good. Oxford: Oxford University Press, Ch. 1. Misconceptions as to the processes of globalization are illustrated in Eric Rauchway (2006). Blessed Among Nations: How the World Made America. NY: Hill & Wang. 3. These obstacles have been gleaned from daily reports in the media over the past two years, mostly in The Economist, Foreign Affairs, Business Week, Wall Street Journal, New York Times, Washington Post, The Nation, Newsweek, TIME, U.S. News & World Report and The (London) Financial Times, plus a variety of other sources including TV and the Internet. They are not footnoted here. Important citations are provided as endnotes, and a few general references are provided in the bibliography. 4. Drori, Gill S., John W. Meyer, & Hokyu Hwang (Eds). (2006). Globalization and organization: World society and organizational change. Oxford: Oxford University Press. 5. Gourevitch, P. A., & James Shinn (2006). Political power and corporate control: The new global politics of corporate governance. Princeton, NJ: Princeton University Press. 6. Ingram, George M. (1974). Expropriation of U.S. Property in South America: Nationalization of oil and copper companies in Peru, Bolivia, and Chile, NY: Praeger; and Theodore H. Moran (1977). Multinational companies and the politics of dependence: Copper in Chile. Princeton, NJ: Princeton University Press. 7. See Ernst Haas (1964). Beyond the national state (Stanford, CA: Stanford University Press) for an assessment of alternative routes to political and economic integration. 8. An exception is the book by William Baumol (1986). Superfairness: Applications and theory. Cambridge, MA: MIT Press.
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9. Behrman, Jack N. (2000). A global monetary system? Global Focus, 12(1), 99–116. 10. Sethi, S.P. (2003). Setting global standards: Guidelines for creating codes of conduct in multinational corporations. Hoboken, NJ: Wiley. 11. Flanagan, Robert J. (2006). Globalization and labor conditions. New York: Oxford University Press. 12. For an examination of the policies and practices of internal transfers, see Jack N. Behrman and Harvey Wallender (1976). Transfers of manufacturing technology within multinational enterprises. Boston, MA: Ballinger. 13. Huxley, Aldous (1944). The perennial philosophy. NY: Harper & Row; Frithjof Schuon (1984). The transcendent unity of religions. Wheaton, IL: Quest Books; Frederick J. Streng (1969). Understanding religious man. Belmont, CA: Dickenson; and Eric O. Hanson (2006). Religion and politics in the international system today. Cambridge: Cambridge University Press. 14. Goldsmith, J. & Tim Wu (2006). Who controls the Internet? Illusions of a borderless world. Oxford: Oxford University Press. 15. Tripp, Charles (2006). Islam and the moral economy. Cambridge: Cambridge University Press. 16. For a recent critique, see Jerry Z. Muller (2002). The mind and the market: Capitalism in modern European thought. NY: Alfred A. Knopf.
RIGOR IN INTERNATIONAL BUSINESS RESEARCH: A REVIEW AND METHODOLOGICAL RECOMMENDATIONS S. Tamer Cavusgil, Z. Seyda Deligonul and David A. Griffith ABSTRACT This chapter offers a template for examining the rigor and validity ideals in international business survey research. It provides (1) observations on how research-quality checks are currently used, and (2) recommendations about prerequisites for their use. These recommendations are based on the idea that the ideal of rigor and validity is not absolute and cannot be achieved by ad-hoc checks. We argue that there must be certain linkages and progression in attempting higher quality in survey research. We propose a hierarchy of stipulations to strive for highest validity and rigor goal, which we entitle commensurability. As such, this framework outlines the different steps which need to be examined progressively to approach commensurability.
International Business Scholarship: AIB Fellows on the First 50 Years and Beyond Research in Global Strategic Management, Volume 14, 229–246 Copyright r 2008 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1064-4857/doi:10.1016/S1064-4857(08)00006-5
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INTRODUCTION Peculiarities of studying international business (IB) phenomena have long presented special difficulties in empirical work. Such a challenge has raised numerous warnings in development of data gathering, scaling, transferring concepts and ideas across languages, attaining reliability, response equivalence, developing sampling design, planning data-collection timing and other issues (e.g., Albaum & Peterson, 1984; Boddewyn, 1981; Douglas & Craig, 1983; Green & White, 1976; Mintu, Calantone, & Gassenheimer, 1994; Mullen, 1995; Myers, Calantone, Page, & Taylor, 2000; Sekaran, 1983; Shenkar, 2001; Singh, 1995; Steenkamp & Baumgartner, 1998). Left unattended, these issues may seriously contaminate the findings. Indeed, Shenkar (2001) notes that a lack of rigor in conceptualization and measurement in the IB field has not only hampered our understanding of issues but may also have misinformed us to the same extent. It is hard not to agree with the critiques. IB research demands stringent controls because of its multiple contexts (cultures, nations, countries and so on). Under cross-national conditions, for example, the stronger the ‘‘true’’ correlation between constructs, the more the observed correlation underestimates the ‘‘true’’ relationship. Conversely, the weaker the ‘‘true’’ correlation between constructs, the more the observed correlation overestimates the ‘‘true’’ relationships.1 For this reason, IB studies chronically display distorted levels of explained variance. They are, ceteris paribus, less stable and not expected to hold up at the extent of single-country studies. Also, having multiple groups introduces formidable challenges in IB model-building and other phases of operationalization. Given such idiosyncratic complexities, we believe, it is important to look into the rigor issue in IB once again. Rigor in IB research requires meeting common standards of cogency and measurement. This goal is generally considered as a validity issue in that a theory is expected to possess the properties of actually measuring, explaining and predicting what it is designed to do. In practical terms, this is attempted by employing a diverse set of indicators. In the authors’ review of IB research, streams presented more than 40 studies calling for higher levels of rigor.2 In common practice, these indicators address, often in isolation, different aspects of theorizing, with different techniques resulting in possibly discordant conclusions about the overall value of a study. In exploring this issue, our purpose is not to dwell on a didactical survey of such indicators because the latter is already presented in textbooks. Instead, we take up the neglected task of considering prerequisites between standards of rigor so that research-quality indicators can be employed properly and in certain
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precedence. Ideally, such indicators should not stand alone in isolation but must collectively support each other as a consolidated body of standards. The model presented in the following sections caters to this end.
PROPOSED HIERARCHY FOR ASSESSING THE VALIDITY OF INTERNATIONAL BUSINESS RESEARCH The motivation behind our task is to explore ways to monitor rigor in an individual study so that its theorizing contributes to the meta-value of the pertinent research stream. To that end this chapter starts from the familiar breakdown of the research process (e.g., Cavusgil, Deligonul, & Yaprak, 2005) into structural theorizing and operationalization where structural theorizing specifies the relations among the constructs leading to a theory, and operationalization involves developing a measurement model to specify the relations between observed variables (or indicators). Besides, theoretical constructs or underlying latent variables, that are presumed to determine responses to the observed measures.3 In Fig. 1, these two phases are separated by the horizontal dotted line. By meeting the standards in these two venues, each study seeks the ideal rigor level which we delineate under the term ‘‘commensurability.’’ Commensurability represents the development of a theory that: (1) meaningfully explains and predicts a phenomenon; (2) cogently derives its conjectures from valid indicators and their scoring; and (3) ensures its own validity checks from theorizing to operationalization. In order to converge to such an ideal rigor level, theory and concept building must be addressed while, simultaneously, operationalization considers data and measurement issues. The commensurability goal stands on two pillars: (1) theory that represents what it is purported to represent; and (2) its model measures what it is purported to measure. In order to attain this overreaching goal, a hierarchy of indicators is proposed in Fig. 1. In the diagram, each leading arrow designates the necessary condition that needs to be met at that level. Put simply, a validity indicator, which is not resting on satisfactory support from lower-level considerations, fails as a gauge. For example, the assessment of congenericity (Element 2) is a prerequisite for both construct equivalence (Element 4) and measurement equivalence (Element 5). Similarly, the measurement validity (Element 3), in conjunction with congenericity (Element 2), makes it possible to engage in a comprehensive confirmatory assessment of measurement equivalence. The ultimate goal is to reach theory
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Fig. 1. Hierarchy of Validity Assessment in International Business Research.
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commensurability, which requires both construct and measurement equivalence (Elements 4, 5). The following sections explore the relationships between various rigor standards more closely.
GROUNDING THEORY (ELEMENT 1) Discussion of Theory Grounding In grounding a theory, constructs provide the vocabulary for theorizing. As such, theoretical constructs help us impose order on an otherwise chaotic world around us. In a research study, by defining constructs such as cultural distance, we impart meaning to our observations and develop a vocabulary to express our propositions. Hence, the world becomes understandable and for it, testable hypotheses emerge. A construct achieves its meaning in two different ways (Anderson, 1987): (1) through observed indicators for which it is posited to be related (and through observed measures for which it is not); and (2) through the set of relationships of the construct with the other constructs as specified by some theory (nomological networks). In order to attain these goals, scholars have considered three main ontological perspectives. These include: (1) an instrumentalist perspective, where constructs are viewed as useful inductive summaries anchoring observed relationship; (2) a realist perspective, where constructs are assumed to reflect entities that have real referents; and (3) a constructive perspective, where constructs are assumed to reflect entities that cannot be fully apprehended because they must be viewed through construction of the mind (see Moss, 1992, p. 234). In this sense, by accepting an objective existence, realists see IB construct equivalence much more attainable than constructivists. A practical agreement between different positions is that rigorous research should be able to capture both commonalities (i.e., the etic) and uniqueness (i.e., the emic) in the meaning of constructs in and across cultures (Kumar, 2000; Mintu et al., 1994).
Methodological Aspect and Implications Theory grounding is a creative endeavor with little assistance from statistical tools. Still, it can be approached by using alternative models of explanation. In IB research, therefore, authors should entertain multiple models with competing and equivalent character. As a minimum, they should indicate
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the possibility of theory-driven equivalent models and acknowledge them for future study (MacCallum, Wagner, Uchino, & Farbigar, 1993). As a good demonstration, Steenkamp, Batra, and Alden (2003) suggested the possibility of two theory-based competing models and then tested them before moving onto their hypothesized model.
ESTABLISHING CONGENERICITY: DISTINCTIVENESS AND CONVERGENCE (ELEMENT 2) Delineation of the Congenericity Goal Congenericity refers to distinctness and convergence of measures and constructs at their origin. Although congenericity is not a popular term, its sub-topics are widely discussed in a fragmented stream of articles (Anderson & Gerbing, 1988; Bollen, 1989; Churchill, 1979; Fornell & Larcker, 1981; Nunnally, 1978).4 The stipulation in this stream of articles is that development of theories must be based on the following principles: (1) the evidence of low inter-correlations (for measures) between the constructs is a sign of lower systematic variance between unrelated phenomena; (2) high correlations between the constructs is indicative of related phenomena (cf. Peter, 1981); and (3) the first two requirements are not only statistically but also conceptually justifiable. In considering these goals Hattie (1985, p. 49) stresses that congenericity is a most critical and basic assumption of theory. In order to meet the standard of congenericity, the IB researcher is expected to ensure convergent validity, discriminant validity, substantive validity and construct consistency. Furthermore, Anderson and Gerbing (1988) suggest that, once convergent and discriminant validity are established, one should continue with the assessment of reliability with multiple indicators. In their China versus U.S. comparison, Atuahene-Gima and Li (2002) established composite reliability after a set of in-depth interviews to ensure the face validity of their measures. Then, they used confirmatory factor analysis (CFA) to establish composite reliability. Building on Anderson (1987), we indicate that, for reliability, not only should there be assurance for other forms of validity but also the meaning of the underlying factor should correspond to the construct of interest. In this sense, substantive validity precedes discriminant and convergent validity and, in turn, those precede reliability as necessary prerequisites.
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Methodological Considerations In general, the most common assessment of convergence and discrimination are exploratory factor analysis (EFA) and CFA.5 Specifically, convergent validity may be evaluated at the construct level, by the average variance extracted of the construct attributable to the measures. At the item level it is assessed by examining the item-to-total and inter-item correlations and the factor loadings of the measures. Discriminant validity can be assessed both at the construct and item level, and it may be conducted by using a Lagrangian multiplier test (Gerbing & Anderson, 1988). Also, Anderson and Gerbing (1982) suggest analysis of pairwise factor correlations and examining their confidence intervals. Further, the most comprehensive cross-cultural assessment procedure for construct equivalence is a multigroup CFA (i.e., factorial similarity that pertains to scale items loading on the invariant factors in cross-cultural samples). Current Status in IB Research and Implications Hult et al. (2008), in an examination of IB research, reported that discriminant and convergent validity was assessed in only 38 percent of the studies examined and that reliability was reported in only 55 percent of the studies. These are strikingly low levels. They suggested that IB researchers do not recognize congenericity as an indication of interpretational confounding which occurs as the assignment of empirical meaning to an unobserved variable, which is other than the meaning assigned to it (Burt, 1976, p. 4). In such a case: ‘‘(1) the indicants of the unobserved variable have low covariance among themselves; and (2) the covariance of the indicants of the unobserved variable with the indicants of other unobserved variables are widely different’’ (Burt, 1976, p. 10). As such, IB research is more susceptible to internal- and external-consistency problems.
ATTAINING SAMPLING AND DATA GOALS (ELEMENT 3) The Delineation of Sampling and Data Goals Data collection considerations focus on whether the sources of data together with the methods of eliciting and gathering them are proper so that the
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research a model represents, predicts and measures appropriately across multiple cultures. In IB research, such a goal sets the extent of robustness in the measurement model as dictated by data quality. There are at least three elements related to sampling and data quality: sampling frame comparability, data collection procedure and sample comparability (Hult et al., 2008). At this level, sampling frame comparability refers to whether parallel samples drawn from different cultures reflect equivalence. Procedural equivalence pertains to administration aspects of eliciting data and its equivalence between two different domains (e.g., telephone interviews, surveys, lapse of time between data collection in different countries and so on). Hult et al. (2008) note that while maintaining equivalency in sampling frame would appear to be straightforward, there are significant differences across countries in regulation (e.g., whether or not telephone interviews are allowed), cultural norms (e.g., cultural differences in responsiveness to telephone, in-person and mail survey administration) and mail systems (e.g., reliability and timeliness of mail delivery), among other issues, leading to problems in procedural equivalence. The third consideration, sampling method equivalence, is also a salient factor which refers to equivalence among sampling method techniques (i.e., probability versus non-probability) and the match between the representativeness of the data collected in different countries (Salzberger, Sinkovics, & Schlegelmich, 2001).
Methodological Aspects Although data and sampling equivalence goals present indigenous problems to IB researchers, the current literature downplays the significance of these problems in application. Typically, researchers employ rudimentary approaches based largely on qualitative discussion. At best, techniques borrowed from a single-country context are considered. There are a few exceptions to the typical. For example, Reynolds, Simintiras, and Diamantopoulos (2003) presented a typology of international research providing implications for balancing within-country representativeness and between-country comparability. Their framework consists of four types of research (i.e., descriptive, comparative, contextual and theoretical) and produces directives based on research questions and sampling choices. Similarly, Sivakumar and Nakata (2001) offered an empirical technique to strengthen cross-cultural sample designs ‘‘by maximizing differences (between countries) on focal variable(s), while minimizing and/or controlling differences on non-focal variables’’ (p. 565), and Gibson (1995), by employing a convenience sample,
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demonstrated the use of statistical controls and tests metric invariance. These attempts jointly display ways to enhance the robustness of a study. Current Status in IB Research and Implications Regarding data and sampling quality, Hult et al. (2008) reported that in their sample 25 percent of the IB studies established sample frame comparability. The consideration of comparable data collection was reported in 32 percent of the studies examined while 45 percent revealed sampling methods equivalency (Hult et al., 2008). While these reporting levels are discouragingly low, they merely reflect authors’ attribution of significance to a particular consideration. IB studies should recognize the fact that, without proper statistical controls, true effects can be masked or spurious differences created artificially in the data (Johnston & Dinardo, 1997). Deficiencies in invariance in sample frames, data collection procedures and sampling methods weakens findings that attenuate the convergence in meta-level findings in the field.
VALIDITY AND EQUIVALENCE OF CONSTRUCTS (ELEMENT 4) The Delineation of Construct Equivalence and Validity IB research recognizes three types of qualities of constructs: functional (i.e., the extent to which the objects and behavior take the same role or function across cultures); conceptual (i.e., the extent to which the domains of the concept/behavior are the same across cultures); and categoric (i.e., the extent to which the same classification scheme can be used for the concept and behavior across cultures) (Craig & Douglas, 2000; Hult et al., 2008). For example, Bensaou, Coyne, and Venkatraman (1999) in their study of the automobile industry established functional equivalence by assuring that the same meaning emerged in both countries due to their similar economic philosophies (i.e., capitalist). Category equivalence was established because managers in both countries used the parallel vocabulary and categories to discuss key concepts of strategy and tactics within the industry. For conceptual equivalence, they conducted exploratory fieldwork in both countries in the local language to investigate the way managers interpreted key concepts.
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Current Status in IB Research and Implications Regarding the construct equivalence and validity, Hult et al. (2008) observed that only 36 percent of the studies reported functional equivalence, 40 percent reported the establishment of conceptual equivalence and 19 percent of studies reported category equivalence. Construct validity was reported in 41 percent of the articles covered (Hult et al., 2008). The authors lamented the facts that the overall lack of concern about failure to report functional, conceptual or category equivalence threatens the validity and credibility of conclusions of IB research. Further, Hult et al. (2008) found the level of rigor in construct development particularly disconcerting. For example, researchers caution about heavy reliance on perceptual measures as well as origin bias since most perceptual measures originate in Western markets (Boyacigiller & Adler, 1991). Similarly, Messick (1995) expressed concern that related value bias occurs due to cultural implementation. At the country level, Hult et al. (2008) noted that the more culturally distant the country is from where original construct validation takes place, the lower the probability that the theoretical underpinnings and empirical evidence are equivalent. As a result, aside from creating confusion in the literature with divergent findings, IB research knowledge cannot effectively accumulate in order to advance our discipline.
Methodological Considerations Culture helps organize our own set of interrelated ideas (e.g., selfdefinitions, values, norms, beliefs, attitudes, attributions, etc.) into a cognitive schema or knowledge structure. This kind of schema or mental map works as a foundation for constituting and perceiving constructs (see Azevedo, Drost, & Mullen, 2002). Consequently, construct development is an area where qualitative considerations play a key role. For example, interviews, focus groups, pre-tests, pilot studies are effective ways to identify cultural differences attached to the meaning of the construct in each country under investigation (Kumar, 2000; Schwarz, 2003). In addition to simpler qualitative approaches to construct development, there are also more sophisticated designs. As an example, Azevedo et al. (2002) suggested a three-step research strategy that starts with EFA. This initial approach is emic; it allows the researcher to investigate how constructs differ across national borders in terms of their particular content factors (e.g., for the constructs of individualism and collectivism). The
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second step moves the analysis toward an etic perspective because now a theory-driven approach can be adopted and tested through the use of CFA. In the third step, a comparison of ethnically or culturally diverse groups is conducted to see the extent to which respondents share the same mental model (e.g., of individualism and collectivism). It is through this last step that the research strategy becomes truly etic so that collectivism in one country may be described by closeness to the family and sociability while in another it may be described by family integrity and interdependence.
ESTABLISHING MEASUREMENT VALIDITY AND EQUIVALENCE (ELEMENT 5) Operationalization commensurability stands on two legs: accurate scoring of comparable response (SCR) is the first, and congenericity of constructs is the second. In order to ensure measurement quality, the constructs must be specified so that conceptually they are congenerous while at the same time they satisfy data and sampling requirements (see Horn, 1991; Mullen, 1995; Steenkamp & Baumgartner, 1998). As such, this goal ensures the validity of research around three critical elements: calibration, translation and metric equivalence (Craig & Douglas, 2000; Mullen, 1995; Sekaran, 1983; Steenkamp & Baumgartner, 1998). In the IB context, good applications of measurement equivalence can be found in Agarwal, Malhotra, and Wu (2002) and Griffith, Myers, and Harvey (2006). Calibration and translation equivalence refers to standardization between physical and perceptual metrics across research domains while translation equivalence ensures attribution of the same meaning to the construct across populations. Metric equivalence is a scoring issue that refers to consistency of scoring and quality of responses (i.e., scalar invariance) (Craig & Douglas, 2000). Threats to scalar invariance arise from psychometric interpretation of the scales and response-set-bias at the country level. People in different cultures have different psychometric notions of distance, order and origin for measurements and they also tend to distort intension (meaning in universals) and extension (meaning in particulars) due to cultural interpretation and/or desirability. Methodological Aspects In IB research, calibration equivalence and translation equivalence are often handled together (see Mullen, 1995). A typical approach is back translation
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of the instrument across multiple languages (see Brislin, Lonner, & Thorndike, 1973; Mullen, 1995; Sekaran, 1983; Sperber, Devellis, & Boehlecke, 1994). The expectation is that possible shifts in conceptual misinterpretation and semantics will be apparent for possible correction (see Sekaran, 1983). Although useful, back-translation is only a diagnostic tool and it is notoriously prone to defects of translation. As such it can attenuate the validity when the instrument is subject to stilted literal translation on the one hand (van de Vijver & Leung, 1997), and to emic (culturally specific) translation on the other (Mintu et al., 1994). Such a weakness calls for a complementary check. To that end, factor congruence is widely suggested (e.g., Douglas & Craig, 1983, 2006; Mullen, 1995). Although factor invariance is useful, it still falls short of revealing whether the variance stems from a main effect or semantic distortion.
Methodological Considerations To establish scalar equivalence, Hult et al. (2008) suggested pooled analysis (i.e., deculturing data by standardizing the responses to each observable variable within each sample separately, and removing scaling factors from the measurements) and adjustment factors for differences in reliability (Davis, Douglas, & Silk, 1981; Durvasula, Andrews, Lysonski, & Netemeyer, 1993; Singh, 1995). In addition, the extant IB literature suggests Multiple Group Structural Equation Modeling (MGSEM) to address invariance of measurement (e.g., Mullen, 1995; Myers et al., 2000; Steenkamp & Baumgartner, 1998, 2001). In order to diagnose the threats to consistency in scoring in IB research, scholars recommend comparison of reliabilities across cultures (Davis et al., 1981; Parameswaran & Yaprak, 1987). Typically, scalar equivalence is checked by multiple methods of measurement (Douglas & Craig, 1983), Profile Analysis (Morris & Pravett, 1992; Mullen, 1995) and Optimal Scaling (Mullen, 1995). Also suggested is the use of multiple respondents to assess consistency of results (e.g., Calantone, Schmidt, & Song, 1996; Davis et al., 1981).
Current Status in IB Research and Implications Despite the heightened attention in the literature to measurement issues (e.g., Craig & Douglas, 2000; Mullen, 1995; Myers et al., 2000; Steenkamp &
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Baumgartner, 1998; Hult et al., 2008) noted that all three aspects of measurement equivalence are rarely fully reported or established. Their study revealed the dominance of lower-level checks in IB studies more frequently than higher-level integrative procedures. The authors noted for example, that while back-translation appears to be reported in half of the studies, only 25 percent address metric invariance. The lack of attention to metric invariance may reflect the difficulty in the implementation of the procedures to establish calibration, translation or metric equivalence. Recognizing the weakness, measurement commensurability requires use of a modeling approach.6 The most prevalent suggestion is MGSEM which provides a measurement model for common form and invariance of factor loadings across different cultures. For example, Steenkamp and Baumgartner (1998) provided detailed procedures which can be used to test full and partial measurement invariance in cross-cultural settings. MGSEM consolidates underlying issues, and custom-tailors a solution for which the earlier fragmented and non-standard approaches remain mute. It is also worthy to note that with MGSEM, one runs into a version of Kaplan’s (1964, p. 53) paradox: simply measurement and conceptualization are a two-way street. For proper measurement models, we need good theories but in order to get good theories, we need proper measurement models! As to the extent of incommensurability, the result will be increased random error due to meaning ambiguity. Similarly, findings will suffer from elevated systematic error when different populations consistently react to the same semantic distortion. In most cases, both the systematic and random errors jointly get a boost. Results are impacted in several ways. First, the study fails in the statistical testing of hypotheses due to systematic error which will distort both the coefficients (loadings) and variance. Second, it will exhibit a reduced reliability due to increased random error. Third, since the variance–covariance matrix gets contaminated, structural relationships require adjustments for variations due to unequal reliabilities across cultures (Singh, 1995).
CONCLUSION We believe that the proposed framework provides a roadmap for a sounder approach to IB research and can alleviate criticisms of theoretical and methodological rigor – with respect to both construct and measurement quality. The framework in this chapter is based on a hierarchy of goals where prior-level establishments are necessary conditions for higher-level
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requirements. Specifically, we argue that grounding, establishing congenericity and attaining data and sampling goal, is necessary for the establishment of construct validity and equivalence, and for establishing measurement validity and equivalence. All of these steps are necessary for establishing commensurability. As such, a study cannot be considered adequately completed unless it attains the full hierarchy of standards. We contend that for IB research to advance, these criteria should be meticulously applied. Concluding, we also underscore a proactive stand in order to ensure rigor in a research study. We caution that models of larger breadth than the models of today may face higher risk of unmanageability, given our current approaches of theorizing, model building and estimation. With a more modest scope, IB models can still possess a sufficiently complex nomological network to test meaningfully a conjecture against competing alternatives. This meritorious approach implies parsimony so that one can arrive at a cogent and robust study in the most rigorous way with a reasonably smallerscale model.
NOTES 1. For demonstration purposes, assume that there is no method variance between two countries and further suppose that measures of two constructs both contain 60 percent trait variance, 20 percent country variance and 20 percent error variance. The true correlation between the traits is 0.5. Assuming that the true correlation between the countries is either 0.2, 0.4, or 0.8, the corresponding observed correlation for this case will be 0.34, 0.38, 0.46, respectively. If the country effect is removed, the constructs will contain 75 percent trait variance and 25 percent random error variance. Under these conditions, the observed correlation between the constructs will be only 0.375. 2. The literature refers to numerous validity categories. These include: predictive, concurrent, postdictive, consensual, construct, content, convergent, criterion related, definitional, differential, discriminant, empirical, face, factorial, incremental, instrumental, logical, linguistic, intrinsic, nomological, sampling, status, substantive, theoretical, pragmatic, practical and trait validity. 3. Contemporary understanding of research empirics requires that theoretical model (structure) is fully developed before operationalization. If data are examined and structural propositions are formed after convenient data snooping, the statistical theory may become suspect because of chance associations in data. This is particularly acute in small sample cases. 4. Discriminant validity, convergent validity, reliability are internal assessments that are in the same level. They apply to both trait and constructs. Externally they remain at the same level as nomological validity. 5. Anderson and Gerbing (1988) note that alpha is a convenient measure to assess reliability but it does not measure convergent and discriminant validity.
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6. Bollen (1989) as well as Joreskog and Sorbom (1989) suggested a hierarchy of hypotheses to produce evidence of increasing degrees of measurement equivalence. In their study, Azevedo et al. (2002) first tested for equality of model form or factor structures without imposing any constraints in the model parameters for each group. If this hypothesis holds, they then test for equality of lambdas (or factor loadings) across groups. Finally, and only if this lambda hypothesis holds, authors moved on to test for equality of deltas (error variances). Although different levels of measurement equivalence can be shown if one or two of these hypotheses hold, perfect measurement equivalence implies that all of them will hold. This means that the factor structures, factor loadings and error variances, are the same across different samples of ethnically or culturally diverse groups.
ACKNOWLEDGMENTS The authors gratefully acknowledge the assistance of Professor Jean Boddewyn and several anonymous reviewers in the development of this chapter.
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NEW DIRECTIONS IN INTERNATIONAL-BUSINESS RESEARCH: A PERSONAL VIEWPOINT John H. Dunning ABSTRACT This chapter reviews the main developments in international-business (IB) research since the late 1950s. It does so in the context of: (1) the changing world economic environment and (2) advances in scholarly thinking. It then identifies five emerging characteristics of our contemporary global economy and suggests that IB researchers should pay more attention not only to the fundamental challenges now affecting our human landscape but also to the institutional environment within which IB activity is conducted.
These are exciting times for international business (IB) teachers and researchers. It may not be too much to say that our field of study is at a watershed in its evolution. Far from running out of steam, the future agenda of IB is set to be one of the most intellectually challenging, and potentially fruitful, of all the social science disciplines in the next two or three decades. This, I believe, is because it is in a privileged and unique position to explore the interaction between corporations and the changing global physical and International Business Scholarship: AIB Fellows on the First 50 Years and Beyond Research in Global Strategic Management, Volume 14, 247–257 Copyright r 2008 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1064-4857/doi:10.1016/S1064-4857(08)00007-7
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human environments in which they operate and its implication for economic and social welfare, as discussed below. In my professional lifetime as an IB scholar, I have experienced three main turning points in the focus and trajectory of IB research. The first was in the late 1950s and 1960s when the subject as a serious field of academic investigation was born. Of course, prior to that date there had been many studies by individual researchers on the cross-border activities of firms.1 But a series of case studies (mostly by non-US scholars) of the role of inward direct investment on the domestic productivity and economic restructuring of host countries, and a widening of the teaching and research agenda of US (and later European) business schools to incorporate territorial expansion, introduced a new era of research (Boddewyn, 2005; Dunning, 2004). This was also a period in which there was a rapid rise in all forms of IB activities. US corporations, for example, increased their stock of outbound foreign direct investment (FDI) from $7.2 billion in 1946 to $32.8 billion in 1960 and $59.3 billion in 1967. In the 1960s, FDI became an increasingly important phenomenon in the then emerging international economy. By the end of that decade, the value of the sales of the foreign affiliates of multinational enterprises (MNEs) was approaching that of world exports. In 1960, such sales were only one-half of all exports.2 Each of these various studies was explored by IB scholars in the context of what I shall term the physical environment (PE) of the world economy. I shall define such an environment as that which determines the extent to which and the ways in which human and physical resources and capabilities are created, accessed and deployed to generate wealth, and markets exploited. Some of its characteristics are set out in Table 1. Such studies were primarily undertaken by economists with the single intent of identifying the most efficient means by which scarce resources might be used to generate goods and services; and by business scholars whose main focus of interest was in establishing causal or functional theories to explain how managers might best maximize the financial performance and/or shareholder value of their firms. In the first wave of studies, little explicit consideration was given to the human environment (HE) which essentially comprises the rules, customs and conventions which help inform and motivate the intentions and conduct of the wealth-creating agents in society, and which provide the framework and incentive structures for human interaction. Some of the attributes of the HE are set out in Table 2.3 The 1960s researchers who, at the time, were mainly from the United States and Western Europe, largely treated both the objectives of economic activity, and the means of achieving these objectives,
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Capabilities
Markets
Scholarly methodology
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The Physical Environment: Resources, Capabilities and Markets (the Ingredients of Wealth Creation). Natural resources (e.g., land, untrained human capital) Created assets, e.g., technological capacity, machines, research laboratories, etc. Intangible assets (e.g., human skills, educated/trained labor, accumulated experience and wisdom) Organizational capacity and governance Vision/judgement in strategic decision-taking Ability to frame and execute appropriate policies Information/knowledge about/availability of both domestic and foreign markets – both product and factor markets Ability to tap into, exploit and coordinate markets and to understand and cater for specific (e.g., localized) needs Single goals and rational intents of economic actors Causal and/or functional, explanatory modes Largely static or comparative static analyses
as being single faceted, rational, value free and common among firms and countries. After the generally benign climate towards FDI and MNE activity in the 1960s, it became more critical and in some cases downright hostile in the 1970s. Inter alia this was especially reflected in the various declarations of the United Nations in the early part of the decade,4 and in the changing attitudes of many developing countries that had recently gained their political independence. In the 1970s, MNEs were increasingly under attack. Though the concerns and criticisms were mainly expressed in terms of the impact of FDI on the PE (e.g., with respect to the inappropriateness of technology transfer, restrictive business practices and export controls), underlying these practices and the control over decision-taking by MNEs was their impact on the human landscape of the recipient countries. This was particularly so in respect of the kind of economic development MNEs were perceived to encourage, and their effect on local cultures, belief systems and social norms. It was in these years, too, that many new national and international institutions were initiated to ensure that the behavior of MNEs and their subsidiaries should be consistent with the economic and social goals of the countries in which they operated. At the same time, scholarly research on IB-related issues still tended to be centered on the ways in which the managerial and resource allocative practices of MNEs might best increase the wealth-creating goals of home and host countries and that of the world economy as a whole.
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Table 2. The Human Environment: Institutions (as Affecting the Cognition, Motivation and Regulation of the Wealth-creating Individuals and Organizations of Society). A. Forms Formal institutions Informal institutions Enforcement mechanisms
B. Areas of institutional influence (in commercial domain)
C. Scholarly methodology
Constitutions, treaties, laws, regulations, provision for learning, upgrading cognition, knowledge, etc. Tradition, cultural mores, trust, goodwill, reputation Less formal self-regulation, fear, retaliation, blackballing More formal incentives/penalties (fines, enforced transparency, cancellation of contracts, imprisonment, etc.) Economic adjustment and stabilization Intellectual property protection Strengthening economic motivation/entrepreneurship Rule-setting and societal guidance (e.g., reducing ‘‘bads’’ such as crime and drugs) Promotion of entrepreneurship and competitive market structure Adequate and effective financial institutions Education and training upgrading Security of people and physical assets Innovatory development Incentives/regulation of FDI Social equity and access to opportunity Multifaceted goals; recognition of differences in mindsets, intentionality and morality in affecting behavior of economic actors Less attention given to functional/causal explanations and more to scholarship of common sense
The second watershed in my academic career occurred in the late 1980s with the fall of the Berlin Wall and the renaissance of market-based economic systems. These events, which heralded in the beginning of our contemporary global economy, occurred at the time when both scholars and practitioners were coming to accept the importance of knowledge as the critical ingredient of the PE in which IB activity was conducted. IB, of course, has always been an asset-based field of study. For most of the previous millennium, the assets underpinning the creation and utilization of wealth had been primarily land-based natural resources of one kind or another. Following the Industrial Revolution, created physical assets, notably machines and energy became the major driving force. These were later supplemented by finance capital and a more highly skilled labor force and, most recently, by knowledge capital. This is not to deny the importance of the other income-generating assets but simply that, relatively speaking and
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knowledge, be it embodied in physical equipment (e.g., research laboratories and communication systems) or in the capabilities and competences of individuals, has become the most important driver of economic progress.5 To quite a large extent, the IB literature over the last two decades has focused on the impact of knowledge and information on improving the PE in which people and organizations make decisions but there are exceptions. Thus, much of the research on organizational, human resource and culturalrelated issues has focused heavily on the incentive structures and governance mechanisms affecting the cognition, motives and conduct of firms. At the same time, the 1980s saw the emergence of alliance capitalism and of organizational heterarchies, one result of which was to underscore the role of informal institutions as set out in Table 2, and most noticeably, a commonality of objectives and of trust, reciprocity and forbearance, as factors influencing the success of collaborative ventures among firms. The third watershed of IB scholarship I have experienced dates back only to the later 1990s. As far as most research efforts are concerned, it is still in its infancy but interest in it is fast gathering pace. Inter alia the new direction is marked by the renewed and burgeoning interest in various aspects of the HE as it interfaces with the PE in affecting the level and structure of IB activity. This interest is demonstrated, first, by the growing attention now being given to the role of institutions in setting the incentive structures underpinning the determinants of the different modes of international commerce and particularly of the content and strategies of MNEs (Henisz, 2000, 2005; Maitland & Nicholas, 2003), second, by the willingness and competences of national governments to influence the competitiveness of their own firms and the choice of location of inbound foreign investors, by upgrading their indigenous institutions and social capital, and third, by the emergence of global mindsets of managers as they interface with the cosmopolitan and cognitive complexity of cross-border decision-taking within MNE networks (Levy, Beechler, Taylor, & Boyacigiller, 2007). Again, this is not to downplay the role of knowledge or finance capital in affecting the ways in which firms create and deploy scarce resources and competences, but rather to suggest that, for the most part, this is a necessary but not a sufficient condition for the successful pursuit of these objectives. It is also our contention that the ways in which cross-border differences in the HE of countries are acknowledged and managed are likely to play a more important part in influencing this success than those ways internal to particular home or host countries. Why is this so? Why do I believe there has been a shift in the trajectory of IB studies? Let me suggest five main reasons for this. The first is the advent
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and impact of globalization on the physical and human environments of the participating countries. On the one hand, globalization has primarily acted as an enabling factor. Together with technological and communication advances and the breaking down of spatial barriers, it is reconfiguring the value-added and exchange activities of firms and the absorptive capacity of countries. At the same time, globalization is affecting the cognition, motivation and intentions of both individuals and organizations by making them more aware of the content and effectiveness of different institutional systems which provide the incentive and governance structures which motivate and regulate the actions of the wealth-creating entities. The second reason is the widening of the economic and social objectives of both individuals and organizations. Again there is nothing particularly novel in this. It is fairly self-evident that, as democratic countries become richer, the choices of their citizens expand. What is, perhaps, new is that the growing interdependence among, and the enhanced knowledge and learning of, individuals and organizations in respect of the global environment, is bringing an enhanced awareness of how the prioritization of these objectives by communities in different parts of the world, may differ from each other. At the same time, even within a particular country, the choices open to economic agents of how, and in what way, resources and capabilities may be used, is widening as a direct result of changes in the HE. The increasing regard now being paid by most industrialized countries to a sustainable environment, to issues of security and food safety, to ‘‘intrinsic’’ goods such as self-worth, happiness and emotional stability, and to the reduction of ‘‘bads’’ such as crime and drugs, needs to be factored into scholarly thinking (Layard, 2005). General well-being is now the name of the game! Yet, each of these ‘‘new’’ options tends to be more value-laden than traditionally assumed by IB scholars. Each, too, reflects the intentions, belief systems and ethical mores of individuals and communities. Each generates its own imperatives to upgrade the HE as well as the PE which governs the activity of firms. And, as a group, they require IB scholars to reappraise their received research methodologies that have been largely designed to explain how best to exploit the benefits of the PE (Dunning, 2004; Sullivan & Daniels, 2005, 2007). In some – indeed in many – cases, these changes can be embraced by firms in the pursuance of their corporate objectives. Although there is nothing especially original in this, the distinction between the social and private responsibilities of firms has become more marked as the goals of individuals and society have become more varied and complex. Such incongruities
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increase enormously when firms transcend national boundaries and enter unfamiliar cultures. But whether they are global, regional or national, they can only be tackled and resolved if more attention is given to the content of the appropriate HE and its institutional framework. Inter alia, institutional theory seeks to help us better identify and understand the instruments influencing the strategies and behavior of firms and those of non-market organizations (North, 2005). Traditionally, with a few exceptions, economists have largely ignored the relevance of institutions other than that of the market and those initiated by governments, in affecting the creation and utilization of assets. The argument, even today, by economists such as David Henderson (2001) is that providing the appropriate macro institutions are in place to compel or encourage firms to behave in a socially responsible way, they will do so. The alternative view, favored particularly by sociologists and political scientists, is that it is preferable for the firms themselves – sometimes in response to the demands of their customers and shareholders – to voluntarily accept their societal responsibilities and adjust their strategies and conduct accordingly. This is essentially the stakeholder approach to interpreting corporate social responsibility (CSR). The third feature of our contemporary economy is the presence of an increasing range of endemic (as compared to structural) market failures, which are affecting the attitudes, organization and strategic intentions of firms towards their international activities. True, there are many uncertainties and complexities associated with the PE. Much of risk management, for example, in respect of managing research and development (R&D), investing in non-renewable natural resources and counteracting fluctuations in the foreign exchange markets, is directed to reducing volatility and unforeseen changes in the PE although some of these, which much of game theory seeks to tackle, have more to do with the content and quality of the HE. But certainly in today’s interdependence among the different human landscapes of the countries in the world, one sees increasing attention being paid to reducing the transaction costs associated with the failures associated with cross-border intra- and inter-firm relationships. Examples include the management of supply chains, R&D consortia, human-resource development, mismatched mindsets between joint venture partners, dealing with foreign governments and the like – not to mention those directly arising from international crime, terrorism and tax avoidance! The fourth feature making for a new trajectory of IB research is the growing participation of several new economies – notably China and India – on the world economic stage and the increasing role being played by MNEs from these countries. In 2005, for example, the share of the world’s GDP
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accounted for by the developing countries of Latin America and Asia was 27 percent compared with 12 percent in 1990 (UNCTAD, 2006). The corresponding shares for the inward stock of FDI were 25 percent and 17 percent. The outward direct investment stock from these same developing countries has risen even more dramatically (admittedly from a lower base) from 6 percent in 1990 to 11 percent in 2005. These FDI data, supported and strengthened by the no less impressive growth in trade, travel and tourism, and the internationalization of E-commerce, sport, music and TV programs are not only leading to an increasing awareness of the benefits of economic interdependence. But they may also exacerbate tensions among different values and ideologies, and the institutions which underpin them. It would seem that, while the trend towards the integration of the crossborder activities by MNEs, the increasing spread of innovatory activities (UNCTAD, 2005) and the promotion of global product brands and standards is leading to a convergence of the PE of many countries, new and challenging differences in the international HE are being exposed. Although, as a result of increased MNE activity, travel and media exposure, there appears to be some movement towards commonality in tastes and values, localized cultural, ideological and institutional differences still remain important (Xu & Shenkar, 2002). A fifth and last reason for the shift in IB scholarship is that the organizational forms of IB activity have become more varied and, in the main, more informal (North, 2005). This reflects both a changing and volatile and uncertain HE and the increased complexity of the PE. This is shown in the burgeoning of less legalistic and more consensual forms of intra-firm governance and in the growth of cooperative alliances and a range of networks affecting inter-firm relationships. Taken as a whole, these changes tend to elevate the importance of the content and quality making-up the HE and of the organizations and special-interest groups which govern or shape this environment. Again, while the efficient creation and use of the resources and capabilities available to firms are an integral part of a firm’s economic success, without the appropriate institutions to ensure its management is motivated to achieve such an objective in a socially acceptable way, this success may be jeopardized. Taken together, these five characteristics of our contemporary global economy are compelling scholars from virtually all parts of the IB field of study, to give the contents and imperatives of the HE more attention. Indeed, the range of disciplines relevant to our understanding of the HE extends well beyond those normally considered as part of IB. As the institutions particularly relevant to international firms have become more pervasive, so
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issues of geography, international law, political science and international relations have become increasingly relevant. As behavior and belief systems have a strong international learning and cognitive element, so the work of neuro-economists, evolutionary psychologists and socio-biologists have become more applicable. Since they affect the motivation and conduct of firms in a social context, IB scholars need to draw upon the literature of sociology and business ethics. Such an interdisciplinary approach itself emphasizes the importance of the ‘‘right’’ institutional environment. No less so is this needed as a result of the increasing collaboration and partnership between different decision-taking units within firms, and between firms and the other stakeholders in global capitalism. Indeed, the success of a network economy is increasingly coming to depend on its ability to offer new information, intentions and learning experiences, and also on the quality and synergy of the relational assets of the participants. What then do I conclude? First, an understanding of the contents of the International HE as they affect the intentions, learning processes and conduct of firms in the wealth creation process, is becoming increasingly critical. Second, that as far as countries are concerned, two things of relevance to IB scholars deserve especial attention. The first is the increasing role of social capital as a component of the HE in affecting the competitiveness of firms, and dynamic comparative advantage of countries. The second, as the ingredients of a country’s economic and social well-being are widening to encompass a range of goods, services and experiences, the nature of which is increasingly public and value-intensive, so IB scholars need to give attention to the institutions whose responsibility it is to ensure that the wealth-creating agents act in a way consistent with societal interests (Rondinelli, 2005). Third, that the evolving attributes of our contemporary HE are demanding attention by IB scholars on both a more extensive range of topics and more interdisciplinary and less functional or causal methodologies (Ghoshal, 2004). What role does IB scholarship play (or might play) in helping to reconcile the economic benefits of globalization and a global mindset of managers with the specific and no less legitimate social and cultural demands of local communities? These rather fundamental questions are now being extended as new components of the present or future human landscape, such as security, reducing poverty, climate change, the challenges of an aging population and the increasing importance of services are demanding attention. The impact of these elements need to be considered – not only how they interface with the PE but also the HE in which firms, and especially multinational firms operate.
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Each of these questions suggest that such aspects of the constituents of IB scholarship as culture, human resource management, international relations, political science, neuro-economics and social psychology need to be better incorporated into mainstream paradigms, theories, empirical research and policy appraisals. It is the integration of these disciplines and fields as well as their respective methodologies into the HE which I believe should be one of the main thrusts of IB scholars over the next decade or more.
NOTES 1. Some of these are summarized in Dunning and Lundan (2008) but our understanding of past scholarship has been deeply enriched by the extensive writings of business historians such as Mira Wilkins and Geoff Jones in more detail in Dunning (2007) and Dunning and London (2008). 2. In 2004, they were 1.5 times that of exports (UNCTAD, 2005). 3. The role and impact of the human and physical environment in the context of IB activity are discussed in more detail in Dunning (2004). 4. Most noticeably expressed in New International Economic Order and the Charter for Economic Rights and Duties initiated by the UN General Assembly in 1973/1974 (Dunning, 2005). 5. For a recent affirmation of this statement see Fagerberg and Srhofee (2005).
ACKNOWLEDGMENTS My thanks to Professors Robert Hawkins and Steven Kobrin for their most helpful comments on an earlier draft of this chapter.
REFERENCES Boddewyn, J. (2005). Early US business school literature (1960–75) on international business – Government relations in 21st century relevance. In: R. Grosse (Ed.), International business government relations in the 21st century. Cambridge: Cambridge University Press. Dunning, J. H. (2004). The contribution of British scholarship to international business studies. International Business Review, 3, 257–279. Dunning, J. H. (2005). The United Nations and transnational corporations: A personal assessment. In: L. Cuyvers & F. de Beule (Eds), Transnational corporations and economic development (pp. 11–37). Basingstoke: Palgrave Macmillan. Dunning, J. H. (2007). A new zeitgeist for international business and scholarship. European Journal of International Management, 1(4), 278–301. Dunning, J. H., & Lundan, S. (2008). Multinational enterprises and the global economy. Cheltenham, UK: Edward Elgar.
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Fagerberg, J., & Srhofee, M. (2005). Catching up: What are the critical factors for success? UNIDO: Industrial Development Report 2005. Background Paper Series. Vienna. Ghoshal, S. (2004). Bad management theories are destroying good management practices. Mimeo. London Business School, London. Henderson, D. (2001). Misguided virtue. London: Institute of Economic Affairs. Henisz, W. J. (2000). The institutional environment for international business. Journal of Law, Economics and Organization, 16(2), 334–364. Henisz, W. J. (2005). The institutional environment for international business. In: P. J. Buckley (Ed.), What is international business? (pp. 85–109). Basingstoke: Palgrave Macmillan. Layard, R. (2005). Happiness. London: Allen Lane. Levy, O., Beechler, S., Taylor, S., & Boyacigiller, N. (2007). What we talk about when we talk about ‘‘Global Mindset’’: Managerial cognition in multinational corporations. Journal of International Business Studies, 38, 231–258. Maitland, E., & Nicholas, S. (2003). New institutions, economics and organising framework. In: J. Cantwell & R. Narula (Eds), International business and the eclectic paradigm (pp. 47–73). London and New York: Routledge. North, D. C. (2005). Understanding the process of economic change. Princeton: Princeton University Press. Rondinelli, D. A. (2005). Assessing government policies for business competitiveness. In: R. Grosse (Ed.), International business and government relations in emerging economies: An institutional approach in the 21st century (pp. 395–420). Cambridge: Cambridge University Press. Sullivan, D. P., & Daniels, J. D. (2005). Defining international business through its research. In: P. J. Buckley (Ed.), What is international business? (pp. 68–84). Basingstoke: Palgrave Macmillan. Sullivan, D. P., & Daniels, J. D. (Forthcoming). International business studies: Episodic or evolutionary. In: J. H. Dunning & T. -M. Lin (Eds), Multinational enterprises and emerging issues of the 21st century (pp. 109–134). Cheltenham, UK: Edward Elgar. UNCTAD. (2005). World investment report. Transnational corporations and the internationalization of R&D. New York and Geneva, UN. UNCTAD. (2006). World investment report. Transnational corporations from emerging and transition economies. New York and Geneva, UN. Xu, D., & Shenkar, O. (2002). Institutional distance and the MNE. Academy of Management Review, 27(4), 608–618.
GLOBAL SOURCING STRATEGY AND PERFORMANCE: A ‘‘FIT’’ VERSUS ‘‘BALANCE’’ PERSPECTIVE Masaaki Kotabe, Janet Y. Murray and Michael J. Mol ABSTRACT Increased global sourcing of manufacturing and service activities has been a prominent part of the restructuring of firms’ supply chains in the 1990s and beyond. Academics and consultancy firms have largely supported the view of global sourcing as one of the key drivers of superior performance. As we are now increasingly discovering, the drawbacks of offshore outsourcing – or, put differently, the advantages of vertical integration – have been underestimated or even neglected. In this chapter, we first discuss the need to balance sourcing levels and then how global sourcing levels must achieve a strategic fit with the environment. Finally, we synthesize these balance and fit perspectives to suggest how, over time, changes in the fit alter the required balance in global sourcing. From this synthesis, we develop a number of future research questions related to important conceptual perspectives on sourcing. For managers we provide indications of how they can achieve a balance and a fit of their sourcing strategies.
International Business Scholarship: AIB Fellows on the First 50 Years and Beyond Research in Global Strategic Management, Volume 14, 259–277 Copyright r 2008 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1064-4857/doi:10.1016/S1064-4857(08)00008-9
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THE GLOBAL SOURCING PHENOMENON Due to an ever more competitive and uncertain global business environment, an increasing number of large and small firms either produce in lowercost locations or outsource goods and services from lower-cost producers. Firms realize that, in order to generate a sustainable competitive advantage over their rivals, it is imperative to continuously create and acquire capabilities so that, in addition to securing lower costs from global suppliers, firms increasingly outsource to gain access to suppliers’ capabilities (Barney, 1999). Thus, the core driver of the latest form of global (i.e., both onshore and offshore) outsourcing is the heightened organizational and technological capacity of firms in decoupling and coordinating a network of remotely located external suppliers performing an intricate set of activities (Levy, 2005). Hence, how to source globally has become a critical strategic decision that is influenced by the capabilities needed to compete and help sustain a firm’s competitive advantage. Although firms have embraced global sourcing of goods and services to an overwhelming extent, their experience has been mixed (Hsieh, Lazzarini, & Nickerson, 2002; Lacity, Willcocks, & Feeny, 1995). Gottfredson, Puryear, and Phillips (2005) found that about 50 percent of firms in their sample reported that their outsourcing programs fell short of expectations. Only 10 percent were highly satisfied with the cost savings and 6 percent were highly satisfied with their offshore outsourcing overall. Similarly, Booz Allen Hamilton recently found that the success rate of outsourcing deals from the customer’s perspective was only 12 percent (Fortune, April 3, 2006). Other researchers have even suggested that outsourcing (Leiblein, Reuer, & Dalsace, 2002) and global outsourcing (Mol, van Tulder, & Beije, 2005) may not be related to performance. Due to the inconclusive performance outcomes, practitioners have questioned whether universally prescribing global outsourcing is the right way to go (Doig, Ritter, Speckhals, & Woolson, 2001). One plausible argument is that based on a balance perspective, there is an optimal degree of outsourcing. The outsourcing–performance relationship takes on an inverted U-shape (Kotabe & Mol, 2004, 2006), implying that, as firms deviate further from their optimum degree of outsourcing by either outsourcing (or insourcing) and offshoring (or onshoring) too much, their performance will suffer disproportionately. So, the key question for sourcing firms is how much global sourcing they should use in order to achieve desirable performance.
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Another plausible argument for the inconclusive sourcing–performance findings is that desirable sourcing–performance necessitates the sourcing strategy to achieve a strategic fit with the environment. Indeed, researchers have theorized that the appropriateness of a particular strategy is based on its ‘‘coalignment’’ or ‘‘fit’’ with environmental contingencies (Drazin & Van de Ven, 1985). Using contingency theory to examine the environmentstrategy coalignment effect on performance (e.g., Hambrick & Lei, 1985), the environment and strategy are theorized to interact in a dynamic coalignment process, and a match between them would exert a positive impact on performance (Venkatraman & Prescott, 1990). We focus here on ‘‘global sourcing’’ because it adds many more complexities that do not apply to domestic sourcing strategy. In developing viable global-sourcing strategies, firms must consider not only manufacturing and delivery costs, the costs of various resources and exchange rate fluctuations, but also the availability of infrastructure (including transportation, communications and energy), industrial and cultural environments, the ease of working with foreign host governments and so on. Furthermore, the complex nature of global sourcing strategy spawns many barriers to its successful execution. In particular, logistics, inventory management, distance, nationalism and lack of working knowledge about foreign business practices, among other factors, are major operational problems identified by both U.S. and foreign multinational companies engaging in global sourcing.
OUR APPROACH In this chapter, we follow an uncommon approach to academic writing by using intuition as a starting point. Managerial intuition often is an important part of actual decision-making (Dane & Pratt, 2007) and intuitive arguments as ‘‘focusing on the core’’ and ‘‘strategic sourcing’’ have been key to legitimizing the trends toward more global outsourcing. We first discuss the recent trends in global-sourcing strategy. Then, we highlight the advantages and disadvantages of global sourcing by providing a list of intuitive arguments for each. We then attempt to explain global-sourcing levels and how these relate to performance on the basis of the two complementary perspectives of ‘‘balance’’ and ‘‘fit.’’ By synthesizing these two perspectives, we introduce existing theories of sourcing in our chapter so as to confront managerial intuition with a scholarly approach. Through this process, we develop critical questions and issues for both academic and managerial audiences.
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TRENDS IN GLOBAL SOURCING Global-sourcing strategy generally refers to management of (1) logistics to identify which production units will serve which particular markets and how components will be supplied for production and (2) the interfaces among R&D, manufacturing and marketing on a global basis. The primary objective of global-sourcing strategy is for the firm to exploit both its own and its suppliers’ competitive advantages and the comparative locational advantages of various countries in global competition. From a contractual point of view, the global sourcing of intermediate products such as components and services by firms takes place in two ways: (1) from the parents or their foreign subsidiaries on an ‘‘intra-firm’’ basis (i.e., insourcing) and (2) from independent suppliers on a ‘‘contractual’’ basis (i.e., outsourcing). Similarly, from a locational point of view, multinational firms can procure goods and services either (1) domestically (i.e., onshoring) or (2) from abroad (i.e., offshoring). Global sourcing has been around for centuries. However, the type of international trade in the times of Adam Smith was qualitatively different from what we observe in modern times, primarily for two reasons, one technical and one social. First, trade used to be mostly conducted in raw materials or final products, and seldom in intermediate products such as components or services. Trade in intermediate products started to take off as the global economy evolved and products became more complicated. Second, unlike today, buyer–supplier coordination and cooperation were not crucial and communications were normally limited to ordering processes. Hence, we will focus our discussions on recent trends of global sourcing only. In the past 15–20 years, we have observed three waves of global sourcing. The first one, starting in the mid-1980s, was primarily focused on the global sourcing of manufacturing activities. Research, therefore, focused primarily on manufacturing firms, with Kotabe and Omura’s (1989) study as one of the first to examine global sourcing. Large manufacturing firms increasingly set up their operations globally and began to use suppliers from many countries to exploit best-in-world sources (Quinn & Hilmer, 1994). As a consequence, supply chains became more global and complex, with manufacturing firms sourcing from suppliers in many countries for raw materials, intermediate and final products. A second wave started in the early 1990s when firms decided to start eliminating their information technology (IT) departments that had grown substantially (Cross, 1995; Loh & Venkatraman, 1992). As IT itself had
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become commoditized and many firms had little interest in developing new information systems in-house, this IT outsourcing wave spawned the growth of specialist providers such as EDS and Accenture. Global sourcing mostly involved labor-intensive and standardized programming activities, which could be easily sourced from locations like India. The rise of commercial applications for a wide range of firm activities, epitomized in enterprise resource planning systems, also implied that a marketplace had developed where independent suppliers could make competitive offerings. A third wave, characterized as the offshoring movement, began in recent years. We have witnessed the rise of business-process outsourcing that extends beyond IT services to a range of other services relating to accounting, human-resources management, finance, sales and after-sales assistance such as call centers. India is still a primary source country and has now produced a range of strong local business-process providers such as Infosys and Wipro but competition from elsewhere is also on the rise. It is this third wave of business-process outsourcing that is now generating so much publicity. Many people are concerned that foreign business processes suppliers may be moving up the knowledge chain more rapidly than expected by sourcing firms. Such knowledge transfer could in the long run undermine sourcing firms’ ability to differentiate themselves from their foreign suppliers. Indeed, such ‘‘hollowing-out’’ concerns have previously been raised about the outsourcing of manufacturing activities before (Bettis, Bradley, & Hamel, 1992; Markides & Berg, 1988; Kotabe, 1998). Our argument on these recent waves of global sourcing is summarized in Table 1.
Table 1.
Recent Waves in Global Sourcing.
First Wave (Since 1980s) Type of activity Suppliers
Type of firms
Primary motives
Second Wave (Since Early 1990s)
Manufacturing Information technology China, Central and India, Ireland and Eastern Europe, others Mexico and others Manufacturing Manufacturing, banks and others Reduction in labor costs
Obtaining enough skilled programers and cost reduction
Third Wave (Since Early 2000s) Business processes India, Pakistan, South Africa and others Financial services and services more generally Reduction in labor costs and round-the-clock service provision
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THE PERFORMANCE RATIONALE It is widely suggested that global sourcing occurs in order to improve performance, particularly, cost effectiveness (e.g., Trent & Monczka, 2003). Firms located in OECD countries often find that labor costs are excessive, compared to the value that is added to their products. While developing countries such as China lag behind in productivity, they compensate for this lower productivity by providing much lower hourly labor costs, sometimes even culminating in the de-automation of tasks when they are transferred to these locations. Indeed, in some cases, such as a range of bicycle components, the production cost differences are so large that it is not economically viable to use domestic sourcing, especially when the labor costs represent a substantial part of overall production costs. At the other extreme, some global sourcing may be driven by knowledge concerns. Some inputs, such as aircraft parts and technical expertise, may be available only in other OECD countries, thus making global sourcing not a choice but an imperative. As for the sourcing of many raw materials, domestic sourcing is not an option since many raw materials are unavailable domestically. Besides, for certain intermediate products, many firms tend to source them from locations near the source of raw materials. Another argument in favor of global sourcing is that it may allow a firm to produce closer to its customer markets, thereby increasing access to them. For instance, Japanese manufacturing firms have over time replicated supply chains in North America and Europe to operate closer to these markets. Production and sourcing experience in these regions has also allowed them to improve their product offerings. Another reason to opt for global sourcing is that demand from various regions can be pooled, thus achieving maximum scale and bargaining power through single sourcing from a foreign supplier. However, there are disadvantages associated with global sourcing. A major problem is cultural differences between buyers and their foreign suppliers. Indeed, institutional and language problems may affect a relationship negatively while cultural misunderstandings and other communication problems can lead to quality problems, in addition to those caused by differences in technical standards or expectations. Another concern related to global sourcing is its long lead times and supply-chain uncertainty, and its feasibility is often determined by international trade rules (Swamidass & Kotabe, 1993). Finally, foreign suppliers may be able to integrate forward into the buyer’s market by inventing around patents or ignoring them altogether.
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This situation raises another layer of issues related to the long-term sustainability of firms’ core competencies (for a more extensive discussion of outsourcing and core competencies, see Mol, 2007). There are two opposing views of the long-term implications of international sourcing. One school of thought argues that many successful companies have developed a dynamic organizational network through increasing cross-border joint ventures, subcontracting and licensing activities (Miles & Snow, 1986). This flexible network system, also known as supply-chain alliances, allows each participant to pursue its particular competence with each network participant complementing rather than competing against the other participants for the common goals. Such alliances are often formed by competing companies in pursuit of complementary abilities (e.g., new technologies or skills) from one another, thus helping the sourcing firm to acquire a competitive advantage by sourcing major components that involve high asset specificity from its alliance partners (Murray, 2001). The other school of thought argues that while a firm may gain short-term advantages, there could also be negative long-term consequences. As the firm becomes more reliant on its independent suppliers, it may not be able to keep abreast of constantly evolving design and engineering technologies without engaging in those developmental activities (Kotabe, 1998). Consequently, the firm encounters the inherent difficulty in sustaining its long-term competitive advantages. In other words, over time a firm’s technical expertise and capability surplus vis-a`-vis its foreign suppliers may diminish to the point that its value added is limited, and it may become more like a trading company. An example of this is the development of Emerson Electronics which turned from an electronics producer into a trading company and then into nothing more than a brand that changed owners several times (see Kotabe, Mol, & Ketkar, 2008). We summarize the advantages and disadvantages of global sourcing in Table 2.
A ‘‘BALANCE’’ PERSPECTIVE A balance perspective can offer insights on the sourcing strategy– performance relationship. In proposing SUCH a ‘‘balance’’ perspective, Kotabe and Mol (2004, 2006) examined the relationship between the degree of a firm’s outsourcing across all activities and its performance. Their underlying argument is that firms that outsource all of their activities run into a multitude of problems such as a lack of innovation and bargaining power, and an inability to be distinct in the eyes of the customer.
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Table 2.
Advantages and Disadvantages of Global Sourcing.
Advantages Increased size of potential supply base Lower production costs, especially for laborintensive production and services Increased technical expertise, especially for high-tech products from specialized locations More flexibility to switch between supply sources, whether internal or external Source closer to customer markets, experience in sourcing may be translated into sales Achieve scale economies through use of one global supply source Source of intermediate products closer to source of raw materials Raw materials only available from foreign sources Focus on core competencies
Disadvantages Have to deal with foreign institutions such as legal differences Have to deal with foreign cultures which could affect communication Have to deal with foreign languages which could affect communication Need to pay import duties where applicable Increased transportation costs and supply chain uncertainty Forward integration by foreign suppliers, patent infractions possible Quality problems Negative effects on employee commitment and legitimacy at home base Reliance on independent suppliers, and decreased ability to keep abreast of emerging technical requirements
However, firms that only insource fail to use the powerful incentives supplied by markets, thus becoming bureaucratic and inefficient. Therefore, outsourcing some but not all activities provides the best solution overall and there is an optimal degree of outsourcing. Deviations from that optimum are costly and the larger the deviations, the more severe the performance penalty will be. Hence, there is a negative curvilinear (inverted U-shaped) relationship between the degree of outsourcing and firm performance. Likewise, Leiblein et al. (2002) empirically found that deviations from the optimal form of sourcing, as dictated by transactional attributes associated with various contracting hazards, may have a detrimental effect on performance. We believe a similar line of reasoning can apply to the degree of internationalization of sourcing (i.e., onshoring and offshoring) and how IT affects performance. More specifically, there are advantages and disadvantages associated with global sourcing, as we highlighted above. As a firm does more offshoring, the disadvantages become larger to the point where they severely impede performance. However, if firms do not use offshoring at all, they cannot enjoy any of the advantages of offshoring such as having
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a wider supply base from which to choose. This line of reasoning is consistent with research in international business since it is for instance, indirectly suggested by Dunning’s (1993) treatment of international sourcing and neo-institutional economics traditions, particularly the transactioncosts framework (Williamson, 1985). Williamson (1985) distinguished between production and transaction costs. The former refer to the costs of producing a good or service while transaction costs represent all the costs incurred as the product moves from one supply-chain partner to the next. One the one hand, when firms use offshoring by procuring from foreign suppliers, it may help reduce their production costs, while in some instances, a local supplier’s production costs may be lower than those of foreign suppliers, this is often the exception rather than the rule. Transaction costs, on the other hand, tend to be higher for offshoring as there are many types of institutional, cultural and language barriers that must be overcome. Rangan (2000) discussed this situation in terms of the costs of ‘‘search and evaluation.’’ Searching for supply sources abroad, whether internal or external sources, is somewhat more expensive than searching for local supply sources. Evaluating those foreign supply sources is much more expensive because the evaluation costs are strongly related to the familiarity that decision-makers have with the other party. Since firms are likely to be less familiar with foreign supply sources and decision-makers may not be able to draw on their networks in helping them evaluate these sources, this situation induces substantial evaluation costs. Rangan (2000) used this argument to explain why buying firms are much more likely to choose a domestic than a foreign supplier even when the physical distance between the buyer and each of these suppliers is the same. We argue that offshoring is a ‘‘balancing’’ act between production and transaction costs. Firms need to find the proper balance between domestic and foreign supply sources (i.e., using onshoring and offshoring) if they wish to locate on the top of the curve and obtain the highest possible performance. They can achieve this goal by using foreign sources for part but not all of their sourcing. Sourcing everything from abroad produces poor performance results because the disadvantages of offshoring, like the hollowing-out argument, become too large. Focusing all efforts on onshoring, however, is a serious form of myopia with equally disastrous effects for firm performance, primarily because the firm is not capitalizing on important opportunities to improve competitiveness. A graphic illustration of our argument is presented in Fig. 1. The ‘‘balance’’ perspective can therefore best be summarized as follows: Some activities are best outsourced globally while others ought to be
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Firm profitability
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Insourcing
Fig. 1.
Outsourcing
A Curvilinear Relationship between the Degree of Outsourcing and Firm Performance.
integrated (from a performance perspective). Optimal performance is reached when all activities are correctly outsourced and/or integrated. Deviations from the optimum are costly and in such a way that, the farther from the optimum, the more costly these deviations become. The pattern produced by this situation is a negatively curvilinear (an inverted U-shaped) relationship between outsourcing and performance, with the top of the curve presenting the performance optimum.
A ‘‘FIT’’ PERSPECTIVE Despite the heightened publicity of global sourcing, many firms have been highly dissatisfied with their sourcing–performance. The problem may be due to the fact that many researchers and practitioners have adopted a deterministic view in evaluating the global sourcing strategy–performance relationship, without exercising caution that such a view tends to overgeneralize the sourcing benefits. Strategic-management scholars have conceptualized environment as one of the key constructs for understanding organizational behavior and performance in that ‘‘the appropriateness of different strategies depends on the competitive settings of businesses’’ (Prescott, 1986, p. 765). Thus, failure to include environmental factors in
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examining the sourcing strategy–performance relationship may neglect the effects of different environments on optimal sourcing strategies. The contingency approach is often adopted in representing a ‘‘fit’’ perspective of the environment–strategy–performance relationship. Extant research has confirmed that some environmental factors indeed exerted moderating effects on the sourcing strategy–performance relationship. In the manufacturing context, Murray, Kotabe, and Wildt (1995) concluded that the financial performance advantage of global insourcing over global outsourcing of non-standardized (i.e., major) components improved with increased product innovations, process innovations and asset specificity. Using foreign firms manufacturing in China as subjects of the study, Murray, Kotabe, and Zhou (2005) found that global outsourcing of major components (in the form strategic alliance-based sourcing) did not have an effect on market performance. Instead, product innovativeness and technological uncertainty moderated such a relationship. Specifically, at low levels of product innovativeness/technological uncertainty, the use of strategic alliance sourcing of major components by the sourcing firm is positively related to market performance. However, at higher levels of product innovativeness/technological uncertainty, the sourcing–performance relationships become negative. Similarly, Leiblein et al. (2002) findings in the manufacturing context concur with the above conclusions. In refuting the popular arguments that insourcing or outsourcing will lead to superior technological performance, they found that sourcing strategy per se did not significantly affect technological performance. Instead, the sourcing strategy–performance relationship was driven by factors underlying sourcing strategy choice. They further cautioned against the universalistic normative implications for firms deciding on whether or not to insource or outsource their value-chain activities and stressed the value of contingency-based theoretical approaches. As discussed earlier, the global sourcing of services did not take place until the second wave of global sourcing so that the extant literature on global sourcing of services is limited when compared to that in global sourcing of manufactured goods.1 Consistent with previous studies of the global sourcing of manufactured goods, transaction-cost analysis (TCA) involving asset specificity, transaction frequency and business uncertainty offers a useful framework in studying the sourcing of services. Asset specificity refers to investments made in specific (non-marketable) resources. When these investments are made, a supplier and a buyer are ‘‘locked into’’ the transaction because the assets are specialized to that transaction and
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have limited or no value outside that transaction (Williamson, 1985). Murray and Kotabe (1999) found that, similar to components and finished goods sourcing, supplementary services were sourced globally either by insourcing or outsourcing.2 In addition, the relationship between asset specificity and insourcing of supplementary services was moderated by the level of inseparability3 and transaction frequency. Their empirical findings showed that firms tended to rely more on global insourcing for inseparable supplementary services with high asset specificity. Furthermore, the higher the asset specificity and the lower the transaction frequency of the supplementary services, the higher these firms would use global insourcing. Finally, insourcing and offshoring of supplementary services were negatively related to a service’s market performance. The fit perspective can therefore best be summarized as follows: There is a range of contingency factors (i.e., capital intensity, degree of service inseparability, market uncertainty, transaction frequency) at the transaction-, firm- and context-levels. These factors determine how much global outsourcing ought to take place from a performance perspective. To an extent, the contingency factors also explain how much global outsourcing actually takes place in practice. Fit is achieved when the actual global outsourcing level is in accordance with the level predicted, based on the contingency factors. If a company matches an outsourcing decision to the relevant contingency factors, the resulting strategic fit helps achieve superior performance.
A ‘‘BALANCED FIT’’ PERSPECTIVE The previous discussion raises two related questions. First, are these contradictory or rather complementary perspectives and, if they are complementary, how do they complement each other? Second, how can we, taking into account these perspectives, explain the large increases in offshore and global outsourcing? We now seek to answer these two questions through reference to the literature, specifically drawing upon possible conceptual angles on global outsourcing. To describe how the ‘‘balance’’ and ‘‘fit’’ perspectives complement each other and to explain why, over the past two decades or so, we have witnessed the degree of global sourcing shifting toward more offshoring, we need to draw more directly upon key academic perspectives on global sourcing. We summarize 11 such perspectives in Table 3. We cannot describe each perspective in detail or show how different perspectives are useful in predicting global outsourcing (for a more detailed
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Table 3. Perspectives on Global Outsourcing. Firm Level Past Present Future
Context Level
Transaction Level
Resource-based view Social networks Costly contracting Industrial organization Transaction-cost economics Microeconomics Core competences Institutional voids Agency Real options Relations and learning
description, see Mol, 2007). However, it is important to note that these perspectives operate at three different levels: the transaction, the firm and the context. Taken together, they represent almost all the contingency factors that the academic literature has produced to date. Which of these perspectives matters most is, to an extent, determined by the empirical context in which outsourcing is investigated. Some of the perspectives have been more prominent than others in recent academic studies of outsourcing. Transaction-cost economics and the resource-based view come to mind, which may reflect their actual importance in practice, the scholarly knowledge production process or other factors. However, all of these perspectives have some bearing on global outsourcing. This takes us back to the two questions. The first one can be answered by stating that exactly where the optimal point of outsourcing (balance) lies is determined by the scores on the contingency factors (fit). In terms of the second question, the optimal point in terms of how much a firm should engage in offshoring will shift over time. Over the past two decades or so we have witnessed that the degree of global sourcing has shifted to the right in Fig. 1, that is, toward more offshoring. This implies that changes in both the level of the contingency factors as well as their constitution (i.e., which variables matter and to what extent) have caused the increase in offshoring levels. Taken together, the implication of this statement is that the balance in global outsourcing has shifted toward higher levels of outsourcing because of the need to fit global outsourcing levels to a set of changed circumstances. We can suggest two major drivers of this change. First, there is information technology, including the Internet, which has greatly facilitated cross-border business-to-business transactions. Second, there are institutional changes, which lie at the heart of the rise of both China and India as supply destinations and have also facilitated cross-border trade and investment, both of which in turn lead to more global outsourcing. These conclusions lead to two sets of implications for academic research and for practicing managers.
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RESEARCH IMPLICATIONS While outsourcing was mostly used for specialized, repetitive tasks such as facilities management or logistics, it has now penetrated more visible and sensitive functions such as customer service, R&D and manufacturing (Leiblein et al., 2002). Many firms have recently rushed to changing their sourcing practice to include more outsourcing and offshoring for a variety of activities, without making careful analyses regarding their short- and long-term performance implications. Kotabe and Mol (2006) have termed this type of behavior as ‘‘bandwagoning,’’ implying a leader-follower behavior in offshore outsourcing decisions. Bandwagoning is not necessarily undesirable but there is also no reason to believe that it leads to the best performance. In fact, bandwagoning may easily induce firms to engage in too much outsourcing or offshoring. Combining both a ‘‘fit’’ and a ‘‘balance’’ perspective on the performance implications of global sourcing, we caution managers that there are limits to both outsourcing and offshoring in that their relationship to performance is an inverted U-shape. In other words, too much outsourcing or offshoring may affect a firm’s performance negatively. Furthermore, the increased pace of technological change and the geographic and organizational dispersion of knowledge have exacerbated the complexity involved in global sourcing (Leiblein et al., 2002). Thus, to realistically evaluate the performance implications of a particular sourcing strategy, a ‘‘fit’’ perspective should be adopted. The contingency approach helps to build a theory of global sourcing by examining the moderating effects of environmental factors on the sourcing strategy performance. As Baumol (1957) recommended, providing theoretical generalizations that predict what will happen under given conditions is necessary for theory development. Thus, using a contingency approach helps managers evaluate critically the viability of a particular sourcing strategy. It also helps make theoretical generalizations about global sourcing. We propose a number of interesting research questions that academics can tackle. First, which drivers of increased global outsourcing matter most and how can these be related to some of the theories mentioned earlier and perhaps other theories as well? In our academic research, we have often tended to focus on the factors that explain global outsourcing levels at any given moment in time, and often through cross-sectional research, at the expense of research that tells us why changes in these levels are taking place, thus putting us at a risk of becoming outdated in our thinking.
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Second, what factors will slow the pace of global outsourcing and offshoring and when should such slowing be expected? There have been big increases in recent years but this trend does not necessarily mean that it will continue endlessly. The past is often a reasonable indicator for the future but never a great predictor. Major geopolitical changes may halt the process of globalization or perhaps even reverse it. In any case, there will be some sort of natural cushion as well since there is an absolute limit to the quantity of activities that can be outsourced globally. Third, which areas of global outsourcing are driven by efficiency considerations and which are pushed by various types of ‘‘bandwagons?’’ We mentioned the presence of bandwagoning earlier since it was a prominent feature of the IT outsourcing trend of the early 1990s. However, recent research (Lewin & Peeters, 2006) suggests that bandwagoning is not much of an explanation for the current business-process outsourcing movement. Perhaps more mature forms of global outsourcing are more prone to bandwagoning or, perhaps it is the nature of the activity itself that matters. Or, perhaps the structure of the supplier and buyer industries explains some of the variance in bandwagoning levels.
MANAGERIAL IMPLICATIONS Based on our discussions, managers should rethink and redesign their global outsourcing activities. Many managers have a strong general sense for what constitutes a sound outsourcing and offshoring policy. They realize that outsourcing and offshoring every activity may lead to disasters, just as much as they recognize that not all activities should be insourced. However, we suggest managers can improve their decision-making in various respects. There is currently a tendency in practice to describe (performance) problems related to outsourcing or offshoring as ‘‘implementation issues.’’ Managers often assume that outsourcing or offshoring is the proper design choice, so they attribute the unsatisfactory performance to implementation problems that occur when dealing with independent suppliers and overseas partners. We suggest that there are much more fundamental objections against outsourcing or offshoring that are unrelated to implementation problems. Rather, there are limits to outsourcing and offshoring, and many inputs of a firm should not be outsourced or offshored. Kotabe and Mol’s (2005) study confirmed managerial intuitions that there is an optimal level, as argued similarly by Leiblein et al. (2002). Thus, we can help lower the
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uncertainty surrounding managerial decision-making on outsourcing or offshoring and also improve its quality. Managers are often not conscious of the fact that there is an optimal degree of outsourcing for their entire portfolio. Instead of using this portfolio level, they tend to see the good or the evil of outsourcing or offshoring particular items or activities in that ‘‘[o]utsourcing is more than a bidding process. Companies don’t do enough analysis before they jump into it’’ (Fortune, April 3, 2006, p. S4). This helps explain why, in practice, outsourcing or offshoring often looks like a bandwagoning process. Likewise, many academic approaches have centered on analyzing single make-or-buy decisions. To some extent this is appropriate, since outsourcing or offshoring decisions are made on an irregular basis. However, the performance advantages of outsourcing or offshoring will only materialize when a firm has the organizational capacity to integrate outsourced and/or offshored items/activities into its operations. Furthermore, many companies make outsourcing or offshoring decisions by evaluating only a few options on the basis of their previous experience and by what their competitors are doing (Farrell, 2006). For example, in June 2006, Apple Computer pulled the plug on a call center in India due to the high cost of operating (Kripalani, 2006), although many managers still perceive India as a low-cost location for call centers. Managers are in need of guidelines as to where the optimal point lies for their particular business at a particular time. Based on the contingency approach using a ‘‘fit’’ perspective, we can suggest several indicators to help answer that question – including asset specificity, uncertainty, firm competences, industry trends and firm nationality and location. These moderating factors help determine what is optimal for a particular firm at a particular time. Timing is crucial as the optimal point will change due to changes in internal and external to the firm. What would really be useful from a managerial perspective is a model that helps determine what the optimal degree of outsourcing or offshoring is for a firm. Upon determining that optimum, managers could prioritize their set of activities and outsource or offshore until they more or less reach optimality. Such a model provides the next challenge for the academic community. As global sourcing is a dynamic process, competing firms may not accurately grasp the full benefit and cost of outsourcing or offshoring activities due to causal ambiguity. Simply bandwagoning on the firstmover’s current outsourcing or offshoring strategy offers no guarantee for improved performance. We suggest that tackling the challenge involves a
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broader behavioral understanding of how outsourcing or offshoring trajectories of firms change over time and within industries.
NOTES 1. When it comes to research on services, various researchers (Anderson & Narus, 1995; Lovelock, 1988) highlighted the necessity of distinguishing between core and supplementary services. Core services are the necessary outputs of an organization that consumers are looking for, while supplementary services are either indispensable for the execution of the core service or are available only to improve the overall quality of the core service bundle. Using an example of the healthcare industry, the core service is providing patients with good-quality medical care. The supplementary services may include filing insurance claims, arranging accommodation for family members (especially for overseas patients), handling off-hour emergency calls and so on. The same phenomenon arises in the computer software industry. When the industry giant Microsoft needed help in supporting new users of its Windows software, it utilized external sourcing with Boston-based Keane, Inc. to set up a help desk with 350 support personnel. As competition intensifies over time, however, core services may gradually partake of a ‘‘commodity’’ and lose their differential advantage vis-a`-vis competitors. Subsequently, a service provider may increase its reliance on supplementary services to maintain and/or enhance his competitive advantage. In other words, the reason why a service firm exists is to provide goodquality core services to its customers but, in some instances, it simply cannot rely solely on core services to stay competitive. 2. Based on the premise explained in Note 1, we can expect that core services are usually performed by the service firm itself, regardless of the characteristics of the core service. On the contrary, although supplementary services are provided to augment the core service for competitive advantage, the unique characteristics of supplementary services may influence ‘‘how’’ and ‘‘where’’ they are sourced. 3. One of the salient characteristics of services is that a service may not be separated from the service provider. Inseparability forces the buyer into intimate contact with the production process and requires close buyer–seller interactions (Erramilli & Rao, 1993). The close buyer–seller interaction due to service inseparability has two significant implications. First, it demands the tight coordination of the demand and supply of the service activity. Second, it necessitates close interaction between (employees of) the supplier and (employees of) the buyer. Both of these are attained more effectively by performing the activity internally.
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A HISTORICAL EXAMINATION OF THE EVOLUTION OF INTERNATIONAL ADVERTISING STANDARDIZATION/ADAPTATION THOUGHT John K. Ryans Jr., David A. Griffith and Subhash Jain ABSTRACT International advertising standardization/adaptation has been a dominant area in the international marketing literature. In this chapter, we explore the evolution of thought related to international advertising standardization/adaptation beginning in the 1920s. Through a stage theory historical analysis, we decompose thought in international advertising standardization/adaptation into three unique stages: (1) practitioner evolution, (2) scholarly initiation and (3) conceptual and empirical refinement. Given this approach, we contend that the factors considered in earlier stages were necessary for later development. Further and more importantly, we argue that, for the evolution of thought in relation to international advertising standardization/adaptation to evolve, researchers must begin to engage in a number of acts central to building a unified International Business Scholarship: AIB Fellows on the First 50 Years and Beyond Research in Global Strategic Management, Volume 14, 279–293 Copyright r 2008 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1064-4857/doi:10.1016/S1064-4857(08)00009-0
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foundation. We propose a series of issues that need to be addressed in order to advance our understanding of international advertising standardization/adaptation.
For nearing a century, international advertising standardization has been the central focus of international advertising (Agrawal, 1995; Ryans & Griffith, 2003). However, although a plethora of writings have dealt with this topic (e.g., Levitt, 1983; Boddewyn, Soehl, & Picard, 1986; Baalbaki & Malhotra, 1993, 1995; Agrawal, 1995; Alashban, Hayes, Zinkhan, & Balazs, 2002; Solberg, 2002; Laroche, Kirpalani, Pons, & Zhou, 2001; Chung, 2003; Kanso & Kitchen, 2004; Wei & Jiang, 2005; Okazaki, Taylor, & Zou, 2006), some scholars question whether or not the field has truly advanced because at its core the issue of whether international advertising should be standardized or adapted has remained unanswered. We contend that the simple fact that this seminal question remains unanswered does not mean that there has not been substantial progress made in the quest to answer it. Quite to the contrary, we argue that we must not only look to the destination but to the journey of discovery to best understand the area and its progress toward answering this question. As such, we attempt to clarify the underlying thought development during the past century in relation to international advertising standardization/ adaptation. To engage thought development on this topic, we employ a stage theory approach which presupposes a building process within the literature in which the processes encountered in one stage of thought development serves as the foundation for a following one (Hollander, Rassuli, Jones, & Dix, 2005). Under this approach to the literature, we look for successive theoretical advancements built upon thought advancements such as theoretical or methodological developments as well as gestalt shifts in paradigmatic perspectives that have employed prior literature as a foundation. We contend that thought development in international advertising standardization/adaptation has proceeded through such successive stages of thought development. Specifically, we identify three unique stages: (1) practitioner evolution, (2) scholarly initiation and (3) conceptual and empirical refinement and we provide an analysis of the successive stages of thought development, inclusive of the major outcomes of each stage and how these outcomes set forth the foundation for future developments. Further and more importantly, we contend that for thought in relation to international advertising
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standardization/adaptation to evolve, researchers must begin to engage in a number of acts central to building a unified foundation. As such, we propose a series of issues that need to be addressed in order to advance our understanding of this phenomenon.
THE HISTORICAL FOUNDATIONS OF ADVERTISING STANDARDIZATION Stage One: Practitioner Evolution The current literature traces the initiation of this discussion to the early 1920s. Specifically, in 1923, Brown at Goodyear emphasized that humans everywhere are the same and therefore that standardization should work. During the same time period, Propson (1923) from Bausch & Lamb emphasized that local market differences call for advertising adaptation. As international expansion increased, a tremendous amount of debate ensued pertaining to whether or not it was more effective to standardize advertising in order to gain cost efficiencies or whether it was necessary to engage in adaptation in order to meet unique demand considerations. Those following the success of the mechanistic view of economies of scale, thereby supporting standardization included Cornejo (1958), Elinder (1961), Fatt (1967), Deschampsneufs (1967), Barnes (1968), Ettinger (1969) and Peebles (1967). As an example, Elinder (1961) stressed that emerging similarities among European consumers made uniform advertising both desirable and feasible. He noted that a Swedish executive found that savingsbank promotions were successfully transferable all over Scandinavia. Fatt (1967) also supported a standardized approach believing that there are common traits of behavior among people worldwide. He argued that the ‘‘desire to be beautiful is universal. Such appeals as ‘mother and child,’ ‘freedom from pain,’ and ‘glow of health,’ know no boundaries.’’ However, this is not to suggest that these authors dominated the perspective. Rather, a serious counteroffensive arose. Vladimir (1950) for example, strongly favored adaptation for advertising success outside the home market. Others who supported his position include Delaforce (1964), Lindsey (1964) and Marcus (1964). For example, Marcus (1964, p. 386) mentioned that ‘‘Many ads have appeared in the French press in recent years translated from American copy into pidgin French, using people and situations with which the French people could never identify. We
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take this a proof that advertising still has far to go before the world will realize that in France, as throughout the world, advertising problems are local problems and can be solved only by people in the know.’’ Similarly, Lindsey (1964, p. 257), when discussing the importance of local advertising execution, stressed that ‘‘With such glaring cultural, economic, and linguistic differences, it cannot be too strongly urged that any foreigner who wants to advertise in Mexico should obtain the services of a local advertising agency and under no circumstances try to handle his business from abroad.’’ While a substantial amount of attention in both the practitioner press and scholarly outlets was present at this time, the underlying support for each position was primarily anecdotal. For example, Elinder (1961), to support the appropriateness of standardization, said: ‘‘Consider the fact that all over the world the slogan used in advertising Lux soap is ‘9 out of 10 film stars use Lux’ – the self-same slogan (in different languages), the same beautiful girls, the same name, and the same success.’’ As those on both sides of the debate maintained a plethora of examples supporting their position there was a need for a broader and more rigorous approach – hence the advancement of empirically founded research within the academic community.
Stage Two: Scholarly Initiation Strong academic interest in the international standardization/adaptation issue dates to the late 1950s and 1960s (e.g., Pratt, 1956; Buzzell, 1968; Donnelly & Ryans, 1969; Ryans, 1969; Keegan, 1969). After examining this literature, we contend that the movement toward the stage of scholarly initiative was founded in the first doctoral dissertation on the subject, written by Donnelly in 1968. Through the undertaking of scholarly empirical work on the topic, he began to provide the scientific rigor necessary to more clearly delineate the discussions of the prior stage. Building on the work in Donnelly’s dissertation, Donnelly and Ryans (1969) found standardization a common practice while others noted adaptation was necessary. For example, they discovered in their study sample of Fortune 500 firms that 90 percent of the firms, to at least some degree, extended their U.S. advertising approach to non-domestic situations. The initial work of Donnelly (1968) and Donnelly and Ryans (1969) began a significant stream of academic research in the 1970s and early 1980s (e.g., Green, Cunningham, & Cunningham, 1975; Peebles, Ryans, & Vernon, 1978; Sorenson & Wiechmann, 1975; Narayana, 1981). With the
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publication of Levitt’s (1983) article, the interest in the subject increased tremendously as researchers examined the issue of international advertising standardization from different angles. For example, Quelch and Hoff (1986) argued that the decision on standardization is not a dichotomous one between complete standardization and adaptation. Other scholars emphasized that a variety of internal and external factors impinged on the standardization decision (e.g., product/industry characteristics) (Boddewyn et al., 1986; Wind & Douglas, 1986). In some quarters, it was held that, with rising income and regional integration, Western Europe appear to become a fairly homogenous market fit for standardization. Boddewyn (1981), however, found sharp income and behavior differences among European consumers that discourage advertising standardization. Hornik (1980) argued that although product attributes and functions were generally similar in different countries, the perception of these attributes varied from nation to nation. Thus, the common needs of people belonging to different nations did not necessarily mean that they could be reached by standardized advertising. As Hornik said: Product [need] universality cannot imply global message appeal y [Israeli and American women] might manifest the same need for cosmetics (i.e., preservation of beauty), but this does not mean that an Israeli woman perceives the American cosmetic in the same way as it is perceived by the American. Therefore, understanding consumer wants, needs, motives and behavior is a necessary condition to the development of an effective promotional program. (Hornik, 1980, p. 43)
Some scholars felt that, rather than looking at the target market in terms of rich/poor nations, it could be possible to identify segments in both developed and developing countries that are similar and represent a homogenous market (Kale & Sudharshan, 1987; Sheth, 1986; Simmonds, 1985). Hill and Still (1984) found that the Intermarket Segment Concept was applicable in urban areas and standardization could work in such a segment. A number of studies explored the influence of culture and concluded that economic and cultural differences among nations make pursuing standardization difficult (Arndt & Helgesen, 1981; Ricks, 1983, 1986; Terpstra & David, 1985; Kaynak & Cavusgil, 1983; Douglas, Craig, & Keegan, 1986; Terpstra, 1986; Parameswaran & Yaprak, 1987). As such, stage two provided for a broad understanding of the different factors influencing the standardization and adaptation of advertising. However, the major limitation of stage two was the lack of an organizing framework for the consolidation of findings. This conceptual refinement initiated stage three with works by Jain (1989) and Cavusgil and Zou (1994).
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Stage Three: Conceptual and Empirical Refinement Much of the research up until the late 1980s and early 1990s failed to provide for the beginning of a destinational path whereby a second study could build on the first one, and so on. Such prior ad-hoc attempts at research were not conducive to theory building, at least in the near term. Consider the definition of standardization: according to Jain (1989), standardization implied common advertising programs globally but James and Hill (1991), in their research, focused on message standardization while Cavusgil and Zou (1994) considered the issue broadly under ‘‘degree of standardization/adaptation.’’ Besides, Harvey (1993), Kanso (1992) and Harris and Attour (2003) viewed advertising standardization/adaptation as a multidimensional issue. This failure to arrive at a single conceptualization of the seminal concept brought forth difficulties in advancing the literature in relation to advertising standardization/adaptation. For example, differences in conceptualization of key constructs has increased the difficulty of conducting meta-analyses to more clearly organize the extant findings of the field. Another obstacle to theory building has been the identification of bottomline criteria to determine the effectiveness of advertising standardization/ adaptation (Onkvisit & Shaw, 1999). For instance, Jain (1989) favored such economic payoffs as financial performance, competitive advantage and other aspects as the basis of the decision. Cavusgil and Zou (1994) suggested that the criteria should be meeting the economic and strategic objectives of the firm while still others recommended that consumer response relative to the acceptance of product attributes, messages and brand loyalty should be the focus of effectiveness (e.g., Harvey, 1993). Furthermore, the use of varying sampling frames and different statistical methods created problems in comparing the results from one study to the other. For example, as indicated in Table 1, researchers have employed a wide variety of samples as well as statistical methods, thereby making comparisons across studies difficult. Thus, are the results of MANOVA directly comparable to those of factor analysis? Additionally, most studies have examined external drivers (e.g., market, competition, cost and government) to determine the desired balance between standardization/adaptation (Johansson, 2000; Bartlett & Ghoshal, 1989; Yip, 1992). However, the internal characteristics of the firm – for example, organizational context such as a firm’s culture, stability and change; resource flexibility for copy development, message translation, etc.; parent’s organizational structure: centralization vs. decentralization and organizational controls affecting information, process and
Nokia’s print ads between 1997 and 2003 were analyzed through a coding scheme which compromised 125 Chinese ads and 60 U.S. ads
Research Design
Kanso and Mail survey completed by Kitchen (2004) international advertising managers on their attitudes relative to creative strategy and the significance of cultures. 89 U.S.-based consumer service firms were surveyed Okazaki et al. Survey of 107 subsidiaries (2006) of U.S. and Japanese MNCs in the EU’s five largest economies
Wei and Jiang (2005)
Author(s)
Data Source
Constructs
Methods/ Statistics
U.S. and Environmental factors (i.e., MANOVA, Standardized advertising Cronbach’s Japanese customer and market was found to be more alpha subsidiaries similarity, advertising effective and it improved in Western infrastructure, performance in the five Europe competition); perception nations. The decision was of cost savings; crossbased on environmental border segmentation, etc. factors, strategic factors, level of control and size of the subsidiary
Content analysis Nokia’s ads Creative strategy (i.e., The creative strategy, for following three in the U.S. informative, argument, example, connecting different and China motivation, etc.); people can be coding execution (i.e., format, standardized but its schemes visuals, humor, sex) and execution should be cultural clues (i.e., localized (the U.S. ads portrayal of model, emphasized product product, language, etc.) displays more often while the Chinese ads used graphic displays that focused on people orientation) due to the influence of culture US MNCs Standardization/ Wilks’ lambda to The majority of the Adaptation of ads (i.e., test responding companies color, illustration, significance in advertising in overseas symbol, theme, content); multivariate markets adapted their ad influence of cultural analysis of campaigns to the cultural variables variance differences and government regulations among nations
Conclusions
Table 1. Perspectives of International Advertising Standardization/Adaptation in Selected Studies. Evolution of International Advertising Thought 285
Research Design
Griffith, Chandra, and Ryans (2003)
Lim, Acito, and Rusetski (2006)
Constructs
Methods/ Statistics
Market similarity, Regression environmental similarity, analysis process standardization, mode of entry, message standardization and packaging standardization
Competition (i.e., intensity T-value, Cronbach’s of buyers and alpha and competition); structural environmental factors model (i.e., religion, education, language, economy, technology) Published Promotion standardization Configurational case studies theory considering strategies as multidimensional archetypes
Data Source
A positive correlation was U.S. found between brand corporate name standardization executives and cost savings as well as product’s sales volume
Conclusions
The article presents a holistic conceptual framework of international marketing strategy based on configurational theory. Future research agenda is provided. U.S. MNCs The study examined the Survey of 51 U.S. with Indian market for subsidiaries in India to operations advertising message and determine the influence of in India packaging market similarity, process standardization. It was standardization, concluded that by environmental similarity segmenting the large and mode of entry on Indian market into a promotion subset of consumers who standardization are similar in their perspectives to U.S. consumers, U.S. subsidiaries in India found that a standardized approach to advertising message was workable
Review of academic research on the subject
Alashban, Hayes, Survey of 177 marketing Zinkhan, and executives in U.S. Balazs (2002) companies on brandname standardization
Author(s)
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Solberg (2002)
Harris and Attour (2003)
Chung (2003)
Australian Environment (i.e., political, Factor analysis Where host-country Survey of 149 Australian and New economic, cultural, executives lack and New Zealand firms Zealand market infrastructure); knowledge of overseas doing business in China firms consumer behavior; market conditions, and to examine if operating product and firm-related the host country standardized strategies in China factors distributors have the work in home-host freedom to do so, nations, and inter market advertising is adapted segments to local conditions Printed ads of Extent of standardization, Content analysis It was found that total Ads relative to 51 brands four influence of product advertising advertised in six or more products in category standardization was of the sampled markets selected practiced by 11 percent of (six European and three magazines brands only. Most brands Middle Eastern followed modified countries) were content standardization (i.e., analyzed to examine their there was some standardization adaptation from country to country) Cronbach’s alpha Governance of marketing Mail survey of 150 Two factors determine the Norwegian exporters activities by HQ/local Norwegian exporters to extent of advertising representatives; HQ study their international standardization/ knowledge of local advertising adaptation: knowledge of markets; cooperative standardization the overseas market and relationship between HQ adaptation/perspective the level of freedom of and local representatives action available to local and export performance representatives. Higher knowledge and lower freedom lead to standardization and vice versa
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material sharing – have scarcely been covered in designing research constructs. This issue is compounded by the divergence of constructs utilized across studies (see Table 1). For example, although both Okazaki et al. (2006) and Alashban et al. (2002) emphasized environmental factors, Okazaki et al. (2006) focused on issue such as advertising infrastructure and competition while Alashban et al. (2002) highlighted issues such as education, language and technology. These problems reveal the current limitations within the advertising standardization/adaptation literature. Specifically, although we have moved toward a programmatic organized research agenda, we continue to lack the foundational consensus necessary to advance the field.
FOUNDATIONS FOR ADVANCEMENT The three-stage periodization indicates that for the field to advance to the next stage of thought development, it is necessary to clearly enumerate the constructs to be employed. As such, we argue that a series of standards are needed for the field to advance. First, we believe that we are past the stage of using a generalized construct such as ‘‘standardized/adapted advertising.’’ Clearly, the construct is multidimensional and a generalized construct such as ‘‘standardized/ adapted advertising’’ will provide limited insights to the understanding of this complex issue. We argue, following Harvey (1993), that it is the ‘‘degree’’ of standardization/adaptation along each dimension of advertising, such as message, media, etc., that is at issue, rather than an either or decision. As such, advertising standardization/adaptation research should build upon the conceptualization put forth by Harvey (1993), namely, that the construct as a second-order factor composed of first-order factors of: (1) research and development, (2) creative, (3) media, (4) production and (5) post-advertising research to determine effectiveness, be adopted by researchers. Further, we hold that by utilization of multi-item measures for each firstorder factor, not only will the overall degree of standardization/adaptation be identifiable but also that individual dimension relations can be parsedout to further enhance our understanding of this concept (see Griffith et al., 2003). This method, we believe is consistent with prior conceptualizations (e.g., Jain, 1989; Griffith et al., 2003) and can give the field an opportunity to coalesce into an approach appropriate to the study of this topic and its advancement.
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Second, researchers are challenged to delineate the conceptual domain of ‘‘effectiveness’’ in relation to international advertising standardization. Effectiveness is at the core of the standardization/adaptation of advertising debate. However, without a clearly defined and agreed upon definition of the construct, the field cannot advance. Here, in light of recent theoretical advancements in marketing, we argue that the aspects of competitive advantage posed by resource-advantage theory appear most appropriate. Following the extant literature, the conceptualization offered by Jain (1989) falls in line with Hunt’s (2000) resource-advantage theory. As such, we contend that standardization effectiveness should be conceptualized as including not only financial performance but also competitive advantage. By capturing the latter within the examination of the performance implications of advertising standardization/adaptation, we can combine the general underlying concept of firm competitive action as enumerated by Hunt (2000) with the general tenet of effectiveness as espoused by early thinkers in this field (e.g., Elinder, 1961; Fatt, 1967). Third, the underlying empirical laws of interaction between the constructs should be examined while specifying the boundary parameters of the topic. We argue that this investigation should engage upon the path put forth by Cavusgil and Zou (1994) – that is, strategy environmental co-alignment. Their framework allows for a broad-based perspective in which the extant drivers of advertising standardization/adaptation can be incorporated within the internal and external forces domains. By employing their strategy-environment co-alignment framework, researchers can begin to build toward a more consistent understanding of the influences that bear on this issue. Therefore, we contend that researchers should first examine the internal and external forces identified by Cavusgil and Zou (1994), prior to delineating new factors. Further, the theoretical explication and examination of the underlying theoretical tenets upon which the arguments of advertising standardization/ adaptation have been founded are necessary. This approach requires discerning why standardization or adaptation enhances ‘‘effectiveness’’ or, more importantly, ‘‘comparative advantage.’’ This requires a more explicit conceptualization of homogenization, or lack thereof, of consumer wants, needs, etc. Since Jain (1989), Harvey (1993) and Cavusgil and Zou (1994) as well as a plethora of other researchers have enumerated and tested antecedents to the standardization/adaptation of advertising strategy, it is the homogeneity of consumer wants, needs, etc., along with such external market factors as income disparity, culture, etc. that drive standardization or adaptation. Consequently, we argue that researchers can no longer
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merely assume (or imply) the homogeneity of wants and needs across markets (or for that matter the economies of scale brought forth by standardization) but that these issues should be empirically tested with multi-item measures, or secondary data, and that the validity of the underlying assumptions of the standardization argument must be tested. Finally, from a pragmatic perspective, today’s research standards have advanced beyond the approaches of the past. Clearly, based upon the works of Jain (1989), Cavusgil and Zou (1994) and others, advancement of the field necessitates a strong research methodology. As such, we propose that structural equation modeling be the standard, allowing for the establishment of multi-cultural invariance testing as well as the testing of multiple dependent variables simultaneously (such as influencing factors on standardization/adaptation and ultimately these policies’ effectiveness) within an overall contingency framework.
CONCLUSIONS After close to a century of discussion, the advertising standardization/ adaptation issue has remained an important topic to academics and practitioners. Surprisingly, it has done so without a consensus regarding its key constructs or their relationships. Here, we have demonstrated the stages that international advertising standardization/adaptation thought has developed through leading to the present point in its investigation. Furthermore, we have argued that for the field to pursue the advancement of thought, general agreement has to be reached upon its core constructs. As such, building on the extant literature, we recommend specific conceptualization of the key constructs, outcome measures and a co-alignment framework that will be most useful in advancing thought in this area. We believe that through concerted efforts to work along these three elements, our understanding of international advertising standardization/adaptation research will advance into a more insightful analysis of the key aspects of this topic.
REFERENCES Agrawal, M. (1995). Review of a 40-year debate in international advertising. International Marketing Review, 12(1), 26–48.
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Parameswaran, R., & Yaprak, A. (1987). A cross-national comparison of consumer research measures. Journal of International Business Studies, 18(Spring), 35–50. Peebles, D. (1967). Goodyear’s worldwide advertising. The International Advertiser, 8(1), 19–22. Peebles, D., Ryans, J. K., Jr., & Vernon, I. R. (1978). Coordinating international advertising. Journal of Marketing, 42(1), 28–34. Pratt, E. E. (1956). Building export sales-advertising. The International Advertiser, 1(8), 19–22. Propson, C. F. (1923). Export advertising practice. New York, NY: Prentice Hall. Quelch, J. A., & Hoff, E. J. (1986). Customizing global marketing. Harvard Business Review, 64(3), 59–68. Ricks, D. A. (1983). Big business blunders: Mistakes in multinational marketing. Homewood, IL: Dow-Jones-Irwin. Ricks, D. A. (1986). How to avoid business blunders abroad. In: S. C. Jain & L. R. Tucker, Jr. (Eds), International marketing: Managerial perspectives (pp. 107–121). Boston: Kent Publishing Company. Ryans, J. K., Jr. (1969). Is it too soon to put a tiger in every tank. Columbia Journal of World Business, 4(2), 69–75. Ryans, J. K., Jr., & Griffith, D. A. (2003). International advertising research: Standardization/ Adaptation and the future. In: S. Jain (Ed.), Handbook of research in international marketing (pp. 294–312). Williston, VT: Edward Elgar Publishing Inc. Sheth, J. N. (1986). Global markets or global competition? Journal of Consumer Marketing, 3(Spring), 9–11. Simmonds, K. (1985). Global strategy: Achieving the geocentric ideal. International Marketing Review, 2(Spring), 8–17. Solberg, C. A. (2002). The perennial issue of adaptation or standardization of international marketing communication: Organizational contingencies and performance. Journal of International Marketing, 10(3), 1–21. Sorenson, R. Z., & Wiechmann, U. E. (1975). How multinationals view marketing standardization. Harvard Business Review, 53(3), 38–56. Terpstra, V. (1986). Critical mass and international marketing strategy. In: S. C. Jain & L. R. Tucker, Jr. (Eds), International marketing: Managerial perspectives (pp. 93–106). Boston: Kent Publishing Company. Terpstra, V., & David, K. (1985). The cultural environment of international business (2nd ed.). Cincinnati, OH: South-Western Publishing Co. Vladimir, I. A. (1950). Industrial and export advertising: Export advertising. In: R. Barton (Ed.), Advertising handbook. New York, NY: Prentice Hall. Wei, R., & Jiang, J. (2005). Exploring culture’s influence on standardization dynamics of creative strategy and execution in international advertising. Journalism and Mass Communication Quarterly, 82(4), 838–856. Wind, Y., & Douglas, S. P. (1986). The myth of globalization. Journal of Consumer Marketing, 3(Spring), 23–26. Yip, G. S. (1992). Total global strategy: Managing for worldwide competitive advantage. Englewood, NJ: Prentice Hall.
CREATING INSIGHT: THE IMPERATIVE FOR RESEARCH IN INTERNATIONAL BUSINESS John M. Stopford ABSTRACT Too much International Business research is limited by the demands for rigorous theory and it lacks impact on the ‘‘real world.’’ Instead of looking for exactitude, scholars could enlarge their conception of scholarship and look for insight about causality. The ferment of globalization and technological advance cannot adequately be understood by singlediscipline work, but it presents an enormous opportunity for us to break away from long-cherished orthodoxies and connect directly with other disciplines and with the world of practice. Such a change will require courage, but the prize – linking theoretical insight to practical action – is worth the investment.
How can scholarship provide both the rigor of theoretical understanding and also have impact on policy and its implementation? There is a general challenge for all branches of scholarship to pause and reflect on what has been achieved and to think about how scholars may help influence the future to make the world a better place. Given the growing complexities of the world around us today, there is a need to re-visit the age-old tension International Business Scholarship: AIB Fellows on the First 50 Years and Beyond Research in Global Strategic Management, Volume 14, 295–307 Copyright r 2008 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1064-4857/doi:10.1016/S1064-4857(08)00010-7
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between depth and breadth. How can we combine the rigor of deep-level, highly focused discipline-based research with the insights that come from empirical observation of events and the policy debates that typically precede action to change the status-quo? The field of International Business (IB) is an appropriate place to examine this issue as it combines so many underlying disciplines and also has an outwardly focused empirical tradition. Even the social and political context within which business is conducted has been transformed by the forces of policy liberalization and technological discontinuity: policy agendas that were previously considered separate have now been joined closely together. In addition to focusing on data analysis, my argument here is that scholars should also work to create insight about the nature of the inter-connections and dynamic forces at work. Future scholarship can build on that insight to ask better questions. International Business, as an academic field, started in the 1960s. It was, of necessity, an interdisciplinary field but it rapidly became dominated by single-discipline work. Only recently has it begun to regain some of its original relevance and insight that have been diminished by overspecialization. There have been formidable obstacles facing scholars who wish to retain the scope of interdisciplinary work. These obstacles now seem to be easing because the twin challenges of contemporary globalization (especially the growth of the BRIC economies)1 and eCommerce are acting to revitalize and to transform the field. These obstacles should not be underestimated. There is a great weight of vested interest behind the plethora of models competing to explain every conceivable theoretical issue. These models have become so complex that they require the most sophisticated mathematics to sift the data adequately and find some vestige of signal in all the noise. Quantitative proof is being valued more highly than qualitative argument. Consequently, IB, as with other branches of scholarship in the business fields, is in danger of limiting its focus to only those problems and issues that can be measured numerically. Insight, born of experience and careful argument, is frequently being pushed into the sidelines. In social science, theory is needed to help make sense of the messiness of what is happening in the interactions among politics, business, technology and society. How otherwise can we understand, for example, the causal forces of globalization more clearly so that constructive responses and policies may be defined? We need theory to help us see the wood from the trees. We need theory to help us ask more interesting questions and to develop the tools for interpreting the answers we get.
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Theory alone is not a sufficient basis for research. The scholar must also be interested in application. MIT’s Institute slogan ‘‘Rigor and Relevance’’ comes from engineering and its trade-school origins. The slogan applies equally to MIT’s Sloan School of Management and to the field of IB. The general issue of interdisciplinary research puts the spotlight on a series of tensions that challenge all fields and all universities. There are tensions between scholarship and engagement, between abstraction and application and between research and teaching duties. In his autobiography, Errata, George Steiner wrote: Universities are, since their instauration in Bologna, Salerno or medieval Paris, fragile, although tenacious beasts. Their place in the body politic, in the ideological and fiscal power structures of the surrounding community, has never been unambiguous. No edifice, no organization of higher learning has ever equilibrated satisfactorily the competing claims of research, of specialized scholarship, of bibliographic and archival conservation, with those of a general education and civic training. Universities house diverse, often rival, parishes. (Halliday, 1999, p. 103)
Such tensions, properly handled, can stimulate rather than stifle creativity. Yet, they can seldom if ever be satisfactorily resolved. One job of scholarship is to ensure that the debate remains vital. This job applies at both the level of the institution, be it a university or a research center, and at the level of a field or discipline. This chapter explores how these tensions have influenced IB research and asks why progress, based on single-discipline work, has been so slow. There are many obstacles to working across discipline boundaries, especially for the individual scholar. The chapter starts with a short note on globalization for it is the over-riding context for change in the field.
GLOBALIZATION The current phenomenon of globalization is much misunderstood. Many executives consider it to be little more than an enlarged market that provides greater benefits of scale. They can easily underestimate the need to tailor the operation to local contexts and local needs. Many members of the public fear globalization. The protests that started in Seattle and have continued beyond Prague and the World Economic Forum are symptomatic of the concern that globalization harms more than it benefits. One must ask, however, whether this process really is new or whether it is a continuation of long-term developments in the world economy. Consider this statement from as far back as 1909: ‘‘The world economy has become so
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highly inter-dependent as to make national independence an anachronism, especially in financial markets. This interdependence is being driven by science, technology, and economics – the forces of modernity. These forces, not governments, determine international relations’’ (Angell, 1909, p. 6). Opposition to such forces of modernity has existed ever since, not least by those governments that have been determined to isolate their countries. As we know from the fall of the Berlin Wall, isolationism is unsustainable over the long haul. The question then is how to gain the benefits and reduce or avoid the costs. We know that the conditions of inter-dependence among nations have continued to deepen over time. Today, national GDP grows more slowly than trade, which grows more slowly than foreign direct investment (FDI), which grows more slowly than Internet trade. What is new compared to the conditions in 1909 is the enormous growth of investment, the speed of the changes and the digital revolution. Indeed, a serious divide is now growing between those with access to the Internet and those without. Really deep-level interdependence is shaped by the interactions among trade and FDI and the information flows that come from electronically networked markets. The rising skill base needed to manage these interactions poses a serious threat to weaker states. Globalization has served dramatically to widen the rich/poor division, both within states and across states. It is not clear, however, what should be done. Most people are concerned by the sheer impersonality of the market economy. There is a pervasive sense that we are displaced and have no voice in shaping outcomes. Indeed, the United Nations’ new definition of poverty has included voicelessness as an important element in the complexity of a world of inequalities. Add to this a sense of U.S. dominance – especially the ‘‘soft power’’ of Hollywood and cultural imperialism – and you get an explosive mixture of contradictory opinions. As the global market economy becomes more digitally networked and seamlessly integrated – the financial markets are already far down that road – the scale advantages rise but so too does the volatility. At the same time, national regulation remains local, sometimes regional, and this remains another source of tension. To help manage them, Horst Ko¨hler, then the Managing Director of the IMF said in 2001, that we need stronger international institutions. He managed to avoid answering such pressing questions as ‘‘In what form?’’ or ‘‘how might new institutions emerge?’’ Clear answers remain elusive. Here is a rich vein for scholars to mine. Is this evolution or revolution? How can we separate cause from consequence? The need to develop a
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clearer perspective on global markets and their interaction with society was one of the original spurs to create the field in the 1960s. As the data shown later on suggest, this interaction has not been central in the recent discourse of IB scholars, leaving the field to journalists and those in International Relations. There is an opportunity to re-kindle the initial spark.
SLOW PROGRESS The field of IB emerged in the United States as people began to recognize that how management was conducted inside the US market was not necessarily the best indicator of how it was conducted elsewhere. This rather parochial start has slowly developed into a much broader set of concerns fraught with dilemmas. The pioneers were primarily concerned to grapple with the issues of the greater complexity of the world markets. They felt that the virtues of the parsimonious generalizations that were useful to explain much of US business at home did not work when applied abroad. New models were needed. The field thus began as an eclectic amalgam of the functions of business and their underlying disciplines. Such origins inevitably sparked early and continuing debate about identity. ‘‘Can [should] IB develop into a viable and distinct field of enquiry, given its lack of a unifying definition and its current and foreseeable dependency on the paradigms, theories and constructs of economics, political science, sociology and the business disciplines?’’ This was a question asked when 150 scholars met at a symposium in South Carolina in 1992 (Toyne & Nigh, 1997). It was the same question that had dominated the Ford Foundation enquiries in the 1960s. Scholars continue to wrestle with the difficulty that pervades the whole field: how to cope with the sheer plurality of the phenomena of IB? Some want to have a definition that permits almost anything to be included while others want a tighter, exclusive definition that will permit the development of a unifying theory. Unifying theory, however, comes at the price of narrowing the scope of enquiry. Otherwise, some argue, IB will remain open to the charge that it is no more than a kind of kitchen sink, full of interesting observations about the complexity of the world but providing little insight into the essential choices that policy makers and managers face.
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A counter view was advanced by Jack Behrman, one of the pioneers, who concluded his address to the South Carolina symposium on a personal note. He said he had entered the field ‘‘because it was wide open and permitted diverse forays into the mysteries of corporate and government policy and the difficulties of implementation. I would not have enjoyed my career nearly so much doing what others now apparently want to fix as the domain of IB’’ (Toyne & Nigh, 1997, p. 90). If scholars lose their enjoyment of the enquiry, then the price of a narrowing is high indeed. These alternative conceptions of the field existed when the main research paradigm was based on (largely unstated) assumptions of the universality of domestic models. Most scholars, however, soon chose to explore the added complexities through the lens of a single discipline, most notably economics. Such specialization later began to raise the question of identity in a new form. Over the ensuing 40 years, the teaching and the theorizing in the main business functions and in the underlying disciplines slowly became more international in scope. The question has now become ‘‘Does IB add anything to, say, finance, that is not covered in the main finance courses or finance journals?’’ Herein lies what I see a major dilemma for IB scholars. Should they work in the field in order to explore complex data sets and thereby enrich their understanding of their original discipline? Or, should they enter the field in order to ask new questions and to harness the explanatory power of other disciplines? At its best, IB research can be an interdisciplinary effort, combining the best of the underlying disciplines. At its worst, it can be a soggy stew of soft assertions produced by the desire to search for commonalities among the disciplines rather than by reaching for new combinations. My own preference is to see the field as a context for exploring new questions rather than thinking about the field as a separate discipline. The added complexity allows us to ask whether the domestic propositions have universal properties or whether they are merely the product of a particular national environment.2 This was, after all, the genesis of the field. There are two types of work in the field that address this question. The first is comparative research that explores business problems in two or more countries and reveals the differences. No attempt is made to resolve the differences. By contrast, international or cross-border research focuses on the added considerations of managing transactions across the borders of exchange-rate domains and sovereign territory. These are the transactions at the heart of what makes a multinational corporation different from a domestic one.
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When both these types of work are combined, it is possible to test the issue of universality. Consider the example of industrial economics. It has long been argued that economies of scale are primary determinants of competitiveness and that market share has increasing value. The data have primarily been based on single-country, domestic settings. In a European setting, however, market share may have diminishing returns. The cross-border context requires the explicit valuation of many variables typically ignored in domestic studies. For example, differences in national consumer preferences, distribution systems and their regulation can add significant costs that are absent domestically (Baden-Fuller & Stopford, 1991). At a global level, scholars have shown that the application of industrial-economics models must be substantially revised if the data are to provide any insight as to whether a strategy of global expansion is a sensible proposition (see, e.g., Yip, 1992). It is only when a significantly expanded set of variables can be measured and evaluated together that the global–local effects can be assessed intelligently. These combination effects are of crucial importance today, for the Internet revolution is creating new industries with sharply increasing returns to global scale. The dynamics of these global ‘‘winner-take-all’’ industries are puzzling indeed to competitors and regulators alike. Domestic theory alone provides little insight. Such instances when the global context acts to change the original domestic paradigm, sadly, have proved to be rare. It is thus possible to argue that much of IB is trapped at the limits to the complexity we can comprehend by using only one discipline lens. The late Sumantra Ghoshal, one of the authorities in the field, wrote that he regarded IB as ‘‘a field of enquiry that is inconsistent in its assumptions, incoherent in its approach and stagnant in its direction’’ (Toyne & Nigh, 1997, p. 361). One cannot ignore such sharp criticism but I believe it to be misplaced. Progress has been slow and inconsistent, largely because the principal researchers have come into the field from so many different disciplines. It is hard indeed for an economist to share perspectives and methodologies with a cultural anthropologist. It is not clear to me, however, that it is sensible or even desirable to expect a total consistency of approach. The very plurality of issues and questions surely demands a portfolio of approaches, each nested within a particular research tradition. One must go further however. If discipline experts are left to develop theory independently, there will be little chance of any synthesis or enrichment from crossing the discipline boundaries. We all know how bad scholars are at reading work that falls outside their own chosen zone of specialization.
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How to encourage such collaboration is the one of the greatest challenges facing the field today. Unless effective answers are found, the criticism of stagnation will be justified. More progress seems to be occurring in the adjacent fields of corporate strategy, leadership studies and the behavioral sciences generally. I feel, however, that IB is now beginning to rise to that challenge. There are signs of new shoots of new work being published, principally to address more complex problems of international management.
FROM SINGLE DISCIPLINE WORK TO MULTIPLE DISCIPLINES One measure of the emerging trends is provided by what has been published in the Journal of International Business Studies (JIBS), considered by many to be the leading journal in the field. Table 1 shows the extent of the shift in focus over a 15-year period. At the beginning of the 1990s, the majority of the articles were still tightly focused on a single discipline, mainly economics, and on government concerns. By the end of the decade, the majority of the papers were examining managerial, cross-border and comparative issues. Government policy had almost entirely disappeared, reflecting perhaps some of the attitudes discussed later on. Table 1. Shifting Research Priorities Topics in Journal of International Business Studies (Percent of Main Articles).
Managerial Organizational behavior issues Cross-cultural and comparative issues Strategy and marketing Applied disciplines Economics Other Government policy a
Mid-2000sa
End 1990sb
Early 1992c
64 23 12 29 34 26 6 2
74 30 28 16 24 16 8 2
40 13 17 10 44 27 17 10
10 issues from March 2006. 10 issues from Q3, 1998 to Q4, 2000. Excludes special issue on ‘‘International and Multi-Cultural Management.’’ c 10 issues from Q1, 1990 to Q2, 1992. b
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Such indicators of research trends must, to be sure, be taken with caution. The classification scheme is hardly scientific, and scholars of IB publish in many other journals. Nonetheless, the editorial behavior of JIBS indicates a very sharp move away from interest in Government per se and a rise of interest in the more managerial subjects. In the most recent years, the relative decline in articles that are strongly focused on applied disciplines has been somewhat reversed, no doubt reflecting the Editors’ preferences. Most of the cross-cultural studies now include Asia-Pacific, predominantly China, as a focus of comparison with the United States. Previously, the comparisons had been with Europe. Perhaps curiously, there has been almost no research published on the other three BRIC countries: Brazil, Russia and India. In any case, globalization needs a better understanding of the differences embedded in culture and national procedures. Such understanding provides a useful platform for asking more penetrating questions about the changing nature of cross-border transactions within the multinational corporations. The richer questioning is already discernable in the growing literature on the managerial issues of global strategy and organization. As I argue later on, it is in the exploration of the significant shifts in the world economy that perhaps the greatest future research opportunity lies. Although globalization has altered beyond recognition the role of government in affecting IB, interest in this part of the field declined almost to zero. Thirty years ago, government was seen as a crucial actor in determining many of the performance outcomes for the multinational corporations. There was an abiding sense of an adversarial relationship between firms and states. The seminal work here was Sovereignty at Bay (Vernon, 1971), which described the evolution of two systems that contained features that were antagonistic one to the other. Initially, the book received a reception that varied from the lukewarm to the overtly hostile. The head of the United States’ largest international bank (Citibank), Walter Wriston, fulminated in public about academic scribblers who suggested even the possibility of conflict with the countries where multinationals operated. The economists saw research on the corporation as hardly relevant to their discipline. Political scientists were only fractionally less hostile to a study that gave multinational enterprises a significant role in international relations. As a general rule, political scientists in the 1970s had built their models of the political economy on the assumption of the absolute sovereignty of the nation state. They saw the enterprise as an irritant to be washed away. Indeed one reviewer suggested the book should have been called Multinationals at Bay.
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World events after the first oil shock of 1973 have shown how much more complicated the basis of power has become. Mere possession of natural resources does not confer on the state the rights to profits. As Vernon himself put it later, ‘‘Gradually, almost imperceptibly, governments are becoming reconciled to a modified concept of sovereignty in the economic field. They are aware, for example, that without international co-operation, none of them is any longer capable of ensuring the existence of secure banks or of policing their securities markets against fraud’’ (Vernon, 1991, p. 191). As these developments unfolded, some scholars turned their attention to models of a more co-operative nature. In my book with Susan Strange – an unusual alliance between the disciplines of international relations and international strategy – we argued that states and firms must better understand the web of international bargains that links them (Stopford & Strange, 1992). Rather than a world of restrictive controls, we argued for a world where each party respects the other sufficiently to undertake negotiation in the spirit of partnership. The goal was to establish bargains that were durable, even when buffeted by changing circumstance. Though one can point to many such bargains, the post-Seattle world suggests that this bargaining has entered a new phase. Multilateral considerations are now equally important to bilateral ones. The world has moved on. The reactions to Vernon’s book revealed how little interdisciplinary work there was in the early 1970s. Little has changed since then. Economics and political science continue to treat the firm as a ‘‘black box.’’ And many in IB treat the state as a ‘‘black box.’’ Such mutual ignorance holds back progress in understanding complex phenomena that cannot neatly be understood within a single research tradition.
SCHOLARS AND REALITY What has made it so difficult for many scholars of IB to deal with complex reality? The question is serious because the field depends for its continuing legitimacy on having an influence on others. Look at the evidence. Management, as a profession, seems to be losing its legitimacy, at least in the West. There is no overarching vision of what the profession can or might contribute – and this despite repeated calls for action by successive Presidents of the various Academies in the United States. The cartoons of Dilbert are now the world best sellers on management and dominate public perception of what managers do. Respect for management as a source of value creation and progress is at historic lows, as seen in the public eye.
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As for scholarship, management studies have little or no influence on either general theory or practice. Consultants write the books and articles that managers read. Few scholars creatively use theory to inform practice and simultaneously use practice to inform theory. The relationships between scholar and practitioner needed for such symbiotic work are seldom sufficiently deep-seated for the evidence to get beyond the surface trivialities. And, clearly, disciplines like economics do not look to IB for inspiration. Part of the problem is that International Business has taken too narrow a view of scholarship. Especially for junior, non-tenured faculty, careers depend upon publishing a stream of articles in the top journals. The fastest, least risky way to do this is to choose small problems for which there are available numerical data sets. Self-interest, shaped by the incentives of promotion, prevents much creativity or conjuring with large problems. Conditioned by years of such ‘‘successful’’ publishing, few change their behavior once they have been granted tenure. Perhaps inevitably, young scholars are much more interested in research than in teaching, for that is how they get promoted. The creative link between research and teaching is all too often lost, contributing to a further narrowing of interest. Hence, the tensions between scholarship and engagement, and between abstraction and engagement remain strong. Nevertheless, I am optimistic they will gradually lessen. Today’s conditions provide a compelling opportunity for scholarship to develop new perspectives on the new realities. Moreover, creative research has an opportunity to influence managerial behavior. Globalization has propelled the multinationals centrestage in world affairs because they are the creators of new value. Consequently, their managers are realizing that they too need to learn to think in different ways if they are to survive the shocks of a post-Seattle world. I can think of no better time than today to aspire to building communities of practice that link theory to action.
BROADENING THE RESEARCH AGENDA There is a major opportunity for the field of IB to break away from longcherished orthodoxies. Not only has globalization changed the game but also the nature of the firm itself has changed. There have been marked moves away from hierarchies to networks, both inside and outside the legal boundaries of the ‘‘firm.’’ The rapid growth of private equity has challenged many notions about perfect markets and the central importance of the equity-capital markets. And the rise of Sovereign Funds from emerging
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markets, combined with private equity flows, begins to challenge our understanding of FDI. China’s rise in the world economy and the beginning internationalization of its major entities raises further questions about the Anglo-Saxon centrality of models of management. Consider how different the world might look when Chinese – language and culture – provides the dominant paradigm for models of leadership. And China’s rise raises new questions about the role of government, both domestically and internationally. How we frame the questions that might lead to new insight about what drives progress will have a marked bearing on the sorts of theory or paradigm that might develop. How we engage with other disciplines will also affect the methodologies and data we wish to harness. We can look forward to a period of experimentation and exchange with scholars of other social-science disciplines – for example with International Relations and Political Science for some of the issues of globalization, and with Finance for others. Insight into the contemporary changes cannot readily be gained from narrowly calculated orthodoxy within a single discipline. This challenge of broadening and of the obstacles that remain to be overcome affects all institutions of higher education and many other disciplines. Halliday’s striking essay on this subject ended with an examination of the final words of the Communist Manifesto (Halliday, 1999, p. 120). The original expression is usually translated into English as ‘‘Workers of the world unite’’ and continues with ‘‘you have nothing to lose but your chains.’’ Halliday does not think this is what was really meant. He cites the original translation into Mandarin, made early in the last century by Chinese students working in Japan. Reading the text from the perspective of a quite different culture, they translated the conclusion as ‘‘Scholars of the world unite, you have nothing to lose but your shame.’’ This is a splendid slogan, then as now, and one that has great relevance to all institutions of higher education and research as they continue to face the new century. It would be shameful indeed if we lacked the courage to aspire to anything less than the interdisciplinary scholarship we need to create new insights into the great questions of the world today.
NOTES 1. Brazil, Russia, India and China as identified by Goldman Sachs (Wilson & Purushothaman, 2003).
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2. Perhaps because of its origins in the United States, there is a strange parochial perception of universalism that has some currency in the IB debate. As one of my colleagues asked recently: ‘‘Why is it that when a theory is based on a US model, it is universal in its application but when the same theory is based on a French model, it is regarded as local or, at best, ‘international’ in its application?’’
ACKNOWLEDGMENTS This chapter is based on a keynote address given at the 50th Anniversary of Nihon University, March 14, 2001.
REFERENCES Angell, N. (1909). The great illusion. London: Heinemann. Baden-Fuller, C. W. F., & Stopford, J. M. (1991). Globalisation frustrated: The case of white goods. Strategic Management Journal, 12(7), 493–507. Halliday, F. (1999). The chimera of the ‘international university’. International Affairs, 75(1), 99–120. Stopford, J. M., & Strange, S. (1992). Rival states: Rival firms (p. 321). Cambridge: Cambridge University Press. Toyne, B., & Nigh, D. (Eds). (1997). International business: An emerging vision (p. 700). Columbia, SC: University of South Carolina Press. Vernon, R. (1971). Sovereignty at bay (p. 326). New York: Basic Books. Vernon, R. (1991). Sovereignty at bay: Twenty years after. Millennium Journal of International Studies, 20(2), 191–195. Wilson, D. & Purushothaman, R. (2003). Dreaming with BRICs: The path to 2050. Goldman Sachs, Global Economics Paper, October, p. 24. Yip, G. (1992). Total global strategy (p. 416). Englewood Cliffs, NJ: Prentice Hall.
SIMULATION AS VIRTUAL REALITY IN INTERNATIONAL-BUSINESS EDUCATION Hans Thorelli ABSTRACT The premise is that simulation is a dynamic model of reality systems. This chapter proceeds with an operational definition of a simulation embodying a virtual world representing the real world of international business (IB) operations. The inference is made that participating ‘‘Company teams’’ of students get a pilot experience of running a multinational enterprise (MNE) and, what is more, an understanding of the problems and challenges faced by the MNEs as well as their regulators and customers. The dynamics inherent in simulation puts actual implementation of strategy in focus, setting it apart from traditional case discussion. Features beyond the inherent dynamics of IB simulations are discussed in some detail. The conclusion is drawn that such simulations should have a prominent role in IB curricula. Ideally, they bring to bear experiential learning from practice.
International Business Scholarship: AIB Fellows on the First 50 Years and Beyond Research in Global Strategic Management, Volume 14, 309–324 Copyright r 2008 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1064-4857/doi:10.1016/S1064-4857(08)00011-9
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INTRODUCTION The research output of business schools has grown enormously in the past 50 years. So has the subset of this research concerned with international business (IB), the productivity of which has multiplied even faster in the past four decades. Ultimately, the research of professional schools must be useful to the professionals and, through them, to the public. The professional audience includes academic colleagues and, importantly, current practitioners (executives) as well as those of the future (students). We note in passing the relative failure of researchers to ‘‘market’’ their findings to practitioners, what with the ‘‘managerial implications’’ recognized by authors being typically the weakest part of research papers. Until recently, the teaching materials aimed at building the bridges between theory and practice were essentially descriptively oriented textbooks and ‘‘Harvard-type’’ cases. Lately, a promising emphasis is being placed on various types of ‘‘field’’ experiences – notably in the form of internships, a year abroad or even taking a degree in a country other than ‘‘your own.’’ Another promising development is getting involved in executive decision-making through computer-based management games and simulation exercises. This chapter offers a discussion of what is involved in simulation design and application in academic courses. In addition, an empirical example is offered, involving the International Operations Simulation (INTOPIA). The objective of this simulation is to provide participants (students and executives) a pilot experience of the problems, challenges and excitement of running a multinational enterprise (MNE). Among other things, the arrival of the computer/information age has resulted in the explosion of design and use of hundreds of entertainment games and quite a few educational simulations. This chapter gives a tangible, operational view of simulation as a vehicle in IB education. In a nutshell, a true simulation is characterized by virtual reality dynamics – that is, it mirrors salient parts of a changing reality.1 However, simulation is not the cloning of reality! As an introduction, Fig. 1 illustrates in gross terms the design and operation of a computerized simulation system for educational purposes. By real system we mean some part of the real world relevant to simulation. Once this sine qua non has been identified, the model-building phase sets in. After an eon of testing and redesign, we finally have a simulation program ready for class use. The master program runs will typically be handled by a central computer. A special input/output (I/O) module serves the needs of participant decision-making teams as well as the facilitator who will
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Fig. 1.
A Business Simulation System.
generally wish to have copies of inputs and outputs of all teams. The program may also provide the facilitator with special summary data and tabulations of any given iteration of the simulation since iterations provide the dynamics of the simulation ‘‘run.’’ The role of the facilitator is of great importance. S/he has the power to reset parameters of the basic world to illustrate the dynamics of the exercise, and, if legitimate, to make changes in individual company outputs (or even inputs). S/he may also wish to lecture on or specify readings to what the facilitator feels are factors or relationships insufficiently dealt with in the simulation. Company and individual performance evaluation in the simulation and other aspects of the course have great importance, as does manifestation of student interest and motivation.
CONSTRUCTING THE BASIC SIMULATION MODEL It is desirable at the outset to remind ourselves about the difference between analytical (‘‘basic’’) sciences based on theory construction and validation, and applied (‘‘professional’’) disciplines, less ‘‘scientific’’ but more directly concerned with solving the practical (‘‘occupational’’) needs of humanity. It may come as somewhat of a surprise to many readers that sophisticated business simulations are built on a platform of what may be called ‘‘scientific hardware’’ notably derived from validated findings of economics, mathematics and statistics. For instance, economists agree that demand is a function of variables such as price, supply, quality (whether quantifiable or
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based on brand images) and promotional effort (marketing). The basic and higher-order interaction of elements in the demand equation is based on concepts of sensitivity, that is, elasticity. Advanced IB simulations, with at least three world operating areas, two products each with 5–10 degrees of patentable quality and each company with two of these models, supported by advertising, with cross-elasticities between the products, plus total industry elasticities, will easily call for more than one hundred elasticity coefficients incorporated in the demand function of the model. Similarly, the economics of the production function with its distinction of fixed and variable costs, and the curve of variable cost per unit of output typically being largely U-shaped and modulated by an ‘‘experience’’ or learning curve, will be represented in such a simulation. Likely, even the product life cycle (PLC) will manifest itself, whether or not as an explicit part of the world.2 A simulation cannot afford the luxury of total determinism as that would remove it from virtual reality. For instance, if patented product improvements are involved, a semi-deterministic solution is to have money spent on R&D build up patent probability over time. But a randomized function establishes whether R&D will yield a patent in any given decision period. As a consolation measure, a probability threshold may be installed beyond which a patent is assured. Information technology items, too, should be given with probability ranges, such as in estimates of sales increase/decrease to accompany a new patent, and a cluster group of market research and consulting items. To deserve its name the simulation must also be dynamic. Strategic planning in itself is never sufficient. To be truly meaningful the strategy has to be ‘‘played out’’ over several decision periods (months, quarters, etc.) in order to avoid any implementation gap. This notion sets simulation apart from the everyday case discussion. The laws of statistics may be represented in degrees of probability coefficients, and they may also come in handy in evaluating the performance of participating companies. Altogether, the economic platform of a reasonably sophisticated simulation has a solid scientific base.
PARAMETERS AND VARIABLES A key element in model design is based on the distinction between parameters and company state variables. Parameters define ‘‘the state of the world’’ and are generally ‘‘givens’’ from the viewpoint of a company: they are aspects of the operating environment in which the company is embedded, and thus largely beyond management control. Most entities in
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the basic model are parameters: sample parameters include corporate income-tax rates in the various operating areas, factory construction time, output capacity, depreciation rates, etc. As Fig. 1 suggests, the facilitator may reset most but not all parameters. Company state variables, however, represent factors within management control – such as inputs of decision files representing strategic as well as tactical dispositions for all levels, areas, products and functions for any given period of operation as well as outputs in the form of customary financial reports for the period. Information System Technology may also be represented by detailed data on production, inventory, sales, holdings of foreign currency, etc. as well as records of marketing research and consulting sources.
INTER-COMPANY TRANSACTIONS As important as the relations between a company and its parametric environment are the relations among companies. Most simulations are still based on the horse-race analogy, that is, each company is confined to doing its own best. However, transaction freedom between companies (barring antitrust laws, etc.) is a sine qua non in the contemporary world. Alliances of various types may bring about cooperative advantages. To find a suitable balance of cooperative and competitive advantages becomes a live issue. So do in- and out-sourcing and the search for a suitable link in the value-added chain. Inter-company transactions result from successful negotiations. Training and developing negotiation skills become a natural and indispensable part of a simulation. This is of prime importance in IB simulations as companies from different cultures try to arrive at mutually satisfying agreements. Indeed, the nature of agreements themselves may differ dramatically from German–U.S. insistence on nailing down every foreseeable detail and contingency to the fabled handshake in Japan and some other Asian cultures. Equally important, of course, is learning teamwork inside individual company groups. Computer simulations of mechanical systems, such as a robotized assembly line, are often designed to run ‘‘continuously.’’ However, as student (as well as executive) behavior is characterized by coming and going with frequent interruptions, this is generally impractical in business-management simulations. Odd forays in this direction thus far have not had much success – and for good practical reasons. Given the imperative of class schedules and the desirability of ad-hoc company meetings outside of class for analysis,
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diagnosis and at least preliminary decisions, as well as the complexity of the simulation, the question of suitable decision periods presents itself. Typically, we are talking of simulated decision periods of anything between a week and a year, with the modal frequency probably a formal session for each simulated quarter (three months).
FURTHER QUALITATIVE BEHAVIORAL ASPECTS The ecosystem of which company teams are parts may be altered by the facilitator making changes in parameter settings. A typical example would be introducing a strike among the plants of a product in some part of the ‘‘world.’’ Other instances would include hidden government subsidies to stimulate new plants, accompanied by complaints to the World Trade Organization from other regions. New product safety rules, changes in international freight rates, currency devaluations, increased advertising effectiveness due to new media, the introduction of sales taxes or changes in corporate income-tax rates – the number of possible parameter changes is limited only by the number of parameters in the basic model and the imagination of the facilitator. To make long-range planning a realistic and rewarding possibility, reports and speculations about future events and developments should be available to participants in some form such as a trade journal. Also, as the results of a decision period are in, an informal trade gossip sheet about recent industry and, not least, company measures and performance, should be made available to participants. It may be noted from these examples that IB simulations are inherently attractive, due to the intercultural richness and the variety of environmental events (‘‘ecological disturbances’’) just naturally available – as well as instructive to participants, and stimulating their creativity.
LIMITATIONS AND EXCEPTIONS The real world literally embraces ‘‘everything’’ we know about it, but you ‘‘realistically’’ cannot simulate everything! Even in a simulation limited to MNEs, the real world to be virtualized is complex and rich enough to make some limitations and exceptions natural and inescapable. Such imperfections should be considered only in instances where the risks of giving participants wrong impressions are limited. For instance, in an IB simulation there is no need to introduce savings bonds as a source of credit
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nor the proportion of consumers with college degrees or marital status, nor the number of various participants in the companies. Even when participants may form their own teams, it often happens that one or more members of a team meet their colleagues for the first time. There is generally no market for executives. There may or may not be a simulated stock market. Except in entrepreneurship courses, teams will generally be provided with identical amounts of starting capital. Brand management, now often an indispensable part of marketing, may be entirely absent or simply ‘‘baked’’ into advertising although it is always possible to invite creative brand names and/or awards for good advertising by a marginal increase in sales or advertising effectiveness. Paradoxically, in some respects, teams may know ‘‘too much’’ in advance such as the economics of production or international cultural differences as perceived by the simulation designers.
LEARNING OBJECTIVES AND PERFORMANCE EVALUATION Learning objectives and hence, performance evaluation criteria differ as widely as the range of courses in which a given simulation may be implemented. At a general level, some objectives may be summarized: In different economic and cultural contexts, a balance is to be found between the economies of a standardized strategy and local strategic differentiation. Similarly, a balance is to be sought between corporate integration and local optimization in managerial behavior and interaction. A third area of balance-seeking, crucial in any business, is the search for cooperative advantage versus competitive advantage. Strategic plans are often heroic rather than commonplace but, in the implementation of strategy, the reverse may well be true. Issues of in- and out-sourcing in the value chain need constant attention. Many business simulation designers and users believe that a single measure should be used to evaluate team performance. Analogous to gauging the temperature of the water in a swimming pool, it certainly simplifies score-keeping. Assuming that the students have been alerted in advance, a single scale has an inherent element of fairness: whether participants agree with the measure or not, they ‘‘know what the score is.’’
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Just like in a horse race, there would generally be no doubt about the winner. Many management games are as simple in concept as horse races so that a ‘‘unimeasure’’ may be quite justified. Neoclassical economists might say that a good, single performance measure is the stock price of a company. This is a contentious assertion. The stock price does not have the merit of a single gauge but is dependent on a host of independent variables such as the dividend-to-earnings ratio, growth in sales, market share, profitability, riskiness and future prospects. Clearly, some of these variables are difficult to define unambiguously – not to speak of the difficulty and/or complexity of measuring them. Furthermore, the relative weight to assign the component variables is essentially an arbitrary matter. In effect, stock price is actually a multidimensional measure and one whose rationales in a given game model may be difficult to specify, let alone make credible. A growing group of overall strategy and other general management simulations are characterized by increasing complexity. As every Wall Street analyst knows, complexity calls for consideration of a portfolio of indicators. Different analysts tend to favor different criteria or mixes thereof. A seemingly legitimate hypothesis is that, as complexity grows, the need for multiple indicators grows exponentially. Our initial concern will be quantitative factors, later turning to qualitative ones. Numerical measurements have the advantage of direct comparability. When in ratio rather than absolute form, they also have the merit of being ‘‘objective,’’ that is, equally applicable to all companies. This author would advise that facilitators initially apply a ‘‘Ratio and Activity Analysis’’ for all companies such as is indicated in Table 1. Comparable data on each indicator for all companies in the industry may be bought as a consulting service. Philosophically, we believe that business is in business to stay in business – that is the modern corporation is not in business to earn profits but it earns profits to stay in business. This, in turn, means that action potential for the future overrides any single financial criterion in importance. While in part reflecting performance, the variables in the four categories below Profitability Ratios in Table 1 are primarily indicative of the action potential of the future. Again, no claim is made for a complete set. By way of example, such a set would also include an appropriate size of inventory of marketable goods and the presence of networks, each favorable to all their members – for example, viable supplier contracts, inter-company loans and patent pools. Evaluating Companies on Their Own Merit. This idea is based on the notion that as individuals have a right to be evaluated not only on general
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Metrics for Ratio and Activity Indicators.
Profitability ratios 1 Return on Investment 2 Return on Sales 3 Return on Assets 4 Return on Equity 5 Gross profit margin 6 Net profit margin Activity indicators 7 Cumulative dividends (’000s) 8 Paid in capital (’000s) 9 Current dividend payout ratio 10 Investment intensity 11 Fixed asset intensity 12 R&D intensity 13 X Patents owned 14 Y Patents owned
Gross earnings/(total assetstotal current liability) ROI Gross earnings/total sales (A) ROS Gross earnings/total assets ROA Net earnings/total equity ROE Total gross margin/total sales (A) Net earnings/total sales (A) Cumulative dividends/1000 Paid in capital/1000 Current Q dividends/previous Q net earnings (Total assetstotal current liability)/total sales (A) (Total assetstotal current assets)/total sales (A) (R&D expense chipsþR&D expense PCs)/total sales (A) Maximum owned grade X Maximum owned grade Y
Liquidity measures 15 Current ratio 16 Quick ratio 17 Inventory/networking capital
Total current assets/total current liability (Total current assetstotal inventory)/total current liability Total inventory/(total current assetstotal current liability)
Leverage ratios 18 Debt to asset ratio 19 Debt to equity ratio 20 Long-term debt/equity ratio
Total liability/total assets Total liability/total equity (Total liabilitytotally current liability)/total equity
Market position ratios 21 WrldCnsmrMrktShr X Units 22 WrldCnsmrMrktShr Y Units 23 CnsmrMrktShr X Units EU 24 CnsmrMrktShr Y Units EU
Total Co Cnsmr sales X units/industry Cnsmr sales X units (B)/(D) Total Co Cnsmr sales Y units/industry Cnsmr sales Y units (C)/(E) (StdþDlx Cnsmr Sls EU X units)/industry Cnsmr sales X in EU (F) (StdþDlx Cnsmr Sls EU Y units)/industry Cnsmr sales Y in EU (G)
Note: A, Area operating data; EU, European Union; X and Y, assumed names of two products; Std and Dlx, standard and deluxe versions of a product.
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criteria (such as age, IQ) but also on their own merits (degree to which their IQ, dreams, etc. have been realized), and so do organizations. In other words, this is a separate basis of evaluation distinct from the conventional general-criteria basis discussed earlier. Essentially, it is based on the sequence of objectives–plans–fulfillment. In the course of the simulation, teams are asked to submit a statement of objectives (‘‘defining the business’’) and a long-range plan (Quarters 4–7, say). The degrees of fulfillment are based on the customary Ratio and Activity analyses. The review ‘‘Management Audit’’ may be undertaken by another company acting as presumably insightful and objective observers or by a self-audit in front of the class in what may be considered a board or shareholder meeting. Other circumstances being equal, the management audit is preferable. However, it typically involves 2–3 hours of extra work relative to the self-audit.
PARTICIPANTS AS GRADERS Many facilitators rely on participant inputs in the evaluation process. Participant judgment may be welcomed at both the inter- and intracompany levels. Participants may be given a supplementary retirement of, say, SF 100,000 from the Board of their companies. The Board recognizes the merit of a diversified portfolio and requires that the sum be invested in companies other than their own in the order and amount that the recipients believe in other industry members. At the individual participant level, a trifocal approach has been used by the writer. First, early in the run, participants take a test in B2B (Business to Business) ‘‘rules.’’ This is justified since executives in everyday life know to ‘‘learn the ropes’’ of any new job. Second, at midgame as well as endgame, the members of each executive team are asked to fill in a Group Analysis Form, evaluating other members of the team and themselves on 10 different criteria, using a scale of 1–10 on each. To minimize collusion and camaraderie effects, participants are told that forms with more than a couple of individual rankings on any single criterion will be disregarded. Finally, two or three written individual assignments pertaining to planning and creativity and/or data analysis are required during the semester. A management audit exercise accompanied by facilitator remarks seems to meet the purpose of debriefing – a term borrowed from the reviews of military exercises. At one time, it was fashionable to attach enormous weight to debriefing in simulation and gaming exercises. Without
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diminishing the value of debriefing, we believe that moderate enthusiasm is sufficient. If undue importance is attached to debriefing, it becomes legitimate to ask whether the participants may have learned enough from the simulation run itself.
RESEARCH OPPORTUNITIES A promise of simulations is their potential to serve as vehicles of research and theory-building. This is especially true of the interface and interaction between solid economic variables and behavioral ones at all levels identified above. As an early example, exploratory research at the University of Chicago indicated that, if performance of simulation teams is evaluated in ‘‘strictly’’ economic terms, groups with heterogeneous records in terms of grade average of members tend to perform better than teams with homogeneous grade records among its members. A doctoral thesis at Indiana University3 on the role of ‘‘face-to-face’’ versus ‘‘anonymous’’ preconditions of B2B transactions indicated, as might be expected, that face-to-face contact between simulated companies antedating contract negotiations smoothes deal-making, while lack of such contact made for more protracted and volatile negotiations. It is worth noting that a sophisticated discussion of simulation as a vehicle for theory generation and identification of opportunities in strategy simulation research has recently been presented (Eisenhardt & Bingham, 2007).
IB SIMULATION: AN EMPIRICAL EXAMPLE In late 2006, the simulation INTOPIA B2B (‘‘business to business’’) was released. Operationally, the B2B version is entirely internet-oriented. The author was the coordinator, as in the three prior versions of INTOPIA. Some basic concepts of the B2B simulations are illustrated in Table 2 and Fig. 2, both taken from the participant’s Executive Guide. Area choices may need some comments. The standard operating areas – Brazil, the European Union and the United States – are each of major sizes, with Brazil displaying major growth, although its backyard of underdevelopment is still considerable. Liechtenstein was chosen as the common Home Office (HO) locale for several reasons. It is a ‘‘neutral’’ principality in relation to the operating areas, its currency is the Swiss Franc recognized as
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Table 2. Entrepreneurial Opportunity in INTOPIA. Areas of Opportunity
Product Mode (functions performed) Clientele Area Time
Dimensions of Opportunity (Product and area names in the standard runs) Chips (X), PCs (Y) each in ten variants Producer, distributor, specialty wholesaler, integrated producer-marketer, subcontractor, financial services and/or research institution End consumers representing three different cultures, distributors, PC makers, shareholders/investors Brazil, EU, United States, Liechtenstein Operations in one area (or product) may begin in one period, operations in another area (product) in another period
both ‘‘hard’’ and stable, it has a modest corporate income tax rate and it is actually the headquarters of many MNEs. However, a customized version provides for considerable geographic as well as product choices. Thammasat University in Bangkok prefers China, Japan and the United States as operating areas, while not unexpectedly the HO of all companies is located in Thailand. An incidental benefit of this arrangement is a further increase in the customary enthusiasm of participants in the simulation. A frequent observation by executives is that ‘‘no one can be everything for everybody.’’ So it is in B2B: in most courses other than entrepreneurship classes it is assumed that venture capitalists have provided a starting capital of SF 20 million for each company, which typically means that a company selects an initial profile of one or two areas and, if production is involved, a focus on one of the products. The Master Program (MP) comprises some 800 parameters, with an appreciably larger number of ‘‘state variables’’ accounted for on the quarterly financial reports. In addition to customary balance sheets and income statements, separate output sheets are devoted to ‘‘MIS’’ (Management Information Systems), that is, essentially accounting for units sold, produced and in inventory, plus the cost of producing or acquiring products during the quarter (Q). Number of patents and plant numbers and age are also part of the MIS report. The MIS report is followed by a detailed Forex Statement detailing the holdings of foreign currencies in each area as well as in the home office. Next, a report on the decisions and inter-company transactions made by the company in the reported quarter. Finally, a report on marketing research and consulting services the company may have ordered. Typically, the quarterly output is 7–8 Excel pages per company.
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Co. 1 USA
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Co. 4 PC MFR
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At the center of this network example is PC producer Company 4 in the EU (and Brazil). The company buys component chips from Company 1, which may have two chip plants in the EU, and from another Company 1 plant in the U.S. Company 4 sells its PCs to a wholesaler, Company 2 which also distributes chips for Company 1. The large retail volume of Company 2 has prompted it to create a captive sales organization with six regional offices in the EU. Occasionally, Company 1 will have some excess inventory which it disposes of via independent agents. (When this happens, Company 1 charges a higher price than Company 2, as Company1 has higher distribution costs, and does not wish to antagonize its largest customer.) The figure suggests that this network is at least in part replicated in Brazil. It may be noted that wholesalers often have more than two suppliers in an area, a practice sometimes also adopted by PC manufacturers. At the lower end of the figure, we find a non-network, i.e., the fully vertically integrated Company 3. Remember: Cooperative advantage may be as important as competitive advantage!
Fig. 2.
Illustrative Focused on the EU.
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The input/output module, called FORMIN, is separate from the MP. This makes it natural to make it freely available for downloading by any interested party.4 The input side has 15 different forms to record company decisions. When a company has finished decision-making for a quarter, FORMIN will make and save a file of all its decisions. The decision file may then be forwarded to the facilitator by a routine in the module or by regular email. The facilitator runs the B2B to generate company outputs for all members of all the companies or to a company liaison person for further distribution. Company outputs for one quarter after another is placed in a special legacy file, always ready for Excel longitudinal analysis. Each team member receives a copy of the Gazette, the quarterly trade journal of the CIA (popular abbreviation of the Computer Industries Association), carrying conventional economic forecasts by areas and products as well as reports and rumors about such environmental events as strikes, currency devaluation, public-procurement auctions, creation or elimination of public regulations, company entry to or exit from areas and products, etc. Naturally, many events must be implemented by parameter changes. A scenario consists of a set of Gazettes for a run of 8–10 quarters, with a listing of necessary parameter changes. To make life easier for the facilitator, B2B comes with a Model Scenario from which the facilitator can pick and choose or add suitable changes. Most facilitators enrich the scenario by a quarterly Gossip sheet about new patents and plant construction, record sales, exceptional profit or loss reported by specific companies, etc. This simulation pioneered the area of transaction freedom, all the way from spot inter-company sales to standing supplier contracts, alliances and even joint ventures. Fig. 2 is an example of alliance building by a EU company. More modest forms of cooperation involves patent licensing or pooling, inter-company loans, currency hedging or options and plant sales. Negotiation is indeed an important feature. Most participants in B2B are graduate students or enrollees in Executive MBA programs. The simulation has also been run with thousands of undergraduate students. It is important that at least one member per team understands elementary accounting from the outset.
OUTSOURCING YOUR COURSE? As in B2B, the instructor of a course in which a simulation will be used is typically the facilitator, as one might expect. However, in recent years the
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facilitator role increasingly has become de facto outsourced to an employee of the institution marketing the simulation. Examples include the Fritzsche (1995) and Cadotte (2001) simulations cited in the bibliography. This has the advantage of delegating the responsibility for the course, or a major part thereof, to an outside party. The instructor officially assigned to the course can now devote his time to other parts of it or other academic activities. This time-saving advantage may be offset by a loss of student interest and motivation in the simulation. Thus, unless the instructor makes it credible that s/he is indeed taking the simulation seriously and able to respond to student questions about it, student morale and seriousness of purpose in the simulation context may suffer. When facilitators are unable or hesitant to reply to student inquiries is the time when the facilitator should seek the advice of the designers or the marketing institution.
FEDERATION OF AMERICAN SCIENTISTS MAKES A STATEMENT Before drawing our general conclusion, it seems worthwhile to cite a declaration on the subject of video games and educational simulations released on Tuesday, October 17, 2006 by the Federation of American Scientists as reported in an Associated Press release by AP representative Ben Feller. According to Feller, the Federation ‘‘declared Tuesday that video games can redefine education.’’5 ‘‘Capping a year of study, the group called for federal research into how the addictive pizazz of video games can be converted into serious tools for schools. The theory is that games teach skills that employers want: analytical thinking, team building, multitasking and problem-solving under duress y Yet, this is not about virtual football or skateboarding. Games would have to be created and evaluated with the goal of raising achievement, said federation president Henry Kelly.’’ Videos may create more delightful excitement but there is no reason to believe that a simulation especially designed for educational purposes should provide less intensive incitement for learning. ‘‘If we can’t make the connection, shame on us, Kelly said at a news conference. What is needed, he [Kelly] said, is research into which features of games are most important for learning – and how to test students on the skills they learn in games. The departments of education and labor and the National Science Foundation would lead the way under this plan.’’ Clearly, from a learning point of view,
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IB simulations are at least one or two levels above even sophisticated video games, but the points are well made.
CONCLUSION Broadly conceived, IB simulations are often being used in other courses as well. Examples include business policy and strategy, entrepreneurship, logistics, operations, supply and value-added management and, of course, international finance and marketing courses. This is the case with our empirical example. As outlined in this chapter, simulation becomes a powerful experiential learning tool in itself, additionally reinforced by the enthusiasm and creativity it almost invariably stimulates among IB students as well as executives.
NOTES 1. Deliberately, we avoid the semantics of simulation as related to such concepts as models, games, internships, role playing (itself often an example of simulation), experiential exercises and system dynamics. 2. Fairly strong empirical evidence on the existence of the Product Life Cycle for industrial products, based on the PIMS (Profit Impact of Marketing Strategy) data bank was presented in the Thorelli–Burnett article cited in the references. 3. Ken Weeks, ‘‘Means of Communication and Strategic Networking: An Exploratory Study of Inter-Organizational.’’ Bloomington, IN, 1998 (mimeo) 4. One may download FORMIN from our homepage, www.intopiainc.com 5. The author found this release in the Bloomington Indiana Herald Times of October 18, 2006. The Federation of American Scientists has a reputation possibly exceeding even that of the Academy of International Business, weighing in on such matters as nuclear weaponry and government secrecy.
REFERENCES Cadotte, E. R. (2001). Marketplace, (international version). Knoxville: University of Tennessee. Cotter, R. V., & Fritzsche, D. J. (1995). The business policy game – An international simulation (4th ed). Englewood Cliffs, NJ: Prentice-Hall. Eisenhardt, K. M., & Bingham, C. B. (2007). Developing theory through simulation methods. Academy of Management Review, 32(2), 480–499.
INTERNATIONAL-BUSINESS SCHOLARSHIP: CONTRIBUTING TO A BROADER DEFINITION OF SUCCESS Nancy J. Adler ABSTRACT Do we make a difference? This chapter raises a series of questions that each of us must ask as scholars, teachers and consultants in the field of international business about our efficacy and potential influence in the world. In systematically asking the questions, this chapter challenges many of the implicit assumptions underlying international-business scholarship and its future.
Are we at the cutting edge in our research – be it global supply chains, or the sending of 25% of corporate R&D to China and India, or outsourcing, or the new opportunities created by the world’s poor y ? We were at the cutting edge 20 years ago. Are we still there? – C.K. Prahalad1
In 1999, United Nations Secretary-General Kofi Annan challenged the world’s business leaders to become co-creators of society’s success: International Business Scholarship: AIB Fellows on the First 50 Years and Beyond Research in Global Strategic Management, Volume 14, 327–337 Copyright r 2008 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1064-4857/doi:10.1016/S1064-4857(08)00012-0
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Let us choose to unite the power of markets with the strengths of universal ideals y let us choose to reconcile the creative forces of private enterprise with the needs of the disadvantaged and the requirements of future generations.2
Do we believe that rising to Kofi Annan’s challenge is possible? Not just for some companies, but for business in general? As internationalmanagement scholars and educators, do we believe that we have a crucial role to play in shaping society’s future? In shaping its success or demise? As we face the array of world crises – including poverty, war, ecological devastation and social injustice – do we believe that what we do matters (Adler, 2006a)?3 I do; I believe we matter. Think, for a moment, about our role as management educators. Management is chosen as a college major by more students than any other area of study. We are literally number one. The more than one million management students we teach each year will be making the billions of decisions that will, in fact, shape the future. Yet, do we really believe we make a difference? Stanford management professor Jeffrey Pfeiffer revealed that, up until now, students entering management and economics faculties are the only students who do not become more compassionate toward others, including people from the rest of the world, during their time at university (Ferraro, Pfeffer, & Sutton, 2005). In fact, they become narrower and more self-centered. Yes, we make a difference, but up until now, we have either denied our impact or made the wrong kind of difference. It is clear that what international-business professors have to offer is both important and needed. As we accept our impact and the huge responsibility that comes with it, we must ask ourselves a series of questions.
THE FIRST QUESTION: OUR IMPACT Do we believe that what we do matters?
THE SECOND QUESTION: THE QUALITY OF WORLD LEADERSHIP Do we believe that the quality of the world’s leadership depends on the quality of the learning environments we create? In Croatia, an executive I spoke with echoes what everyone else seems to know, but most are not
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willing to say out loud: ‘‘We won’t survive another generation of leaders like those we have had in the past.’’ How would you research and teach if you knew that the future of your country and the world depended on it?
THE THIRD QUESTION: THE COURAGE TO SEE REALITY Do we have the courage to see reality as it is? Are we capable of seeing the world through our own eyes? Or do we parrot what the mainstream, including the mainstream in the field of management, is telling us to see? As we watched Enron’s unfortunate demise, did we ask ourselves why everyone went along with what was occurring at the company (McLean & Elkind, 2003)? We know from research on World War II that the majority of people in Europe simply did not ‘‘see’’ their neighbors disappearing, they did not see the trains leaving filled with people, nor the smokestacks, nor the trains returning empty. Do we have the courage to see the senseless death in the world, and business’ relationship to it? Do we have the courage to see the changes in the environment and business’s relationship to those changes? Do we have the courage to see the increasing gap between rich and poor, and business’s role in enlarging that gap? Do we have the courage to see reality as it is, along with the skills to help our million management students not collude with popular illusions?
THE FOURTH QUESTION: THE COURAGE TO SEE POSSIBILITY Do we have the courage to see possibility? Years ago, Thomas Kuhn (1962) demonstrated that most people, including most management scholars, are incapable of seeing new possibilities until the evidence is overwhelmingly in their favor AND there is a new paradigm that makes the evidence understandable and acceptable. Today, among many other possibilities, we must ask ourselves whether we are capable of seeing the possibility of multinational companies achieving outstanding financial performance by using business strategies that enhance the world’s physical and social environment? Are we capable of seeing such laudatory performance as a
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part of a pattern of what is and what must be, as opposed to rejecting the possibility and labeling such cases as anomalies? Let me offer an example. At the Academy of International-Business Conference in Stockholm, I first met Stef Wertheimer, founder, former CEO, and Chairman of the Board of Iscar, Ltd., a one-billion-dollar-a-year metal-tool-cutting Israeli business. Wertheimer gave me a brief documentary program (The Tefen Model) describing his current industrial project. Upon returning to Montreal, I showed the managers in my Global Leadership seminar the documentary on Tefen, the first of Wertheimer’s ten planned industrial communities that are designed to use a business model to bring peace to the Middle East. Most of the participants recognized Wertheimer’s name since Warren Buffet had recently bought Wertheimer’s main company, Iscar, Ltd. In purchasing the Israeli company, the first nonAmerican company that Buffet had ever purchased, Buffet described Iscar as the best run company he had ever seen, anywhere in the world. After viewing the documentary showing Arabs, Israelis and Druze working together, and learning that Tefen is now responsible for producing over 10 percent of Israel’s industrial exports – meaning Tefen is simultaneously succeeding financially and bringing people from supposedly hostile communities together – the first reaction from a manager participating in the seminar was ‘‘But it could never work!’’ Luckily, I was so surprised by his response that I remained silent. A moment later, a second manager spoke up and countered his colleague, saying ‘‘But Tefen already exists; it’s already working.’’ The first five times I showed the Tefen documentary, the managers’ initial response was the same: ‘‘Nice idea, but not possible.’’ Even with the data in front of them, the managers could not immediately see a positive reality, let alone the possibility of a larger, more all-encompassing pattern (see, among others, Wertheimer, 2002; Fast 50 – 2003 Winners: Meet the Winners, 2003). Our academic tradition has tried to make seeing possibility illegitimate. We are excellent at identifying that which is frequent and that which is average (the central tendency) as well as at predicting the future based on the past. However, when we identify spectacular outliers or focus on creating (rather than predicting) the future, we are labeled as unprofessional and rendered unpublishable. Tefen is pejoratively labeled as a story, not as data, if it is recognized at all. There is, however, a not-so-subtle shift taking place at leading management schools worldwide. They are beginning to shift from the previously dominant decision-making approaches to a design perspective: from
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giving managers increasingly better analytic techniques for choosing between yesterdays’ options, to focusing on designing options worthy of choosing (see Adler, 2006b; Boland & Collopy, 2004). The shift may appear superficial, but it is in fact profound. It delineates the difference between this decade heralding our profession’s increasing irrelevance and management scholarship and education becoming crucial to the very survival of the planet. International-business scholars are particularly important in this shift, having for years brought ‘‘foreign outliers’’ (in the form of ideas and data) to the attention of the broader field of management.
THE FIFTH QUESTION: THE AUDACITY TO HOPE Do we have the audacity to be hopeful and the courage to express our hope within our professional domain? Let me turn to Nobel Peace Prize laureate Elie Wiesel as he raises some of the most important questions about our relationship to hope (based on Rourke, 2002). Elie Wiesel was interviewed on his perceptions of the prospects for peace in the Middle East. After reciting the now all-too-familiar litany of missed opportunities, suffering, murder, and acts of terrorism, the interviewer asked his final question, ‘‘Mr. Wiesel, do you have hope?’’ Much to the interviewer’s surprise, Elie Wiesel immediately answered ‘‘Yes.’’ With unconcealed incomprehension, the seasoned journalist challenged, ‘‘But how can you have hope? You of all people! You who have worked with both sides in the Middle East conflict for decades and fully understand the profound depths of the impasse as well as the ongoing escalation of intransigence and death. How can you say you have hope?’’ In a quiet, but deeply assured voice, Elie Wiesel responded, ‘‘Because it is human to have hope.’’
Hope is not an empirical conclusion. Hope does not come from watching three versions of the evening news, reviewing one hundred empirical studies or conducting the seminal meta-analysis to conclude either for or against hope. Hope is what people bring to a situation; hope is what internationalbusiness leaders and scholars bring to their organizations and to the world. The question for us is: Does our academic tradition allow for hope? Which brings us to the sixth question.
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THE SIXTH QUESTION: GOING BEYOND FEIGNED NEUTRALITY Does our academic tradition allow for any perspective other than feigned neutrality? And if not, do we have the courage to change our scholarly tradition? The question that Elie Wiesel raised for us as scholars is: Can we go beyond our traditional ways of seeing and working with the relationship between truth and data and still remain inside an acceptable, and therefore believable, scholarly tradition? Can we start with a particular perspective such as hope – rather than assuming the more conventionally scientific stance of neutrality – and still retain our credibility? Can we choose to be hopeful and then search for data to support our hope without being accused of being on a fishing expedition and relegated to the dustbin of unprofessionalism?
THE SEVENTH QUESTION: EXPANDING OUR DEFINITION OF TRUTH Do we have the courage and the skills to expand our definition of truth? Classic research has depended for its definition of truth on that which is frequent, that which is common and that which is replicable. Expanding that definition, the positive organizational-behavior scholars have added concepts such as appreciative inquiry (Cooperrider, Whitney, & Stavros, 2003) and positive deviance (Spreitzer & Sonenshein, 2003). With such theoretical lenses, phenomena can be true even when it is infrequent and only exists at the margins. Using positive deviance, for example, scholars explicitly search for examples of systems, often operating on the margins, which far exceed both expected behavior and the behavior of most other systems. Using traditional research methodologies, such systems usually remain invisible or, when visible, are often attributed to random error. Going beyond traditional approaches allows many superior systems not only to become visible, but to become candidates for their positive deviance to be amplified into broader systems-changing strategies. For me, the most important international-business research question for the twenty-first century is not ‘‘Which theories best explain the behavior of
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most multinational corporations?’’ or even ‘‘Which theories best explain the behavior of the largest or most financially successful multinationals?’’ Rather, the seminal question is ‘‘How best can we understand the most effective and admirable behavior of multinational companies to simultaneously do good and do well?’’ – even if such behavior currently only appears infrequently and outside of the mainstream. Let me offer an example of the type of corporate behavior that I think needs to be studied if international business is to live up to Kofi Annan’s challenge. It is an example of a multinational corporation whose corporate strategy has led to both financial and societal success. So far, to the best of my knowledge, the story has been reported in the popular press but has not been researched from a scholarly perspective (Lafraniere, 2006). The story takes place in Africa. Malaria in Africa is estimated to reduce the continent’s economic growth by 1.3 percent annually at a cost of almost $12 billion per year. Every 30 seconds, an African child dies of malaria. Whereas malaria has been almost eradicated in most of the world, in Africa it is still out of control, claiming more lives every year. In the 1990s, BHP Billiton, an Australian-based international mining company and one of the world’s largest aluminum producers, came to Mozambique, thus becoming one of the first multinational companies to make a substantial investment ($1.3 billion) in the country following its 20-year civil war (Lafraniere, 2006). Known as Mozal, which is short for Mozambique Aluminium, BHP Billiton’s entire Mozambique operation was at risk if it failed to eradicate malaria. In just the first two years of operation, one-third of Mozal’s 6,600 employees fell ill from malaria and 13 died. At any one time, 20 percent of Mozal’s employees were absent due to malaria. From a strictly financial perspective, BHP Billiton could not afford the cost of malaria. For years, international and national public health campaigns to eradicate malaria have been conducted but have been failing in Africa. BHP Billiton quickly realized it could not protect its Mozambique investment by relying on others or focusing just on its own employees. So, in 1999, the same year that Kofi Annan challenged the private sector to become co-creators of society’s success, BHP Billiton chose to partner with the governments of Mozambique, Swaziland and South Africa to create a regional anti-malaria campaign covering four million residents. For the first time, a company led a large-scale malaria eradication effort in Africa. In just six years, the partnership between Mozal and the three national governments achieved a previously unimaginable level of success.
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In the entire region, new cases of malaria plummeted from 66 to fewer than five cases per 1,000 inhabitants. The percentage of infected children fell from more than 90 percent to less than 20 percent in the region of BHP Billiton’s smelter. Absenteeism at Mozal went down from more than 20 percent to less than 1 percent. At the same time, BHP Billiton’s Mozambique operations became a financial success. In just the last three years, BHP Billiton has expanded and more than doubled its production in Mozambique. It not only rose to Kofi Annan’s challenge but far exceeded anything the company or the community had ever previously thought possible. Foreign investment is up, profits are up, employment is up, the number of children able to attend school is up and the number of people in hospitals and dying is down.
THE EIGHT AND FINAL QUESTION: CONDUCTING ANTICIPATORY SCHOLARSHIP How do we research that which cannot be predicted but is desired? How do we conduct anticipatory scholarship? How do we study the future? Not a future that merely replicates history but a hoped-for-future predicated on discontinuous change – predicated on that which has never happened before? How do we study that which we want to have happen in the world as a precursor to it actually happening? The Club of Rome, in their prescient book, No Limits to Learning (Botkin, Elmandjra, & Malitza, 1979), called on us, as scholars and educators, to embrace anticipatory learning. Why? Because the twenty-first century is an era in which experiments that go awry could spell the extinction not only of our species but also of the world itself (see Diamond, 2004; Weisman, 2007). It is incumbent on us to study the future in ways such that the potential for positive, hoped-for outcomes is maximized. Over the past 15 years, Martin Seligman (2002, 2003) and his psychologist colleagues (Seligman & Csikszentmihalyi, 2000) initiated the field of positive psychology after discovering to their chagrin that 98 percent of all published psychological research focused on deficit behavior (Myers, 2003). In 2000, for similar reasons, a group of University of Michigan management professors launched the field of positive organization studies (Cameron, Dutton, & Quinn, 2003). It is now time for international business scholarship to similarly bring more positive studies and methodologies into the mainstream of our field.
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REDEFINING SUCCESS Today, as in the past, it is easy to strip ourselves of scholarly and practical relevance by relying on the traditional, often implicit, tenets of our field, including the assumptions that: 1. What is common is true (welcome to our statistical veneration of the ‘‘mean’’); 2. The environment determines the set of possible behaviors of actors (welcome to the assumptions underlying much of institutional theory, contingency theories and transaction-cost analysis); 3. Progress comes from fixing problems rather than from amplifying strengths (welcome to management’s analytical, problem-solving orientation); and 4. What has been will be (welcome to our predictive and primarily deterministic relationship with the future). However, none of these pervasive assumptions help us to recognize, let alone understand, outstanding, admirable and effective behavior. They do not help us either at the individual or institutional level. They certainly do not help us to understand why certain multinational companies successfully act as agents of world benefit while the majority remain oblivious to world betterment or continue, in the name of externalities, to inflict deleterious effects on the world. Former United States Secretary of State Madeleine Albright stated that each of us has ‘‘a responsibility in our time, as others have had in theirs, not to be prisoners of history but to shape history’’ (New York Times, 1997). Few serious scholars would disagree.4 The very nature of the discussion the field is now engaged in is to embrace the ways in which each of us, individually and collectively, can choose to shape history; the ways in which each of us has chosen to take responsibility for the world.
NOTES 1. C.K. Prahalad’s response in an interview conducted on June 6, 2006 by Rutger’s Professor Farok J. Contractor for the Fellows of the Academy of International Business on the future of international-business research. 2. Speech given by U.N. Secretary General Kofi Annan at the World Economic Forum in Davos, Switzerland in 1999. 3. For a more in-depth discussion of the issues raised in this chapter, see Adler (2008).
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4. For a discussion of what should be the guiding question for international business in the 21st century, see Buckley (2002), Buckley and Lessard (2005), Butler (2006) and Peng (2004), among others.
REFERENCES Adler, N. J. (2006a). Corporate global citizenship: Successfully partnering with the world. In: G. Suder (Ed.), Corporate strategies under international terrorism and adversity (ch. 11, pp. 177–195). Cheltenham, UK: Edward Elgar Publishing. Adler, N. J. (2006b). The art of leadership: Now that we can do anything, what will we do? Academy of Management Learning and Education Journal, 5(4), 466–499. Adler, N. J. (2008). Global business as an agent of world benefit: New international business perspectives leading positive change. In: A. Scherer & G. Palazzo (Eds), Handbook of research on corporate citizenship (pp. 374–401). Cheltenham, UK: Edward Elgar Publishers. Boland, R., & Collopy, F. (Eds). (2004). Managing as designing. Palo Alto, CA: Stanford University Press. Botkin, J. W., Elmandjra, M., & Malitza, M. (1979). No limits to learning: Bridging the human gap – a report to the club of rome. Oxford, England: Pergamon Press. Buckley, P. (2002). Is the international business agenda running out of steam? Journal of International Business Studies, 33, 365–373. Buckley, P. J., & Lessard, D. R. (2005). Regaining the edge for international business research. Journal of International Business Studies, 36(6), 595–599. Butler, K. C. (2006). Finance and the search for the ‘‘big question in international business’’. Academy of International Business Insights, 6(3), 3–9. Cameron, K. S., Dutton, J. E., & Quinn, R. E. (Eds). (2003). Positive organizational scholarship. San Francisco: Berrett-Koehler. Cooperrider, D. L., Whitney, D., & Stavros, J. M. (2003). Appreciative inquiry handbook. Bedford Heights, OH: Lakeshore Publishers. Diamond, J. (2004). Collapse: How societies choose to fail or succeed. New York: Viking. Fast 50–2003 Winners: Meet the Winners. (2003). Complement to the March 2003, Fast Company. Print edition appearing on the Fast Company website at: http:// www.fastcompany.com/fast50_04/2003winners.html Ferraro, F., Pfeffer, J., & Sutton, R. I. (2005). Economics language and assumptions: How theories can become self-fulfilling. Academy of Management Review, 30(1), 8–24. Kuhn, T. (1962). The structure of scientific revolutions. Chicago: University of Chicago Press. LaFraniere, S. (2006). Business Joins African Effort to Cut Malaria, New York Times, June 29. McLean, B., & Elkind, P. (2003). The smartest guys in the room: The amazing rise and scandalous fall of Enron. New York City, NY: Portfolio (Penguin Group). Myers, D. (2003). The positive psychology of youth and adolescence. Journal of Youth and Adolescence, 32(1), 1–3. New York Times. (1997). Albright’s Words: Global Task for U.S. New York Times, editorial. June 6. Peng, M. W. (2004). Identifying the big question in international business research. Journal of International Business Studies, 35, 99–108. Rourke, M. (2002). His Faith in Peace Endures. Los Angeles Times, April 29, p. E1.
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Seligman, M. E. P. (2002). Authentic happiness: Using the new positive psychology to realize your potential for lasting fulfillment. New York: Free Press/Simon and Schuster. Seligman, M. E. P. (2003). Positive psychology: Fundamental assumptions. Psychologist, 126–127. Seligman, M. E. P., & Csikszentmihalyi, M. (2000). Positive psychology: An introduction. American Psychologist, 55, 5–14. Spreitzer, G., & Sonenshein, S. (2003). Positive deviance and extraordinary organizing. In: K. S. Cameron, J. E. Dutton & R. E. Quinn (Eds), Positive organizational scholarship (pp. 207–224). San Francisco: Berrett-Kohler. Weisman, A. (2007). World without us. New York: St. Martin’s Press. Wertheimer, S. (2002). Statement by Stef Wertheimer. Hearing of the United States House Committee on International Relations, June 24, Washington DC. As cited at http:// www.israelnewsagency.com/stefwertheimer.html
INTERORGANIZATIONAL COOPERATION AND OUR MANIFEST DESTINY: AN EVOLUTIONARY PERSPECTIVE$ Farok J. Contractor ABSTRACT The largest business unit is no longer the multinational corporation but rather, cooperating networks of globally connected organizations and firms. The principal focus of this chapter is to identify trends which have come to a head in the last two decades in the world economy and have fostered interorganizational cooperation on an unprecedented scale. The technological, political, spatial and cultural complexities of global operations are becoming simply too great in many areas to be encompassed by a single company or agency. It is impossible to build a technologically complex global civilization without interorganizational cooperation, any more than a multicellular organism could survive
$
A version of this chapter is to concurrently appear as an article in Futures Research Quarterly (forthcoming).
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without cooperation between its distinct but specialized constituents. The chapter reviews the evolutionary basis for cooperation, describes recent economic forces that have shaped interorganizational cooperation and describes why planetary economic cooperation is our ‘‘manifest destiny.’’
Who trusted God was love indeed And love Creation’s final law – Though Nature, red in tooth and claw With ravine, shrieked against his creed – – Alfred Lord Tennyson, In Memoriam
INTRODUCTION Cooperation among companies is becoming an integral part of the new model for business and economic organization in a globalized economy. Throughout biological evolution, cooperation has been as important a theme as competition in the progression from individual cells to multicellular organisms and then to groups, over the past 3.5 billion years. Our unit of analysis has recently escalated further from cultural or economic groupings such as firms to now planetary networks of companies (Das & Teng, 2002). Today, the largest economic grouping is not the multinational corporation but the global industry network consisting of companies that simultaneously compete and cooperate. The ‘‘fittest’’ corporation of the 21st century and beyond will be the one that has mastered the art of competition when acting alone as well as collaboration when part of a cooperating worldwide network. This chapter will focus on the evolution of corporate cooperation and the conditions that foster cooperative groups on a planetary scale. Groups of cooperating individuals can be formed by kinship, symbiosis or sometimes by just terrain and environment, as when countless wildebeests traverse the same migratory paths determined by geography and survival by the law of large numbers. What distinguishes humankind and a few higher mammals is group formation and organization based on culture or economics as opposed to mere biology: in short, thoughts rather than genes. The organizational or cultural groupings that characterize humankind are no longer based on physiological distinctions but on learned capabilities or collective thought routines (Nelson & Winter, 1982). The grouping of individuals that we call ‘‘the firm’’ is a directed cooperative, consisting of specialized functions integrated over an internalized value chain. This
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in-company specialization is not based on physiological differentiation, but on learning. In Adam Smith’s pin factory, the worker that rolled the wire at the beginning of the production process was not intrinsically stronger, or more hirsute, or had larger teeth than the worker at the end of the chain who polished the pins or placed them in packages (Smith, 1776). Otherwise identical, the workers in a factory differ only in their learned capabilities. They cooperate with one another within a factory or along a value chain controlled by the same owners. Smith’s economy recognized two kinds of interactions. Within each firm (as in the pin factory) individuals specialized in the functions they performed in the factory and cooperated with each other simply as a result of employment mandates – the visible hand of the owners who directed the enterprise.1 Between organizations, interactions were principally restricted to sales transacted between them. Smith’s (1776) ‘‘invisible hand,’’ or efficient market hypothesis, was based on transactional self-interest exhibited by stand-alone specialists such as butchers and bakers. Smith wrote ‘‘It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest.’’ But it was not until the latter 20th century that we began to see the emergence of a new kind of specialization and cooperation among firms or organizations that was based neither on directed hierarchy, nor on pure sales transaction.2 The new knowledge and service economy of the 21st century has enabled an alternative model of corporate ‘‘alliances’’ and ‘‘networks’’ based on deconstruction of the value chain over separate but cooperating enterprises that take joint risks and share rewards over longer periods of time than a single transaction, and rely more on forbearance, trust, long-term memory and social networks than on formal contracts or hierarchies. While Boeing zealously guards its proprietary technologies, the 787 ‘‘Dreamliner’’ is being built with major inputs from partners in seven nations who were part of the R&D team from the beginning, who shared in development costs and risks, temporarily exchanged engineers and provided specialist knowledge that Boeing did not have, such as the fabrication of composite materials. In such developmental ‘‘partnerships,’’ each participant in the network incurs R&D and coordination costs, based on faith and trust, with no assurance of recouping these outlays until the end product (Boeing 787) sells sufficient quantities over more than a decade. The new alliance network economy favors flexibility, speed-of-response to changing markets and environments, and customization. The value chain, instead of being covered by one firm, is being disaggregated or outsourced over several companies (perhaps in different nations) that cooperate with
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one another to produce items or services more efficiently, faster and/or with lower overall risk, compared with a single organization (Contractor & Lorange, 2002). What are corporate alliances or cooperating networks of firms and how many are there? We have two models or perspectives. In the first, the unit of analysis is the alliance between usually two, but sometimes more than two companies cooperating for a joint strategic purpose. In the second model, the unit of analysis is an industry network consisting of several cooperating companies, some linked by strong ties (such as where two companies make large joint investments in creating a third ‘‘joint venture’’ company or invest in a joint R&D effort), while others are linked by looser ties and lower-order strategic commonalities (such as medium-term joint marketing arrangements). Alliances and cooperating networks range in significance from strategic, to operational (exemplified by supply-chain partnerships involving technology and personnel exchanges or the licensing of patents or brands) and to tactical (where, for example, two airlines coordinate their schedules and share flight codes, or where brands from two firms are jointly advertised for a limited period). Depending on how far down the classification one goes, there must surely be many hundreds of thousands of alliance or cooperative relationships worldwide, as a conservative estimate. IBM alone claims that it has more than ‘‘90,000 business partners.’’3 Interfirm cooperation seems to have initially appeared in the international operations of companies in the mid-20th century because of a quirk of history. Investment-protection practices by most governments mandated that foreign firms take a local partner as a precondition for permission to do business in their country. Widespread throughout the developing world and even Japan into the fourth quarter of the 20th century, this meant that alliances with locals were forced on many foreign investors. It was only later, in the last decade of the 20th century, that a proliferation of cooperative relationships became a standard part of management practice in Western Europe and North America, with alliances formed both domestically and across national borders. This may have been facilitated, in the 1980s, by the easing of antitrust restrictions in the United States and Europe. For example, the National Cooperative Research Act of 1984 was passed by the United States to promote national competitiveness in order to encourage fundamental, pre-commercial and risky research undertaken jointly by direct competitors within the same sector, sharing the R&D costs and fruitage from their joint efforts. A second, and far more profound, reason that the theme of interfirm cooperation has become ‘‘international’’ is that, in many industries, a global
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scale of operations is now mandatory – in a range of activities from R&D, to production, to branding – for efficiency reasons. The huge costs of R&D or production in high-tech sectors such as pharmaceuticals and semiconductors or the large advertising costs to develop and promote a brand dictate that amortization of these enormous outlays be derived from a great many nations. Can this not be handled by one company acting independently? Indeed, but, in many cases, it is too difficult or relatively inefficient for a single company to develop the product or brand, bear the large risk and span all the segments of the value chain on a global basis. Hence, the emergence of interorganizational cooperation manifested in arrangements ranging from joint R&D, to franchising and licensing, to outsourcing, to equity joint ventures and to combinations of otherwise independent suppliers cooperating across planetary supply chains such as the ones we find in the footwear sector. Some companies like Nike ‘‘make’’ nothing at all. A Nike sneaker may have components produced by independent suppliers in nine nations, which are then assembled under Nike’s coordination in other Asian factories. Nike is thus merely a designer, a global supply-chain coordinator with a supply chain encompassing 800,000 workers worldwide4 and a weaver of dreams whereby the user derives satisfaction through subliminal association with a Tiger Woods or an Eminem.
THE ORIGINS OF COOPERATION Humans are cooperative beings. Puny in stature, and possessing neither fang nor claw in comparison with its animal progenitors, humankind collectively has nevertheless come to dominate the planet. Whether hunting beasts far larger than themselves or managing the sudden exigencies of sowing and harvest time when coordinated group effort was necessary, it was cooperation that enabled human accomplishment to go beyond individual capability. Darwinian evolution seemed, until recently, to emphasize competition between individuals or groups, some of whom, being accidentally endowed with attributes that happened to fit their present environment flourished, while the rest perished without reproducing themselves. However, it is slowly dawning on us that the more important and larger theme in evolution is not competition but cooperation (Sachs, Mueller, Wilcox, & Bull, 2004). Indeed, organic life on earth would have been impossible without cooperation from the very beginning of cells. Even within a single cell, the molecules that make up the nucleus must cooperate with other molecular structures or organelles
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called lysosomes that digest food in the cell (Rensberger, 1996). If lysosomes did not behave cooperatively by forbearing to eat the nucleus, a cell would consume itself. The very basis of multicellular organisms is cooperative specialization of functions that together make up an individual plant or animal. Cooperation between individual animals both of the same species and of different species is abundant in nature. The sterile worker ant forgoes her reproductive success in the larger interest of the hive. The most extensive biological structures on our planet are coral reefs, each coral being a collection of polyps in symbiosis with algae. The polyps act as hosts, giving the algae a protected home, carbon dioxide from the coral’s respiration and metabolic waste products. In return, the algae provide their hosts with oxygen and its photosynthesis output such as amino acids and glucose with which the polyps build their calcium carbonate structures. What differentiates cooperation between most animals (with the possible exception of a handful of higher-order primates and marine mammals) and humans is that human cooperation involves conscious thought or rational choice, as opposed to biological happenstance. Among humankind it also involves culture, language and strategy which always require an ability to think in terms of intertemporal trade-offs.
MODELING DYADIC AND MULTIPARTY COOPERATION Beginning with Axelrod (1984), cooperation has been modeled with simulated games, many of them based on the ‘‘prisoner’s dilemma’’ or variants thereof. The simplest prisoner’s dilemma game entails two prisoners having to decide whether to refuse to talk with the prosecution or testify against the other. If both prisoners testify against each other, both would receive a sentence of, say, five years. If one testifies, but the other does not, the testifier is offered immediate freedom while the other gets ten years. If neither testifies, the police can only hold both for, say, six months. In the 2 2 matrix where each prisoner either testifies or remains silent, there is mutual benefit in cooperating with each other. However, there is even greater benefit for the prisoner who testifies against the other if the other one does not. This model has formed the basis for many subsequent variations with successive iterative rounds, showing that a tit-for-tat behavior mimicking the other’s moves is the optimal individual strategy.
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The field has developed more complex games involving multiple participants with different behaviors. For example, Fowler (2005) introduced into the population moralists who act as altruistic enforcers. This sub-population of individuals enforced rules at a cost to themselves but eventually came to ‘‘dominate a population of contributors, defectors and non-participants.’’ Nowak and Sigmund (1998), in iterated games, show that when individuals are tagged with ‘‘image scores’’ – or reputations – this leads to greater cooperation in the group and a lower likelihood of successful deceptions. In this model, cooperators are rewarded while deceivers and non-cooperators are punished. All in all, these simulations, while greatly oversimplified, do provide lessons for the evolution of interorganizational cooperation at the global level. They suggest that a common set of rules matters, that persons or institutions that enforce the rules are needed, that reputation (or in the language of the alliance literature, trust) is the glue of many alliances and finally that the ‘‘global’’ communication of each actor’s reputation and capabilities is important. When Nowak and Sigmund (1998) use the term ‘‘global image scoring,’’ they are referring to the reputation of each agent, in a computer game, being fully visible to all participants. However, it is easy to extrapolate from this to argue that the recent proliferation of international corporate alliances rests on developments that appeared in world economic history only in the last couple of decades – such as the rapid growth in information and communications technology whereby reputations of distant prospective partners can be assessed, the spread of international trade and investment rules such as intellectual-property protection, and the development of international institutions as ‘‘enforcers.’’
CHANGES IN THE ORGANIZATION OF BUSINESS: THE RETREAT OF ‘‘INTERNALIZATION’’ Vertical Quasi-Integration Aided in part by sweeping changes in the global regulatory environment (see later sections of this analysis) such as the liberalization of foreign direct investment (FDI) rules, the international spread of intellectual-property enforcement and the harmonization of standards, interfirm cooperation has escalated. Consequently, the basic model of business is being revised. Where Ford Motor Company once occupied every part of the value chain,
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from making the steel to marketing its cars, the predominant model today is for each firm to find its core competence – generally limited to some portions of the value chain – while collaborating with partners occupying the others. Vertical integration has been replaced with a vertical ‘‘quasi-integration’’ of allied partner companies. Each partner firm specializes in a particular function it does best or cheapest. For example, Nike specializes in design and marketing, leaving the production of shoes and apparel to its supply chain partners. In short, internalization, or doing everything in-house, is in retreat – a retreat that has accelerated since Dunning (1995) wrote his article on ‘‘alliance capitalism.’’ Why? The concept of internalization was based on market failure (especially in the case of transactions involving knowledge assets or faraway prospective allies in foreign lands), the inability of markets to convey a potential partner’s reputation and the risk of dedicating large investments to alliance relationships, given possible opportunism by errant partners (Williamson, 1975). However, corporate knowledge is increasingly being codified and hence more visible to prospective allies (Bartholomaei, 2005; Contractor & Lorange, 2002). As intellectual property and its enforcement spread around the globe, the fear of opportunism has been reduced, so that the owner of the patented knowledge is less afraid to engage in licensing and supply-chain partnerships. When opportunism is reduced, these may be superior strategies, compared to keeping the process in-house. With the Internet and communications revolution, the reputation of foreign prospective partners can be more easily discerned. To use Nowak and Sigmund’s (1998) computer simulation analogy, the communication of ‘‘image scores’’ of participants increases the likelihood of cooperation. Promulgation of patent and copyright laws and the deepening of the legal system and courts worldwide under the World Trade Organization’s (WTO) TRIPS (Trade-Related Intellectual Property System) agreement, also reduces fear of opportunism. Such multilateral or supranational bodies are increasingly playing the role of ‘‘altruistic enforcers’’ whose presence increases cooperation, as we see in Fowler’s (2005) simulations. Outsourcing is not an arms-length transaction. Most outsourcing entails a cooperative relationship. The better managed the relationship, the greater the performance of the alliance (Mani, Barua, & Whinston, 2005). While outsourcing in manufacturing is a two-hundred-year-old phenomenon, the recent spurt in business process outsourcing (BPO) presages the same in services, aided by dramatically reduced data-transmission costs, an increase in absorptive capacity in emerging nations and the codification of business functions (Farrell, Kaka, & Sturze, 2005).
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Codification, in plain English, means simply that companies are making a concerted effort to write down management processes and engineering techniques that formerly resided only in the minds of their engineers and managers. Balconi (2002) described how, in a very large variety of sectors, ranging from engineering and metal working to the semiconductor, steel, chemical, automotive, textile, footwear and printing industries, the level of measurements and metrics tracked by IT-enabled databases have escalated in the past decade. Once a process has detailed metrics, its codification in an expert system is much easier than in the past. Cowan, David, and Foray (2000) classified corporate knowledge in three categories: codified, tacit but likely to be codifiable and inchoate. They imply that a lot of corporate tacit knowledge remains to be codified. In the ultimate analysis, any business process or task that can be: (1) modularized, decomposed or disaggregated from other operations; (2) codified and (3) digitized is amenable to outsourcing (Aron, Clemons, & Reddi, 2005).
Horizontal Cooperation At the same time, there has been an increase in cooperative partnerships horizontally. As opposed to vertical quasi-integration where cooperating allies occupy different pieces of the value chain, ‘‘horizontal’’ alliances involve partners combining or pooling resources for the same business function or piece of the value chain. Horizontal alliances have increased for four reasons: (1) An increasing complexity of product designs, drawing on a growing diversity of knowledge sources. I hypothesize that, with growing technological complexity over time, single firms will face greater difficulty in encompassing and marshaling the knowledge needed to design intricate products or services. Some support for this hypothesis comes from the literature on knowledge-seeking FDI where the principal rationale for establishing foreign affiliates is to do the firm’s R&D in the foreign location where knowledge beyond the firm’s boundary resides. For example, see Iwasa and Odagiri (2004) who studied the R&D affiliates of 137 Japanese companies that had invested in the United States. They concluded that their US subsidiaries which were formed for knowledgeseeking purposes contributed significantly to boosting innovation for the Japanese multinational company as a whole. Or take the case of the semiconductor industry. Even the giants such as Intel, IBM and Texas Instruments that used to develop their own chip
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designs feel that they are reaching their knowledge limits. Instead of designing a chip and then turning to manufacturing equipment makers such as Applied Materials, Inc., they are turning to the latter at the early R&D stage itself (Studt, 2006). They feel that equipment suppliers such as Applied Materials today have a better understanding of low-k dielectric materials and nanotechnology.5 In the new economy driven by rapid innovation, knowledge and other resources are globally distributed. Research and commercialization are increasingly being done by industry networks or groups sharing ‘‘open source’’ technical platforms and ‘‘open’’ or common business models that new network members can subscribe to, rather than secretively by individual companies (Chesbrough, 2006). Each actor or organization leaves its organizational boundaries porous, its business models and technical standards somewhat exposed for all to see, and thereby makes itself vulnerable to the actions of other network members. Each company may not always capture benefits commensurate with the value of their ideas that leak out. But in such open and porous organizations, ideas and resources may also wash inwards as other organizations get excited by the business model and subscribe to the nodal firm’s network. (2) Development risk and cost. The traditional R&D model for the pharmaceutical and other industries is rapidly eroding in favor of cooperative research jointly undertaken with small partners such as biotechnology start-up firms. Relying on ‘‘blockbuster’’ drugs derived from in-house R&D (despite successes such as Pfizer’s Lipitor, which has $10–13 billion in annual sales) is a chancy strategy because of the long development and certification times and limited patent life (Smith, 2007). Increased risk aversion in Western societies means that the size and duration of clinical trials has been steadily escalating. According to the Pharmaceutical Research and Manufacturers of America (PhRMA), an industry group, out of more than 5,000 compounds that are screened, only one ends up being certified by the Food and Drug Administration. After spending over $1 billion on Torcetrapib, a new cholesterol drug, Pfizer withdrew it in 2006 because of safety concerns. What followed was a decline in the firm’s stock price and many thousands of layoffs. Collectively, the US big-pharma firms spent $55 billion on R&D in 2006, representing an annual growth rate of 7 percent. Besides, many of the companies have reached an unprecedented and dangerous R&D/sales ratio of near 0.20. Therefore, many industries are coming to the conclusion that it is better to take the same pool of money and spread it over multiple
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development efforts in collaboration with small partners in licensing, joint venture and call-option arrangements. More diverse talent is thereby tapped, and the costs are lower – especially if the research is done in foreign settings (Goldbrunner, Doz, Wilson, & Veldhoen, 2006). For example, Motorola has 15 R&D centers in China with 1,300 research engineers, many of them doing fundamental work and not merely the adaptation of designs to the Chinese market (United Nations Conference on Trade and Development, UNCTAD, 2005). More importantly, by having their fingers in 50 cooperative research projects, instead of, say, five large in-house efforts, the chances of commercial success are increased. Microsoft is said to have a pool of well over a billion dollars annually to invest in small-equity stakes in start-up companies, joint ventures or licensees with whom they have a grant-back arrangement. For example, if certain technical thresholds are reached in the R&D program, it is common in pharmaceutical–biotechnology company alliances for the large company to acquire the technology or intellectual property rights by making ‘‘milestone’’ payments or having the right to buy a certain number of the smaller partner’s shares at a specified price. Such cooperative approaches are not only cheaper and less risky but they entail an incremental real-options approach that can adjust to changing conditions. The entire pharmaceutical industry is being reorganized. Frank Ascione, dean of the College of Pharmacy at the University of Michigan, indicated in an interview that, instead of the in-house approach, ‘‘working with small biotech, or partnering with them along the way y the expectation is that the y industry [becomes] less vertical and more horizontal’’ (Smith, 2007). No doubt there are significant disadvantages as well in alliances such as unintended technology spillovers, potential opportunism and future competition from partners, and increased coordination and partner liaison costs. However, the worldwide proliferation of cooperative relationships is an unmistakable signal that the benefits of cooperation greatly outweigh its costs. Even companies such as BMW that fear that their independence, creativity and distinctiveness may be compromised by entangling alliances have gone in for selected cooperative relationships. Despite being a global player in the auto industry with over 1.4 million units sold in 2006, BMW has formed alliances with GM and Daimler for hybrid technologies and with Peugeot for engines for their Mini line (White, 2007). (3) The need for global production scale and scope. Horizontal alliances are also increasing in production. To a degree unimagined just two decades
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ago, competitive pressures are driving more and more industries to declare that a global production scale and scope is now mandatory for competitive survival. For example, the cost of a semiconductor fabrication factory being as much as $3 billion, no single country – not even as large a market as the United States – can justify the investment without including additional prospective revenues from several foreign nations. Even though the European Union (EU) includes many of the world’s largest economies, each is deemed too small and uneconomical to have its own retail and bank payment systems. Hence the promulgation of EU rules in 2005 that would enable cooperation between European banks and credit card companies which until now have had 25 dissimilar payment systems (Salo, 2006). IBM’s alliance with Lenovo (which only much later resulted in the sale of IBM’s PC business to Lenovo) was predicated on production efficiencies that could be had only with a global scale – including an Asian market reach. Lenovo did not merely produce PCs for IBM, it also acted as a local marketer and Asian region supply-chain coordinator for IBM’s production, since Lenovo itself had scores of subcomponent suppliers. Later, Lenovo participated in joint designing with IBM. However, there is another, more profound reason for global scale in many high-technology or ‘‘high-front-end’’ industries. The $55 billion that members of the US PhRMA spent on annual R&D in 2006 could not possibly be sustained without the expectation of amortization from substantial sales outside the United States. Similarly, budgets for Hollywood movies are never set without an estimate of the non-US market. Incidentally, this is another industry where escalating costs and risk are driving financing through investment pools that often involve alliances with distributors (Pulley, 2006). The rationale is the sharing of investment risks, similar to reinsurance pools, as well as the ex ante reduction in risk by sewing up distribution arrangements with some pool members in advance. (4) An increasing diversity of end applications of the same product or process into different sectors or countries. This means that few single companies can today market to all potential customers in order to maximize the return on R&D. Consider the case of Applied Materials, Inc. Despite being one of the leading providers of manufacturing equipment for chip makers, in the last few years, its accumulated expertise in nanotechnology has found potential applications in fields as diverse as solar energy, flat-panel displays, energy-efficient glass and fuel cells. While expert in nanotechnology and computer chip-making machinery, Applied Materials does not have in-house expertise in the production
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or marketing of these other diverse end-applications. The solution is either to acquire firms in those new areas or form alliances with them. Companies such as Applied Materials thus act as cross-sector spillover agents. Or, we can say that they ‘‘y blur the boundaries between industries previously considered unrelated’’ through alliance arrangements such as cross-industry licensing (Kotabe, Sahay, & Aulakh, 1996). The convergence of telecommunications, computers and entertainment has been created through thousands of cooperative arrangements across these sectors. Each firm may know a niche technology but not understand the nuances of new applications in marketing in areas foreign to their experience.
INSTITUTIONAL AND ECONOMIC DEVELOPMENTS THAT HAVE FOSTERED INTERNATIONAL CORPORATE ALLIANCES The International Spread of Intellectual Property Protection At first through bilateral suasion by the Reagan and Thatcher administrations, and later under the multilateral aegis of the TRIPS agreement in 1995, most nations have been drawn into the ambit of a global intellectualproperty system. Increased patenting and enforcement heighten the propensity of alliance formation for several reasons. First, patents make a technology more visible to prospective allies. The act of filing a patent may increase the likelihood that other aspects of the process or product, not covered by the patent filing, are also codified. Codification enables easier transfer of technology to organizationally or geographically distant partners, ceteris paribus. Patents also, in many cases, serve to reduce fears that the patent holder’s allies may engage in opportunistic behavior. Patents in a knowledge ‘‘bundle’’ also increase its perceived value, thereby enabling the technology developer to extract higher returns in contractual alliances such as licensing, or to negotiate more favorable terms in joint-venture agreements. All in all, therefore, the global spread of intellectual property rights will continue to increase interfirm cooperation. Of course, in several emerging markets, we are a long way from effective enforcement of intellectual property rights but this is bound to improve (Grace, 2004). Witness India’s tightening of its patent laws in 2005 and China’s creating a special Judicial Court of Intellectual Property in 2006.
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These changes were followed by a marked increase in the formation of R&D alliances between Western and Indian or Chinese partners.
The Promulgation and Harmonization of International Standards and Rules ‘‘National sovereignty’’ is everywhere in retreat – at least in the economic sphere. Thirty-five years ago, Vernon (1971) proposed that the economic interests of individual nation states would be in abeyance in the face of the economic muscle of multinational firms. This notion of multinational companies exercising visible political power has since been partially discredited. However, to a degree Vernon could not have envisaged, governments are now voluntarily, even eagerly, subscribing to treaties such as that of the WTO that circumscribe their internal economic freedom. This applies even to authoritarian governments such as China that loathe outside scrutiny. Besides scrutiny from other governments, we now have an explosion in the number of non-governmental organizations (NGOs) that act as ‘‘altruistic enforcers’’ (Fowler, 2005). A common set of rules and standards promotes international and interfirm cooperation by providing a common legal framework. The writing of global industry standards creates a common technical language. When markets are growing or incipient, interfirm cooperation is more desirable in order to preemptively establish standards, rules and conventions that will favor one firm or a coalition of cooperating firms. Alliances based on ‘‘learning races’’ between competing coalitions of firms are driven by the idea that the winning coalition will get to establish its favorable standards on the industry and grab market share (Powell, 1998). Cooperation is also fostered by the very act of writing new industry standards. The multiyear international effort in committees (consisting of executives and technicians from different companies) that write industry standards act as a social network that promotes interfirm alliances in that industry (Rosenkopf, Metiu, & George, 2001). Examples can be found in a number of sectors ranging from semiconductors (Escher, 2006) to hydrogen–fuel–cell partnerships.
Liberalization of the Investment Climate Based on work done for the United Nations Centre on Transnational Corporations (UNCTC) by Contractor (1991), each year UNCTAD has
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since published annual statistics on the number of national regulatory changes in the world’s nations that foster inward FDI, as well as those that restrict FDI or increase national control over foreign direct investors. Liberalizing changes could include, for example, the removal of foreign ownership or repatriation restrictions, the strengthening of market institutions, the opening up of sectors hitherto forbidden to foreign investors or the signing of investment treaties. Restrictive regulatory changes might include mandates imposed on foreign direct investors, the removal of incentives or increases in discriminatory legislation. Even before this annual series was published, Contractor’s (1991) data noted a net liberalizing trend in the world going back to 1975. This, together with the UNCTAD data covering the years 1992–2005, shown in Table 1, underscores the sea change in attitudes worldwide in the last quarter of the 20th century. Of 2,267 regulatory and legislative changes in total, as many as 2,076, or 91 percent, were liberalizing and only 9 percent or fewer were more restrictive toward incoming FDI. Among the liberalizing changes in Japan and the emerging world was the gradual dismantling of ownership limits on the equity share that could be held by foreign investors in local companies. In the 1950–1975 period, the Japanese were the leading exponents of the art of forcing foreign investors, as a precondition to their entry into Japan, to accept local Japanese partners who would then learn the Westerners’ technology. The Japanese example was copied worldwide until the liberalizing trend seen in the last quarter of the 20th century. It was in this context that US and European companies, rather reluctantly, began to first experience cooperation with local equity joint venture, codevelopment or licensing partners. Into what used to be hierarchical, centrally controlled enterprises, the collaboration ‘‘gene’’ was thus introduced. Nowhere is this transformation – from completely in-house value added to where cooperation with a plethora of partners is central to strategy – better illustrated than in the history of IBM which long had a policy of complete internalization and a total unwillingness to share knowledge with outsiders. Thus, IBM withdrew its entire investment in India in 1977 rather than put up with what it considered interference in its operations by the Indian government (such as demands for local production and technology transfer) and onerous regulations. The liberalizing trends noted above mean that, today, in a majority of sectors, in most nations a company can own and control a 100-percent equity subsidiary. Alliances with local partners are now rarely required by regulation or law. Yet, the advantages of selective cooperation – learned in
100
99 1
77
77 0
108 2
110
49
106 6
112
64
1995
98 16
114
85
1996
134 16
150
76
1997
136 9
145
60
1998
130 9
139
63
1999
147 3
150
69
2000
193 14
207
71
2001
234 12
246
70
2002
218 24
242
82
2003
234 36
270
102
2004
164 41
205
93
2005
Source: World Investment Report, 2006, Geneva: UNCTAD, p. 24, compiled from UNCTAD Database on National Laws and Regulations. a Further liberalization, or changes aimed at strengthening market functioning, as well as increased incentives. b Changes aimed at increasing control, as well as reducing incentives.
57
43
Number of Countries that Introduced Changes in Their Investment Regimes Number of Regulatory Changes More favorable to FDIa Less favorable to FDIb
1994
National Regulatory Changes Data Series 1992–2005.
1993
1992
Year
Table 1.
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the days of government-mandated local partners – are now becoming so universally accepted that few firms wish to completely follow the old internalization model. Today, even IBM has a galaxy of cooperative partners which are considered integral to IBM’s business model. IBM claims over ‘‘90,000 business partners worldwide’’ with major resource commitments in their alliances with CISCO, Dassault Systems, Oracle, SAP and Siebel Systems, to name but a few of IBM’s strategic partners.6
THE KNOWLEDGE AND SERVICE ECONOMY It is only in the world of objects that we have time and space and selves. – T.S. Eliot7
Humankind made a transition in the 20th century from an economy of objects to an economy of ideas. An economy of objects values matter – natural resources, mass production, vertical integration, hierarchy and control. The economy of ideas values thought, design, creative imagination, flexibility, customization and rapid response enabled by network and cooperative relationships (Contractor, 2001). In mass-production manufacturing, ‘‘economies of scale’’ refers to spreading fixed costs over a larger quantity of production. In the network economy, network returns to scale are of greater import (Shapiro & Varian, 1998). Cooperating entities in a network hope that they will attract more members into the network, which in itself increases its value, reduces costs for all, promotes common standards and provides a common ‘‘language’’ and avenues for communication. In the old economy, the bulk of an object’s value was made up by the price of the matter that went into it. In the knowledge economy, the value of an object is a very large multiple of the cost of its material ingredients. A bottle of pills retailing for, say, $100 may have an average production cost of only $2 to the pharmaceutical company that manufactured it. The $98 margin is not an obscene profit but principally a return on R&D and marketing – a return on the thought of the scientists and advertising executives. For a Nike shoe that retails for $80, Nike may have paid its Indonesian factory only $6. The rest covers distribution margins, Tiger Woods’ promotional fees and profits. As is well known, the rich nations already have more than two-thirds of their GDP in services. Even emerging nations such as India are seeing the share of services in their economies exceeding 45 percent and rapidly
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increasing. By 2004, over two-thirds of FDI flows worldwide were in services, with less than a quarter in manufacturing (UNCTAD, 2004). Long considered immobile, there is a boom in the export of commercial services whose total for all countries may exceed $3,000 billion in 2007. The worldwide market for BPO was estimated by the research firm IDC to be $382.5 billion in 2004, with a 10.9 percent annual growth expected through 2009 (Gibson, 2006). The modularization and decomposition of the value chain and tasks is illustrated by IBM which has both cooperative relationship in India with hundreds of Indian service outsourcing providers as well as it own Indian subsidiaries which now employ over 45,000 persons, of which at least half engage in business-process service projects for IBM itself as well as for IBM’s other global consulting clients.
Global Communications Since 1990, the exponential increase in electronic storage capacity and installed bandwidth worldwide – with the consequent plunge in marginal communication costs asymptotically toward zero – are by now very familiar. They were the necessary conditions for coordinated work between geographically separated persons and organizations. Over the same 17-year period since 1990, large increases have been seen in the quantity and caliber of engineers and scientists in India, China and other emerging nations. In short, another factor that has facilitated the growth in corporate cooperation is the increase in ‘‘absorptive capacity’’ (Cohen & Levinthal, 1990) in prospective alliance partner personnel. This enables alliance networks to form whereas, fifteen years ago, the knowledge would have been too difficult to transfer, except in-house. In general, greater absorptive capacity lowers the cost of technology transfer. Another quirk of history produced a global lingua franca. Four factors have propelled English into the common language of the world in the early 21st century. First, the scientific and industrial revolutions from the 1770s onward were dominated by English speakers – whether it was Stephenson or Fulton, Edison or Bell, Wright or Ford, they all spoke English. Second, in the Victorian era, Britain and its colonies, plus the United States, may have accounted for 60 percent of world output. Third, the triumph of the United States and Britain at the end of World War II made English the language of the victors – yet again. Fourth, from the mid-20th century onward, a tsunami of entertainment imagery daily washed over the planet emanating
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from Hollywood and the American music industry. The effect was not just in teaching auditors a rudimentary English vocabulary; it conferred upon English a prestige and elite status that millions sought to acquire.8 Today, in China alone, it is said that over 300 million Chinese have studied English at one time or another. English is understood by business and government elites everywhere. Between 1 billion and 1.5 billion people are said to be able to communicate in English.9 Some estimates state that ‘‘y 85 per cent of international associations made official use of English, and 33 per cent used nothing else’’ (Ostler, 2005). Intergovernmental Cooperation A government is an instrumentality for collective future action. The recent proliferation in multilateral (e.g., WTO, NAFTA), as well as bilateral consultations and treaties (e.g., bilateral investment treaties of which more than 2,500 have been signed since 1980; see UNCTAD, 2006), presage a very cooperative world. Consultation, common standards and international rules are being drawn up in the most recherche´s areas such as renewable energy from agricultural waste, hydrogen fuel cells and micro-lending, to say nothing about larger areas for cooperation such as global warming or nuclear proliferation.
COOPERATION AND HUMANKIND’S MANIFEST DESTINY10 Cooperation, in biological evolutionary terms, began over three billion years ago with the first cellular organism consisting of component structures or organelles cooperating with each other within each cell. Later, multicellular creatures were formed with cells developing differentiated functions. Darwin was principally concerned with competition among individuals and species whereby the ones whose physical attributes best suited their environment reproduced more fecundly, while the rest produced fewer offspring or simply died out. However, it is now being realized that, whether it be a wolf-pack hunting collectively or a group of primates with a social structure, it is cooperation as much as competition that explains success and survival. Such cooperation is based in a context of learned behavior, social structures and culture (Pierce & White, 1999).
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Humankind has built ever-more complex social structures and cultures. What and where does a firm or a government exist, except as a common mental architecture in the collective thinking of the individuals who subscribe to the institution? The trend of human planetary evolution is toward mental evolution rather than the physical, and toward global institutions and increasingly complex interorganizational collaborations rather then toward the evolution of physical or biological structures. For several centuries, firms have competed with one another.11 They should and will continue to do so. At the same time, this chapter has tried to show that, by the end of the 20th century, interfirm cooperation – manifested in a plethora of alliances such as joint ventures, licensing and franchising agreements, strategic supply-chain contracts, joint R&D and co-marketing deals, to name but a few – is an integral part of business. Moreover, each dyadic alliance is often part of a larger network of interlinked companies. The art of cooperation is as integral to a firm’s success as is its ability to compete. This chapter has delineated reasons why interfirm cooperation is even more critical – nay indispensable – for a globalizing economy. Evolution seems to have produced larger and larger structures from single cells to multicellular beings, and to cooperative or socially structured groups within the same species. Modern humans are familiar with the grouping known as the firm. Many firms are multinational and marshal thousands of employees worldwide. However, an even larger unit of analysis has recently emerged, namely, the interorganizational network of cooperating organizations. A network economy is emerging today because of the retreat from industrial-age vertical integration and from internalization into ‘‘core competence’’ (Prahalad & Hamel, 1990). The logical corollary of ‘‘core competence’’ is the shrinkage of firms – an abdication of portions of the value chain in which the company does not have a competitive advantage in favor of outside vendors or allies who can perform certain functions better. This is an acknowledgment of the limits of a single organization’s capabilities in the face of planetary scale and scope. It is an acknowledgment that the demands for R&D expenditures in many areas and efficiencies of scale for worldwide markets have escalated and may often present too high a risk for a single firm. It is an acknowledgment of growing technological and marketing complexity – that knowledge needs, both in terms of sources of innovation and in marketing ability in distant cultures, or diverse end-applications of the technology, are often beyond the ken of a single organization, however large.
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Another concept in retreat is the notion of national sovereignty.12 Even authoritarian governments are voluntarily subjecting themselves to scrutiny of their internal affairs to assess compliance with the WTO, UN and other international treaties. Industries ranging from athletic footwear to apparel to waste management are adopting codes of conduct or subscribing to general standards such as ISO 14001 (for environmental impact) and Social Responsibility 8000 (for labor standards and ethical sourcing) (Fliess & Gordon, 2001). An army of inspectors and auditors from NGOs and accounting companies such as Price Waterhouse have begun to swarm around the world and descend on distant factories in emerging countries to check compliance. Fortuitously, the means and vehicles for planetary cooperation also arose at the same time in the last decade of the 20th century – IT-enabled communication technologies, precipitous declines in telecommunications and travel costs and the (sometimes grudging) acceptance of English as a lingua franca. A planetary civilization appears to be our manifest destiny. It is impossible to build a technologically complex global civilization without interorganizational cooperation. We will need to revise our definition of ‘‘humans’’ as a species of individual sentient beings to ‘‘mankind’’ as a gigantic, complex, cooperative enterprise. In a collective planetary consciousness, the identity, creativity and rights of individual men and women are not circumscribed or subsumed. Rather, freely forming cooperation networks cherishes and promotes creativity and individual expression. The evolving model for technological and organizational efficiency in humanity’s future strongly suggests intense cooperation within and between companies, governments and transnational bodies. One cannot be certain that the course of human history will move inexorably upwards. The glories of Greece and Rome were followed by the ‘‘dark ages’’ in Europe – a millennium of withdrawal from internationalism and knowledge in the arts and sciences. However, barring a catastrophe of planetary proportions, knowledge is today too codified and too internationally widespread to be easily lost. The seeds of a planetary civilization based on cooperation appear to be firmly planted. It has been a long three-and-a-half-billion-year journey from cellular organization to planetary consciousness. Yet, we are barely awake and are now faced with the conundrum of trying to explain complexity and cooperation ex nihilo – out of nothing – or the emergence of intelligence out of the primordial soup. Neither Darwinian evolution, nor new evolutionary theories, nor Creationism13 or Intelligent Design14 paradigms offer a
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satisfactory explanation. Perhaps it is only at the ‘‘end of all our exploring’’ that we shall ‘‘know the place for the first time,’’ finally finding the answer to that fundamental puzzle. We shall not cease from exploration, and the end of all our exploring will be to arrive where we started and know the place for the first time. – T.S. Eliot, Four Quartets
NOTES 1. The term ‘‘visible hand’’ was later used by Chandler (1977) as a counterpoint to Smith’s (1776) ‘‘invisible hand’’ to describe a high degree of vertical integration in 20th-century industries and the exercise of market power by large companies. But the basic concept of directed specialization within hierarchies was already enunciated in Smith (1776). 2. Risk sharing by venture capitalism or joint stock companies was certainly known prior to the 20th century. As early as four or five thousand years ago, venture capitalists in Assur, the capital of the Old Assyrian Empire, would buy tin and lapis lazuli from Afghanistan, as well as textiles from Babylonia and entrust them to traders who would load them on donkey caravans headed for Kanesh in Anatolia (modern Turkey) (Estelle-Holmer, 2007). If all went well, profits retuned to the venture capitalists could average 100 percent on the tin, and twice that on the textiles (Chanda, 2007). Following the acquisition of Hong Kong by the British, the trading group Jardines established joint accounts with Chinese partners for the opium and tea trade. HSBC (Hong Kong and Shanghai Banking Corporation) was founded in 1864 with capital from both British and Chinese shareholders (Krott & Williamsson, 2003). However, this is not the same as the active cooperation between the managements of two or more organizations, on a medium or long-term basis, which we see in 20th-century interorganizational cooperation. 3. Available at http://www-935.ibm.com/services/us/index.wss/offerfamily/gbs/ a1002843. Accessed on August 2007) 4. See http://www.nike.com/nikebiz/nikeresponsibility/pdfs/color/3_Nike_CRR_ Workers_C.pdf. 5. Understanding the nanotechnology of low-k materials is critical to advanced semiconductor manufacturing because the lines on a chip can be brought closer together. 6. See http://www-935.ibm.com/services/us/index.wss/offerfamily/gbs/a1002843. 7. From Eliot’s doctoral dissertation in Philosophy at Harvard University, 1916. Knowledge and experience in the philosophy of F.H. Bradley, Chapter 1, p. 31. Reprinted by Columbia University Press (1964). 8. See Ostler (2005).
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9. The estimate is, of course, a function of the size of the individual’s vocabulary. The 1.5 billion figure likely includes persons whose English vocabulary is no more than 1,200 words, a bare workable minimum. 10. ‘‘Manifest destiny’’ was a term coined in 1845 by John O’Sullivan to declare that the expansion of the United States to the Pacific Ocean was a self-evident and preordained outcome. 11. The oldest continuously existing corporation is said to be Stora Kopparberg, a Swedish mine, with shares issued in 1288. Since 1998, it has been part of the Finnish group Stora-Enso. 12. This is a doctrine of non-interference by other nations in each nation’s internal affairs, established at the Peace of Westphalia in 1648 after 30 years of conflict in Europe. 13. ‘‘Creationism’’ is the acceptance of Chapter 1 of the book of Genesis as the literal truth. 14. ‘‘Intelligent Design’’ is the notion that a cosmic ‘‘Designer’’ created and implanted on earth certain complete life forms or species. A more sophisticated version of teleological intent has God foreordaining certain cosmological laws or constants to make physical life on earth or other planets inevitable. (The dilemma with both versions is that they do not explain the emergence of intelligence or cooperation. If after formulating certain cosmological laws, or implanting certain species, God is supposed to then have inexplicably withdrawn from His/Her own creations – leaving most to wander the planet, die out in extinction, endure suffering or inflict cruelty, while a few species attained greater complexity and continuance – this would reduce the deity to a fitful and infrequent interventionist, rather like an artist or engineer who produced some early masterworks and then went on a prolonged sabbatical. It reduces God to a cruel and absent-minded tinkerer.)
ACKNOWLEDGMENTS I wish to thank Jean Boddewyn, John Cantwell, Oded Shenkar and an anonymous reviewer for helpful suggestions. This chapter is forthcoming as an article in Futures Research Quarterly and as a chapter in The Evolution of International Business Scholarship: AIB Fellows on the First 50 Years and Beyond (Jean Boddewyn, ed.). Vol. 14 of Research in Global Strategic Management (Oxford: Elsevier, 2008).
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THE DEVELOPMENT OF INTERNATIONAL-MANAGEMENT KNOWLEDGE IN THE GERMAN-SPEAKING COUNTRIES Klaus Macharzina ABSTRACT The development in the German-speaking countries of International Management (IM) as an academic discipline is analyzed both from a research-oriented and an institutional standpoint. This development is characterized by a relatively long run-up after early beginnings in the 1920s and a steep jump during the past 15–20 years. Business Administration and Strategic Management rather than Economics have influenced the IM field which is now an established subject in its own right. The resulting discipline is well on its way to overcoming an alleged ‘‘black hole-image’’ of international isolation on the part of German-speaking countries’ scholars.
My work as editor of an international journal and member of the editorial boards of 10 other international outlets has given me the opportunity to closely observe the development of the international-business (IB) or international-management (IM) field over the past 40 years from a kind of International Business Scholarship: AIB Fellows on the First 50 Years and Beyond Research in Global Strategic Management, Volume 14, 365–392 Copyright r 2008 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1064-4857/doi:10.1016/S1064-4857(08)00014-4
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‘‘bird’s eye view.’’ Moreover, it has provided a sound base for exercising judgment about the emphases and major trends followed by scholars in different regions of our academic world, including the strengths and weaknesses from a conceptual, empirical and methodological standpoint. There is, of course, the overriding influence of Anglo-American scholarship on the development of the field, at least with respect to the sheer quantity of publications and their relative strength in empirical research. Just take the example of Management International Review (MIR) where, from its inception in 1960 until 2005, the United States (45 percent) and Canada (5 percent) accounted for half of the articles published, followed by Germany (15 percent), the United Kingdom (12 percent), other Europe (13 percent), Asia (7 percent but on the rise) and Australia/New Zealand (4 percent). With JIBS initiated in 1970 and the (Columbia) Journal of World Business started in 1965, the North-American share, I suspect, is still much higher. I will concentrate on the developments in Austria, Germany and Switzerland for which I will use the short term ‘‘German’’ because the major means of academic communication in the three countries is the German language, although there are French and Italian minorities in Switzerland. Besides, about 1,500 business scholars from those three countries are organized in one German-led ‘‘VHB German Academic Association for Business Research’’ (Verband der Hochschullehrer fu¨r Betriebswirtschaft e.V. – www.v-h-b.de) founded in Frankfurt in 1921. I will shed some light on the peculiar situation of why relatively little is known internationally about the scholarly efforts in the IB/IM field in that region although a lot has been achieved over the past 50 years. This has led to the allegation of a ‘‘black hole-image’’ (Simon, 1993, p. 75) – that is, the German approach to business research is such that German scholars absorb international developments in the field but, internationally, do not give away what they have generated. In other words, the majority of them prefer to publish in German but only reluctantly and passively participate in the international system of academic exchange. As a result, there is little known about the level of IB/IM scholarship outside the German region.
ANTECEDENTS AND MAJOR DRIVING FORCES IB/IM, as one of the younger fields in Germany, has not so much been influenced by, or even emerged from Economics but rather it has developed within the German system of modern Business Administration. The latter dates back to the year of 1898 which saw the first foundations of the
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so-called ‘‘Handelshochschulen’’ (Colleges of Trade) in the tertiary highereducation sector in Leipzig, Aachen and Vienna, followed by St. Gall (1899), Frankfurt and Cologne (1901), Berlin (1906), Mannheim (1907), Munich (1910), Ko¨nigsberg (1915) and Nuremberg (1919). A region scarce of natural resources in the upcoming industrial age had to rely on international trade in order to create economic growth and welfare. This situation had at first been recognized by the Austrians who fairly early took on the farsighted decision to configurate their college as a College of Export (‘‘Exportakademie’’) which was turned into a College of Global (!) Trade (‘‘Hochschule fu¨r Welthandel’’) in 1919 – today the Vienna University of Economics and Business Administration (‘‘Wirtschaftsuniversita¨t Wien’’) and one of the leading universities in Business Studies where German IB got its roots planted by Rudolf Sonndorfer (1889), Josef Hellauer (1903, 1910) and Karl Oberparleiter (1913). Those roots were partly transplanted from Austria into Germany when Hellauer moved to Berlin in 1912 and later to Frankfurt. These early beginnings came to a halt in the two world wars and the world economic crisis after 1929. Therefore, we may conclude that, had it not been for political reasons, these early academic efforts could have resulted in the evolution of some kind of IB subject on a continuous basis with a view of Germany paving the way for this discipline. However, after WWI, no new such colleges were established, and some of the existing ones were integrated into universities or technical colleges. Under the Nazi regime in the Third Reich (1933–1945), the so-called ‘‘non-Aryan’’ professors were suspended so that some of them emigrated and therewith contributed to the dispersal of German business knowledge in their immigration countries – particularly, in the United States with the unique foundation of the New School in New York. Back home, German Business Administration got perverted by the Nazi ideology or into business-oriented elements of ‘‘military’’ or ‘‘war economics’’ – for instance, cost accounting, public pricing and logistics. No cross-border oriented elements, programs of research and teaching exporting and international trade could survive in this climate. After WWII, the German reconstruction economy was growing fairly fast. Beginning in the early 1950s, the international integration of the world economy had been progressing continuously and cross-border transactions in the form of imports and exports as well as foreign direct investments were growing much faster than the World GNP. In particular, this has been true of the Federal Republic of Germany which, owing to an export share of 25 percent of its GNP for many years, could measure up with the large industrial nations of Japan and the United States, with a culmination
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between 2000 and 2007 when Germany was named ‘‘World Export Champion.’’ In 2007, German exports came to about h970 billion which makes for a 40 percent share of its GNP. In 2006, the FDI of German companies amounted to $1,005 billion, and inward FDI in Germany totaled to $502 billion, accounting for 44 and 22 percent of GNP, respectively. The largest German companies such as Volkswagen, Deutsche Telekom, Siemens, BMW and the former DaimlerChrysler group occupy high ranks among the 100 World’s Largest Transnational Corporations (TNCs) – according to the 2004 World Investment Report – with an export/sales ratio of 72, 42, 67, 76 and 41 percent, respectively. Of course, these developments have led to an increasing research interest, on the one hand, and to an increasing need on the part of German industry for scientific analysis, assessment and advice regarding their cross-border operations on the other. In this regard, companies and their activities directly or indirectly have assumed the role of drivers towards the development of IB/IM as a scholarly subject in Germany. Certainly this is true of a unique association, the ‘‘Schmalenbach-Society of Business’’ (Schmalenbach-Gesellschaft fu¨r Betriebswirtschaft e.V. – www.schmalenbach. org) founded in Cologne in 1932 by Eugen Schmalenbach, one of the forefathers of modern German Business Administration. The membership (3,000 including 1,400 institutional members such as companies) of this organization has a representation of about 75 percent from the business world and about 25 percent for business scholars, with a fifty–fifty share of the two groups on the Board of the Society. Its purpose is the advancement of theory and practice in business administration by way of two annual conferences and focused long-term working groups manned by over 600 practitioners and scholars. One of those 26 working groups which had been established in the mid-1970s has been working and publishing on the ‘‘Organization and management of internationally operating enterprises’’ for about 25 years through 170 sessions co-chaired by Ehrenfried Pausenberger and Robert Zinser. In 1999 it was replaced by a new working group ‘‘Corporate growth and international management’’ co-chaired by Martin Glaum and Dieter Thomaschewski.
ESTABLISHMENT AND POSITIONING OF IM AS A SCHOLARLY DISCIPLINE In the 1960s, there were two ‘‘incubator centers’’ in Germany which helped to spark the subject of IM: (1) the Munich group (M ) around the then new
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Chair of Comparative and Public Business Administration occupied by Louis Perridon who founded the journal Management International Review (MIR) as the official organ of the IUC (International University Contact for Management Education) in 1960 and (2) the first German Chair of Management in Nuremberg (N ) occupied by Eugen Sieber. These two forefathers managed to attract some young and eager people dedicated to take on the challenge of engaging in research in that new field. It is interesting to note that members of both groups (M and N ) were working – albeit with a time-lag – on similar topics in their doctoral projects which centered around core problems of the international enterprise such as human resources (Borrmann, 1968: M; Hoffmann, 1973: N ), organizational structures (Albrecht, 1969: M; Schneider, 1973: N ), and international joint ventures (Juhl, 1970: M; Kumar, 1975: N ). These were the first German doctoral dissertations in the field. In the 1970s, German IM entered its next developmental phase. In 1973, Ehrenfried Pausenberger occupied the then first and only German Chair of International Enterprises at Giessen University. Klaus Macharzina, who had also worked in the Munich group, originally served as the Wolfson Chair of International Accounting at the University of Lancaster (UK) until late 1976 but subsequently oriented his new Chair of Business Management and his Center for Research in Export and Technology Management (EXTEC) at Hohenheim University, Stuttgart towards IM. The year 1976 also marked a cornerstone for the further development of IM in Germany insofar as Eugen Sieber’s earlier proposal to establish an International Business Division within the German Professional Association was implemented. Hans Gu¨nther Meissner (1974) who held the Marketing Chair at Dortmund served as its first President, followed in biennial rotation by Ehrenfried Pausenberger (Giessen), Eberhard Du¨lfer (Marburg), Klaus Macharzina (Stuttgart-Hohenheim), Reinhardt Schmidt (Kiel), Martin Welge (Dortmund), Emil Brauchlin (St. Gall), Wilhelm Wacker (Go¨ttingen), Brij Kumar (Erlangen-Nuremberg), Johann Engelhard (Bamberg), Michael Kutschker (Eichsta¨tt-Ingolstadt), Dodo zu Knyphausen-Aufsess (Bamberg), Ursula Schneider (Graz), Martin Glaum (Giessen), Michael Oesterle (Bremen), Reinhard Moser (Vienna) and Stefan Schmid (Berlin) presently. The major academic centers of IM have developed at the related universities. The membership of the Division has risen from 20 to more than 100 over the past 30 years so that it is one of the strongest and most attractive divisions in the Association. Its annual meetings serve as the most important platform for academic exchanges among IM scholars. Fairly early on, it was decided to use the term IM instead of IB in the Division’s
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designation in order to allow for a wider interdisciplinary frame of reference for the unit of analysis and the development of the field as opposed to a narrow economic focus (Pausenberger, 1981). The tasks and objectives of the Division are to foster the enhancement of IM in research and teaching, to help increase its institutional growth and dispersal with respect to the number of academic positions and research centers and, above all, to support young scholars in their academic development and career paths. For the latter purpose, there was installed a special annual post-doctoral workshop under the direction of the respective Presidents-elect. There are also special awards and scholarships as well as other incentive mechanisms to support the upcoming generation of young academics and to integrate them as early as possible into the group of senior scholars.
GERMAN RESEARCH OUTPUT IN IM Early Attempts at IM Theorizing Early writings were characterized by efforts to define the unit of analysis and to measure different degrees of internationalization of the firm. Also, the developmental stages of the internationalizing firm were described (Meissner & Gerber, 1980). There was a lot of controversial discussion going on about distinguishing between an international, multinational, transnational and global enterprise, which eventually resulted in consensus-oriented proposals of typically two-by-two matrix ‘‘models’’ or descriptive quadrants. The latter, albeit naı¨ ve and simplistic in the face of the complexity of the realworld phenomenon, have had a surprisingly lasting effect and they are still being used in spite of heavy criticism (Engelhard & Da¨hn, 2002) as basic concepts for the empirical representation of changes in the entire system of the internationalizing firm. This type of exploration clearly hints at the pre-scientific nature of those early endeavors. A more demanding discussion took place in the early 1980s which aimed at describing the official motives and objectives of the top executives responsible for the internationalization strategy of their companies (IFOInstitut, 1979; Heinen, 1982). Later, efforts were made to explain the causes of internationalization by looking at goal-setting processes relevant to the internationalization of the firm, and by interpreting the latter in terms of interplay between contextual factors, company factors and personality
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factors of decision-makers (Dichtl, Ko¨glmayr, & Mu¨ller, 1986; Holzmu¨ller & Kaspar, 1989, 1990). The major focus at that stage was on identifying single specific independent variables which seemed to affect certain types of cross-border activities of companies in the form of exports, foreign direct investments or management contracts. Following Kravis (1956), Perlitz (1978) in his postdoctoral thesis developed an expanded availability approach in which several kinds of ‘‘availabilities’’ – not just commodities as was suggested by Kravis – were used as explanatory variables for strategic decisions on various modes of international market entry. Superior technologies, abundant or scarce resources and market-related advantages would cause international competitive advantage, which again would lead to international trade. The availability of excess technologies, exchange technologies and the ‘‘nonavailability’’ of capital, production equipment or human resources would lead to technology-oriented contractual arrangements, whereas the lack of availabilities in general would lead to foreign direct investment. Macharzina (1982) identified about 43 of such determining factors which he classified into three groups: productivity differences between countries, geographic distance and the transaction-cost-oriented internalization of markets. Jahrreiss (1984) and Colberg (1989) came up with similar synopses. There seemed to be consensus among the three latter authors in their overall criticism that, although the types of approaches of that stage can be useful for an understanding of some aspects of internationalization, they are not able to explain this phenomenon fully and comprehensively. In particular, a broader more integrative framework seemed to be missing. Hence, Macharzina (1982) developed a context- and process-oriented decision model of the internationalization of the firm, based on a multi-level analysis of the external and internal context- and a process-oriented contingency approach. Decisions on internationalization strategies in regard to export, FDI or contractual forms of foreign market strategies represent the dependent variables. As far as the performance dimension is concerned these strategies may be effective (success) or ineffective ( failure) depending on fit- or misfit-configurations in reaction to (revolutionary) changes in the context constellations. Empirical examples for such changes are the replacement of top executives, the introduction of new products or the entry into new markets, a change in the behavior of competitors, technological revolutions such as the Internet and economic jolts such as the 2007 US subprime mortgage financial crisis. This conceptual model was preceded by earlier work (Macharzina, 1981) based on the philosophy of science-oriented reasoning, laying the
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methodological foundations for IB modeling related to the concept of trilateral scientific exploration (Galtung, 1978). This concept rests on the interplay among data, hypotheses/theories and values; the resulting scientific process is driven by a critical orientation in comparing data and values, an empirical orientation comparing data and theories, and a reform orientation through adaptation of the existing reality towards a match of data, new theories and new values. Trilateral scientific reasoning aims at achieving a fit between those categories, and it would not only include theoretical or critical reflection about real-world phenomena but rather the development of value based recommendations towards change. It has taken some time until this kind of approach was adopted by other IM scholars but today it seems that, increasingly, the necessity is being recognized to include the action and change dimension in the IM scientific process so that this task is not left entirely to policy-makers. An example is the institutional approach in IM – particularly the recent progress in the globalization debate where attempts are being made to not only describe and explain the phenomenon of globalization or just criticize some of its consequences, but also to issue proposals with a view of ‘‘making globalization good.’’ Another example is the participation and involvement of IM scholars in the worldwide discussion about corporate governance failures and major international corruption scandals such as the recent Siemens case.
Advanced Stage of IM Theory Building In the 1990s, there was a consolidation of IM theory building characterized by more grounded explanatory reasoning, broader frameworks and profound empirical work. Configurations Approach Based on the conceptual framework and the methodological foundations introduced above, Macharzina (1989) and Macharzina and Engelhard (1991) developed a model referred to as the GAINS (Gestalt of International Business Strategies) Paradigm. This is not conceived of as a universally valid theory but rather as a middle-range model. GAINS attempts to generate significant patterns of the international firm, determined by environmental and internal contextual variables, which would allow for causal conclusions from those ‘‘Gestalts’’ in an interpretive manner. The international firm is conceived as a complex entity characterized by interaction patterns between persons, behaviors and actions, information,
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technical installations, norms and procedures. Those elements are interconnected with their relevant environments. The whole bundle of these determining factors is analyzed simultaneously. Following evolutionary reflections, only those entities which can achieve a strategic fit between those variables are assumed to be successful and will survive. The core idea of the Gestalt rationale is that organizations pass through a fixed sequence, and there is only a limited variety of organizational forms. As opposed to models which assume a piecemeal incremental process nature of internationalization, GAINS supposes that revolutionary or quantum change will occur between two archetypes of configurations. In this way, ‘‘packages’’ of change are expected to occur which lead from one common stable state to another such that (stable) momentum is evoked by a revolutionary event which induces a strategic decision, followed by a transition period which leads into (stable) momentum again. There is empirical support for revolution-transition archetypes from other studies – particularly Miller and Friesen (1980) for North-American companies, and also Risak (1982) and Wu¨hrer (1995, 1997) for Austrian international enterprises. In summary the GAINS Paradigm is a process-oriented, dynamic contingency approach which follows a holistic orientation based on the systemic nature of organizational reality. Methodologically, it relies on longitudinal quantitative analyses of organizational histories in search of organizational taxonomies. The Gestalts represent a statistically significant clustering among environmental, structural and strategy variables which allows for accurately predicting many of its features, in particular certain forms of foreign market entry and operations or divestment. Process-Trilogy ‘‘Three E-Concept’’ Kutschker, Ba¨urle, and Schmid (1997) developed what they call a ‘‘Three EConcept’’ of the internationalizing firm which partly builds on and expands the GAINS Paradigm in a management-oriented manner. Later, this concept was refined and further developed by Kutschker and Schmid (2006). The concept can be regarded as kind of a bridge between the internationalization process model of the Uppsala type (Johanson & Vahlne, 1977) and the GAINS quantum view insofar as the authors suggest that the dynamics of the international firm can follow a continuous evolutionary form as well as an abrupt revolutionary change. Borrowing from Van de Ven and Poole (1995), the concept discriminates between three types of processes which can be used to describe the internationalization of a company: evolution, episode and epoch. Evolution is the continuous, incremental process which comprises many small internationalization steps
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and routines of the deep structure at the micro-level of core processes. It has to do with the day-to-day action at the operational unit-level of the internationalizing firm. An example given by the authors is the reorganization of the IB process engineering of Mercedes-Benz in 1993 from sequential product development to simultaneous engineering with overlapping product development. Internationalization episodes at the meso-level of multi-stage hierarchies of sub-processes represent jolts or quantum changes in the sense of the GAINS Paradigm, and they are milestones in the internationalization which are context dependent and lead to major changes in the surface structure of the firm. For example, the merger (or takeover?) between Daimler-Benz and Chrysler in 1998 which under the name of DaimlerChrysler lasted until 2007 when about 79 percent of the shares of Chrysler were sold to the investment fund Cerberus, or the spectacular hostile takeover of one of the crown-jewels of German industry, namely Mannesmann, by British Vodaphone in 2000. Epochs of internationalization are related to the macro-level of the entire enterprise and its interaction with the environment over a long-term period, and they will normally effect major changes of the surface structure and the deep structure of an enterprise and, hence, its whole configuration and strategic direction. For example, the ‘‘Centurion Project’’ of Philips Electronics N.V. which led to the epochal change of the Dutch multinational to a TNC. Important are three assumptions of the model: (1) all process types are manageable, even the evolution as opposed to the Uppsala model, (2) not every internationalizing enterprise needs to necessarily pass through all of the types and (3) the strength and magnitude of process effects may differ. Short-term core processes of international evolution will typically be related to the action of single actors and their micro-networks, and they will typically be small in magnitude. Long-term internationalization episodes will typically have an effect on many hierarchical levels, divisions and subunits, including the respective meso-networks. Internationalization epochs, however, will in terms of strength and magnitude have long-lasting strategic effects on the interaction between the entire system and its environment. The authors themselves point at the limitations of the concept, which are related to its descriptive nature and the lack of empirical support.
The Ladenburg Globalization Model Although the mainstream scenario of globalization still is largely perceived as an economic phenomenon, in reality it has captured all relevant
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dimensions of social and individual life on our planet. Academically speaking, it is interdisciplinary in nature so that the underlying problems require interdisciplinary investigation if one wants to describe or explain them by way of concepts or theory, or to issue appropriate recommendations for action towards problem solution. Based on such insights and as a result of a ‘‘Ladenburg Discourse’’ of the Daimler-Benz-Foundation in Ladenburg, Germany, an interdisciplinary research group was established in the mid-1990s including Professors Eberhard Feess (Frankfurt, Economics), Jo¨rg Flecker (Vienna, Social Psychology), Guy Kirsch (Fribourg, Public Finance), Beate Kohler-Koch (Mannheim, Political Science), Hermann Korte (Hamburg, Sociology), Klaus Macharzina (Stuttgart-Hohenheim, Business Management), Rainer Mu¨nz (Berlin, Demographic Sciences), Gerhard Pahl (Darmstadt, Engineering), Bert Ru¨rup (Darmstadt, Public Finance) Christian Scholz (Saarbru¨cken, Human Resources and Information Management), under the direction of Ulrich Steger (Lausanne, Environmental Management). The group’s task was to fundamentally study the problems, causes, forms, and consequences of globalization in a long-term research program institutionalized as ‘‘Ladenburg Kolleg on Understanding and Shaping Globalization’’ and financially supported by the Daimler-Benz-Foundation. The group worked for about five years, relying on the advice of 20 top-level ad hoc-experts from various societal institutions and the business world, and 20 research support staff. The Kolleg resulted in various publications and a final Research Report (Steger, 1998). The central findings can be summarized as follows. The core result suggests that, as opposed to mainstream assumptions, globalization does not seem to be a certain evolutionary stage of the overall internationalization phenomenon nor a temporary short-living rhetoric guided by the interests of political intentions; rather, it is a fundamental breakthrough and a new development which will lead to far-reaching longterm consequences. Globalization can be characterized as ‘‘hyper change’’ which will have fundamental and long-lasting effects on our society and the world economy including the governmental and non-governmental institutions, political patterns and processes, ways of life, social-security systems and, of course, the corporate sector. It will open the door for a new age characterized by an ever faster pace of change and higher magnitude of discontinuities which, at an overall level, will lead to an erosion of boundaries in many areas such that they get blurred. Heterarchical forms of coordination and control will complement or substitute for hierarchical ones; there will be a diverse development of factor mobility with capital markets as the most highly integrated and labor markets
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as the least integrated ones, and there will also be an erosion of legitimacy and a diffusion of its effects. We will experience an increasing asymmetry between the past and the future in terms of risk and uncertainty and, in this new ‘‘fluidized’’ global environment, in which the old rules have become ineffective while the new ones have not yet been established, there will be a variety of new options which will probably require a lot more ‘‘flexibility’’ on the part of individuals, groups, organizations, institutions and even societies, in the absence of reliable models for action in any area. However, there will also be the challenge on these units’ ability to cope with ambiguities, uncertainties and surprises. Old certainties will evaporate, the new opportunities will bring about new winners, and the new risks new losers. Should, in the subjective perception of all concerned, this process get out of control, and should it generate too many losers, protectionist developments may quickly gain ground, and the globally oriented and active politico-economic elite may become isolated. Companies will have to learn to live with contradictions and economic regions may see an end of their comfortable life. There is the big question whether the nation state which was pronounced dead for some time already will be able to manage its rebirth, particularly with respect to new security threats of a non-military nature, to guarantee a welfare-generating economic process, and to ensure political self-determination besides the colorful spectrum of IGOs and NGOs in the political arena. In the wake of the most crucial among the above six key features of globalization – namely boundary erosion – the pressure to define and reestablish new boundaries both within and between societies and national economies will increase because of the growing uncertainty about individual and collective identity in a globalized world, as well as the increasing perception of citizens themselves to be the losers. The danger of a new ‘‘twoclass society’’ is emerging, the dimensions of which may extend far beyond previously known conflicts in the social sphere. The question will be which of the three options within the framework for action will prevail and be capable to solve these problems – market control, governmental control or civil-society control? Eventually, we may have to rely on a sensible and useful combined reconfiguration towards joint action of all three of them.
Diverse Conceptual Contributions Besides the above more focused approaches, there is an array of diverse conceptual contributions which in parts include empirical evidence provided
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by others. Most of them are post-doctoral dissertations (‘‘Habilitation’’) or doctoral dissertations characterized by high analytical rigor and sharp intellectual reflection. Apart from the recently introduced ‘‘Junior Professorship,’’ a habilitation degree still is the regular prerequisite for a German professorial career in Business Administration or Economics, and it requires the highest academic standard and quality. On average, it would take three to five years for completion supervised by two senior professors, and it has to be defended in front of the entire faculty of a (business) school. The postdoctoral thesis may be replaced by some major publications in (international) top journals which can be accumulated to what is called ‘‘cumulative habilitation.’’ A doctoral dissertation would on average take about three years supervised by one main professorial supervisor (‘‘doctoral father/ mother’’) plus another professor who would provide a second written testimonial on the dissertation which eventually has to be defended in front of a group of, as a rule, three professors. In his habilitation project, Holzmu¨ller (1995) dealt with fundamental conceptual and methodological problems of IM and marketing research. In the strategy area, there is Engelhard’s (1992) habilitation on ‘‘Export promotion’’ and Glaum’s (1996) on ‘‘Internationalization and corporate success.’’ Among the doctoral dissertations, one may mention Oesterle’s (1992) ‘‘Joint Ventures in Russia,’’ Roxin’s (1992) ‘‘International competitive analysis and competitive strategies,’’ Meckl’s (1993) ‘‘Business alliances in the EC Common Market’’ and Da¨hn’s (1996) ‘‘International competitive advantages’’. Also worth mentioning is Welge and Al-Laham’s (2002) article on ‘‘International strategic alliances’’. In the organizational-structure area, there is Ruigrock and Van Tulder’s (1995) book on ‘‘International restructuring,’’ Kreikebaum Gilbert and Reinhard’s (2002) work on ‘‘Organizational management of international enterprises’’ and Renz’ (1998) doctoral dissertation on ‘‘Management in international business networks’’. In the international HRM/cross-cultural area, there is Schmid’s (1996) doctoral dissertation on ‘‘Multiculturality in the international enterprise’’ and an article by Oechsler (1999) in which he looked at local employment systems from the standpoint of global management, another one by Weber and Festing (1999) who looked at the impact of globalization on strategic HRM and one by Du¨lfer (2005) who dealt with the interplay of globalization and culture in its many facets. In the field of international-knowledge management, Brockhoff’s (1998) book on internationalization and innovation stands out but there are also articles by Macharzina, Oesterle, and Brodel (2001) on learning in multinationals, Al-Laham (2003) on knowledge-based internationalization
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strategies, Beise and Gemu¨nden (2004) on lead markets in innovation and Gerybadze (2004) on knowledge management in distributed innovation processes. In more novel areas, Brodel (1996) in his doctoral dissertation looked at the internationalization of environmental management, Welge and Borghoff’s (2005) article attempted to position SMEs in the internationalization process and, in Borghoff’s (2005) doctoral dissertation, a holistic conceptual framework was developed for an evolutionary theory of the globalization of firms. There is also a collection of works which apply reflections and positions from other disciplines like philosophy, ethics and philosophy of science to problems of IM, such as Holtbru¨gge (1996) and Welge and Holtbru¨gge (1999) who investigated the consequences of postmodernism for IM, Kreikebaum, Behnam, and Gilbert (2001) and Kreikebaum (2005) who dealt with ethical conflicts and problems from a managerial and institutional standpoint, the book by Mu¨ller and Kornmeier (2001) on the globalization controversy and Steinmann’s (2003) work or Scherer’s (2003) habilitation thesis on MNEs and globalization which form the ‘‘critical school’’ of IM and globalization.
Thematic Clusters of Selected Empirical Studies Following roughly the same pattern of thematic clusters, in the empirical dimension we are able to discern over 20 studies in the strategy/ organizational-structure field, about 12 each in the HRM/cross-cultural area and international-knowledge management, 6 studies in international networking, 9 in the field of international entrepreneurship/SMEs, 7 in international finance/accounting, a few in the international service industries and some regionally oriented studies focusing on IM in Eastern Europe. In the following section only a few important ones are selected from each cluster. In the strategy area, Link (1997) in his doctoral dissertation investigated the success potentials for internationalization, and Scholz (2000) in his doctoral project evaluated international acquisitions, whereas Bausch and Krist (2007) did a meta-analytical study on the performance effects of internationalization. Paul (1998) in his doctoral dissertation looked at the global management of value-added operations, Wrona (1999) in his doctoral project investigated the effects of globalization on the degree of vertical integration, whereas Sto¨ttinger and Schleglmilch (1998) studied the conditions of export performance from the standpoint of psychic distance.
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In the area of organizational structure/HQ-subsidiary management, there is the first solid German empirical study of HQ-subsidiary relationships by Welge (1980) who, in his habilitation, looked at the performance dimension based on in-depth studies of 15 subsidiaries of six German MNEs in France, India and the United States, from which he derived a descriptive model of subsidiary efficiency. Macharzina (1993a) conducted an empirical study of patterns of HQ-foreign subsidiary control of 70 German international corporations and generated, in a Gestalt-oriented manner, clusters of successful coordination-configuration related to four major types of international strategies. Wu¨hrer (1995) in his habilitation conducted an empirical study based on a questionnaire survey of 225 executives of Austrian international companies and generated certain configuration archetypes in support of the GAINS Paradigm. Morschett (2007), in his habilitation, examined strategies, coordination patterns and modes of establishment of foreign units mainly in the service sector as related to their economic success. His findings were based on a meta-analysis of 57 empirical studies done by others, and a questionnaire survey of 408 foreign units done by him. He managed to identify 11 out of 26 variables which seem to influence the decision of the establishment form and, in a Gestalt-oriented manner, derived configurations of 5 strategy types and coordination patterns as well as 3 establishment forms. Meckl (2000) in his habilitation looked at the controlling function in international companies from the standpoint of the successful management of international organizational structures. Wolf (2000) in his seminal habilitation conducted a longitudinal in-depth study of the strategy-structure phenomenon based on a questionnaire survey of 96 large and 60 smaller German national and international enterprises covering the timespan 1955–1995. He came up with interesting and valid findings which shed new light on this frequently researched topic. According to his findings, the causal direction of the strategy–structure relationship varies depending on different situational constellations and strategy facets. Hence, the prominent controversy as to whether structure follows strategy or the other way round falls short. No doubt Wolf’s work can be considered to be one of the most noteworthy publications in the area. In the international HRM/cross-cultural area, the British-German Business Collaboration project is noteworthy in which Scholz (1993) with a few others represented the German side. Looking at the organization and performance of foreign subsidiaries, he found that there are distinct country-of-origin effects among which culture seems to have the strongest impact on success. Wa¨chter, Peters, Tempel, and Mu¨ller-Camen (2003) in their research of
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German subsidiaries of US MNEs also stressed the importance of countryof-origin effects in the cross-national management of human resources. Wolf (1994), in his doctoral dissertation based on a large data set of a survey of 40 US and European MNCs discovered successful coordination patterns of domestic and foreign HRM strategies and programs. Macharzina and Wolf (1996) showed that different international strategies such as single market, selective, interaction or integration strategies lead to different HRM program patterns. In contrast, Festing (1996), in her transaction-cost based doctoral dissertation, could not provide empirical proof that companies match their internationalization strategies at corporate and HRM levels. Hein (1999) in her doctoral dissertation looked at the international transfer of managers, and uncovered success and failure Gestalts in support of the GAINS Paradigm. Lindner (2002), in her doctoral dissertation also looked at this problem and identified success factors of foreign assignments related to different types of expatriates by way of cognitive mapping. In the area of international networking, the doctoral study of Bo¨ttcher (1996) on global network management stresses the importance of pro-active management of the informal relationships among cross-border business units. The results of Rank’s (2003) doctoral project applying network analysis of strategic planning and decision processes in MNEs can be interpreted in the same way. Wald (2003) in his doctoral project using quantitative network analysis found co-alignment patterns between formal and informal organizational structures but denied the existence of conceptually developed ideal type network models in reality. Riedl (1999), in his doctoral dissertation, argued in a similar vein and showed that MNEs will not necessarily implement models of this type so that the latter could be dismissed as just another management textbook fad. Empirical studies in international-knowledge management center around three different topics. First, the internationalization patterns of high-tech firms which were dealt with in the doctoral dissertation by Zaby (1999). Second, the international distribution of R&D in MNEs which was the topic of Fisch’s (2001) doctoral dissertation and an article by Fisch (2004). According to his findings, this distribution is not always efficiently organized. Third the knowledge transfer and information supply in MNEs was treated in an article by Holtbru¨gge and Berg (2004), further in the doctoral dissertations of Bendt (2000) from a motivational and cost-benefit standpoint, by Hamann (2004) from a network standpoint and by Ro¨h (2003) who looked at the use and implementation of appropriate I&C technologies as a means of knowledge transfer.
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In the international finance/accounting area, there are two empirical studies by Eckert (1997, 2004): the first one is his doctoral project on capital structure policies in relation to foreign subsidiaries, and the second one his habilitation in which he investigated the shaping of shareholder value orientation in the wake of globalization and multinationality. Fisch (2006) in his habilitation undertook a large panel study of German FDI in the 23 OECD countries in the form of establishment of foreign subsidiaries conceptualized as purchasing and exercising real options. His empirical findings suggest that, whereas establishing foreign subsidiaries can be explained by the real-options approach although compared to other studies, there is no proof of this for IJVs. In international accounting, there is the doctoral dissertation by Kammer (2005) who empirically verified a reporting concept based on European and global trend towards harmonization and convergence of accounting practices through International Financial Reporting Standards (IFRS). While most of the IM literature implicitly or explicitly deals with large MNCs, small and medium sized companies have received less attention. In Germany, where about 80 percent of the jobs are provided by SMEs, there seems to be increasing research interest in the area of the internationalization of SMEs. This is exemplified by Bamberger and Wrona (2002), Bassen, Behnam, and Gilbert (2001) or, with an emphasis on entrepreneurship, by Kabst (2004) in his habilitation and recently by the meta-analytical study of Schwens and Kabst (2006). Schulte (2002) in her doctoral dissertation dealt with SMEs from the reverse standpoint of divestment and relocation into the home country. With the service sector gaining increasing importance on a global scale as, for instance, Mo¨sslang (1995) pointed out in his doctoral dissertation, we can also observe an increasing research interest in the internationalization of service industries documented apart from Morschett’s work mentioned above in two other doctoral dissertations. Frehse (2002) looked at international service competences of the European hotel industry and Scherle (2006) investigated bi-lateral business co-operation as a success factor in the tourism industry. The breakdown of the ‘‘iron curtain’’ has triggered research interest in regional studies which deal with international operations in the Middle and Eastern European (MEE) transformation economies. Holtbru¨gge (1995) in his doctoral project conducted a major empirical study on HRM of MNEs in seven MEE countries. Blei (1998) in his doctoral project investigated the classical topic of IJV-stability, in his case related to Hungary, and Specker (2002) in his doctoral dissertation studied the problem of post-merger management in the MEE transformation states. There is also a study by
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Engelhard and Eckert (1993) who looked at the market-entry behavior of international firms in those countries. Finally, I would like to draw attention to a remarkable study by Berg (2003) who, in her doctoral project, investigated the increasingly important yet extremely sensitive topic of international public-affairs management – particularly corruption – of German MNCs in Russia but also in China, France, India and the United States.
Encyclopedic Work, Handbooks and Textbooks in IM It should be noted that the bulk of the above doctoral dissertations or habilitations have appeared in the series MIR-Edition which was created by Klaus Macharzina, Martin Welge, Michael Kutschker and Johann Engelhard in 1992. Those scholars form the editorial board of the series and oversee the rigorous refereeing and review process of manuscripts which are submitted for publication. This policy ensures the high-quality standards of the series and guarantees that only the best manuscripts are accepted for publication, and there were about 50 of them over the past 15 years. Another comprehensive source of German IM knowledge is Export and the International Firm, Volume XII of the Encyclopedia of Business Administration, edited by Macharzina and Welge (1989) and with 207 entries by 209 participating authors and 2,500 columns (1,250 pages). The concept of this volume is structured into institutional, functional and problem-oriented approaches to IM in the three dimensions of foreign-country, multinational and global management. There are two major handbooks, the Handbook of International Business Operations, edited by Kumar and Haussmann (1992) with 56 chapters by 22 authors and 1,100 pages, and the Handbook of International Management, edited by Macharzina and Oesterle (2002) with 50 chapters by 78 authors and 1,200 pages. There are also two special handbooks which deal with International Human Resources Management, edited by Kumar and Wagner (1998) with 18 chapters by 34 authors and 450 pages and International Manager Management, edited by Macharzina and Wolf (1996), with 24 chapters by 33 authors and 500 pages. Among the IM textbooks there are four major ones – all of them under the title ‘‘International Management,’’ such as Du¨lfer ( 2001 in German and English, 540pp.) focusing on diverse cultural regions, Kutschker and Schmid (2006, 1,470pp.), Perlitz (2004, 719pp.) and Welge and Holtbru¨gge (2006, 600pp.). Another one by Mu¨ller and Kornmeier (2002, 700pp.) focuses on international strategic management, and the one by Zentes, Swoboda, and Morschett (2004, 1,140pp.) on IM of value creation. There is also
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Macharzina’s (1993b, 5th ed. with Wolf 2005, 1,170pp.) ‘‘Management – The International Management Knowledge’’ with a major chapter on IM. Breuer and Gu¨rtler (2003, pp. 620) edited a textbook including 17 other authors under the title IM, which really is a book on the functional areas of the international firm. There are another two so-called ‘‘short textbooks’’ on IM by Scherm and Su¨X (2001) and Meckl (2006) in which the IM knowledge is condensed into about 350 pages or so. There are also leading textbooks in the functional areas of IM such as International Marketing (Backhaus, Bu¨schken, & Voeth, 2003; Kulhavy, 1993; Meffert & Bolz, 1998, Zentes, Swoboda, & Schramm-Klein, 2006), International Finance/Accounting (Bu¨schgen, 1997; Wagenhofer, 2005), or International HRM (Scherm, 1995, Weber, Festing, Dowling, & Schuler, 1998). Finally, in Germany as in other countries, there is the long tradition to publish commemorative edited volumes on the occasion of certain ‘‘milestones’’ in the academic career of distinct scholars. These ‘‘Festschriften’’ have been referred to as ‘‘gala dinners of science.’’ Related to IM there are the following volumes edited by Wacker, Haussmann, and Kumar (1981) on IM; (1) Festschrift Sieber, with essays by three AIB Fellows, by Macharzina and Staehle (1986 in English language) on European approaches to IM; (2) Festschrift Perridon, with essays by six AIB Fellows, by Giesel and Glaum (1999) on globalization; (3) Festschrift Pausenberger, with one essay by an AIB Fellow, by Engelhard and Oechsler (1999) on IM; (4) Festschrift Macharzina, with essays by six AIB Fellows, by Oesterle and Wolf (1999) on evolution and revolution in IM; (5) Festschrift Macharzina, with essays by two AIB Fellows, by Holtbru¨gge (2003) on management of MNEs; (6) Festschrift Welge, with one essay by an AIB Fellow, by Achenbach, Borghoff, and Schulte (2003) on strategic and international perspectives of management; (7) Festschrift Welge, by Peske and Schrank (2003) on strategy, innovation and internationalization; (8) Festschrift Perlitz, with an essay by one AIB Fellow, by Fisch (2004) on innovation and internationalization; (9) Festschrift Macharzina, with essays by three AIB Fellows, by Oesterle and Wolf (2005) on internationalization and institution and (10) Festschrift Macharzina, with essays by two AIB Fellows, nice to note that apart from German scholars many AIB Fellows have contributed to those volumes, signaling an ‘‘international look’’.
Publications at the Professional Organizational Level The IM Division of the German Professional Association has a regular policy of publishing the papers of the annual meetings in book form edited
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by its respective Presidents. The titles of those publications allow for an approximation of the development of the field and are a good indicator of the prevailing topics at certain points in time such as new developments in foreign direct investment (Moser, 2008), internationalization and corporate environment (Oesterle, 2007), globalization (KnyphausenAufsess, 2000), management of dispersed competencies in MNEs (Kutschker, 1999), integration of the international enterprise (Kutschker, 1998), intercultural management (Engelhard, 1997), strategic management of the international enterprise (Engelhard, 1996), new theoretical concepts in IM (Wacker, 1997), global management (Welge, 1990), financial and banking issues in international operations (Macharzina, 1985), discontinuity management in international operations (Macharzina, 1984), personnel aspects of IM (Du¨lfer, 1983), international project management (Du¨lfer, 1982), developing countries as fields of action for international enterprises (Pausenberger, 1982), IM (Pausenberger, 1981) and the proceedings of two annual conferences of the German Professional Association on internationalization of the firm (Lu¨ck & Trommsdorf, 1982) and of the Schmalenbach-Gesellschaft (1993) respectively, on internationalization of the economy.
INSTITUTIONAL CONSOLIDATION OF IM No doubt, over the past 25 years or so according to the above analysis, IM in Germany has experienced a steep upswing. Moreover, measured by the share of publications in IM appearing in the three major German business journals, which has risen by over 20 percent during that time, this remarkable development is being confirmed. Lastly, the participation of German authors in international journals such as MIR which, over the past 40 years, has risen from almost 0 to about 15 percent is another valid indicator of this development. While in 1987 four new professorial chairs were added to the two existing ones, with the new ones being occupied by Martin Welge in Dortmund, Reinhard Moser in Vienna, Dieter J. G. Schneider in Klagenfurt/Austria, and Hartmut Kreikebaum at EBS, Oestrich-Winkel. There were three more in 1989 which were occupied by Johann Engelhard in Bamberg, Emil Brauchlin in St. Gall and Michael Kutschker in Stuttgart-Hohenheim. The 1990s brought about a strong growth of 24 new chairs so that today, in the three countries of Germany, Austria and Switzerland there are about 70 chaired professorships – about half of them pure IM and the remainder in IM plus another subject area or
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in the internationally oriented functional areas. As a result, about two thirds of the universities in Germany and Austria – and two Swiss universities, have an explicit representation of IM which again is reflected by a similar share in the respective business curricula. Looking back to the beginnings when the small group of IM initiators was opposed in their efforts by the argument that the unit of analysis of General Business Administration should be the international firm rather than the domestic firm so that there would be no need for a special discipline such as IB (Albach, 1981, p. 14). The development has proven that this was wrong, and today we can consider ourselves lucky that the group did not get irritated by this kind of argument and did not give up. On the contrary, we can rely on a broad although still fragmented body of knowledge in IM, and the alleged chronic immaturity of the subject has been overcome. We have managed to reach a stage of consolidation as a field in its own right in Germany, and we are on our way of publishing more and more in the English language, and of participating in international organizations such as the AIB or EIBA and their activities, although there is still room for improvement. Hopefully, the upcoming generation of young scholars will take their part in helping to overcome eventually our somehow self-imposed international isolation. I am confident that driven by their intrinsic motivation to be part of the international scientific community, they will do their utmost to get published in the best possible outlets in the international market for publications. In the meantime, there are extrinsic incentive mechanisms which the institutional system of higher education in Germany has put in place. As a result, our young scholars are bound to successfully publish in international top journals – particularly, North-American ones – because this target has become the prime criterion for personnel selection, promotion, tenure and (financial) reward systems. The future will decide whether we have gone the right way in this regard because no doubt the traditionally highly regarded monographs and other forms of book publications have lost value as academic performance criteria. One can see that we are bringing ourselves in line with the US system and, therefore, slowly but steadily we seem to be getting out of the ‘‘black hole’’ of our isolation.
ACKNOWLEDGMENTS The author is indebted to Professors Jean Boddewyn, Shirley Daniel, David Ricks and Ingo Walter for their constructive comments on an earlier version of this chapter.
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Dedicated to Emeritus Professor Louis Perridon on the occasion of his 90th birthday.
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THE RACE BETWEEN THE FORCES LEADING TO A FIRST OR LAST GLOBAL CIVILIZATION Howard V. Perlmutter ABSTRACT In the 21st century First Global Civilization, there are major forces of constructive global interdependence in all regions of the world and in all civilizational domains, including, political, economic, socio-cultural and religious, ecological and outer-spacial. At the same time, there are often equal and opposite forces for destructive global interdependence in the same areas. This led me to formulate Five Scenarios for the future of the First Global Civilization ranging from a Fragile Future with high degrees of vulnerability in all civilizational domains to a set of Doomsday or Final Futures.
INTRODUCTION The Primary Proposition of this essay is that the 21st century will be marked by the emergence of humankind’s First Global Civilization characterized by high levels of constructive global interdependence in all the main civilizational domains – namely, political, legal, economic, socio-cultural
International Business Scholarship: AIB Fellows on the First 50 Years and Beyond Research in Global Strategic Management, Volume 14, 393–399 Copyright r 2008 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1064-4857/doi:10.1016/S1064-4857(08)00015-6
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(including religious), as well as the arts, science, technology, health and ecology. However, at the same time, the forces of destructive global interdependence are increasing the probability of catastrophes – for example, by the development and potential spread of biological, chemical and nuclear weapons of mass destruction and the unabated increase in global warming such that, within three or four decades, the extinction of Humankind is a serious threat in the 21st Century.
THE FRAMEWORK This race between the constructive forces which promote the First Global Civilization and those destructive forces leading to the Last Global Civilization are embodied in a framework called the Conceptual Heptagon (C.1–C.7) with these key variables: C.1 Identifying Global Civilizational Building Challenges to increase the core values of Sustainability, Humanity, Peace and Justice in each of the Global Civilization Domains and in different Regions of the world (the Americas, Europe, the Middle East, Africa and Asia). C.2 Orchestrating the relevant benevolent stakeholders and reducing the impact of the malevolent ones or transforming them into benevolent partners. The stakeholders include governments, non-governmental organizations, activists, religious and ethnic groups and enterprises (including Transnational Corporations as well as international institutions such as the UN, the World Health Organization (WHO) and the IMF). C.3 Reinforcing the constructive Paradigms and Mindsets of the various stakeholders: (1) Irenic (peace-oriented) over Polemic (war-oriented); (2) Geocentric (World-oriented) over Ethnocentric mindsets; and (3) Symbiotic-Partnership-oriented Mindsets over Industrial-DominantDependent, and De-Industrial-Counter-Dependent mindsets. C.4 Fostering Deep Dialog Drivers over Deep Dialog Deficits between and with the various stakeholders. Deep Dialog Drivers include Bridging, Bonding, Banding, Bounding, Blending, Binding and Building, whereas Deep Dialog Deficits including Fallow, Feeble, Frozen, Failing and Failed elements. C.5 Supporting the building of a collaborative social architecture of the relevant organizations in terms of a collaborative Global Visions Synarchic Governance, a Symbiotic Strategy, a Synergic Culture and a
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Spherical Organization Design. In addition, support is given to a variety of cooperative global and local stakeholder networks. C.6 Facilitating the stages of institutional and individual transformation, for example, through paradigm shifts from dominant-dependent to symbiotic partnerships and from Dialog Deficits to Dialog Drivers with the various stakeholders. C.7 Evaluating progress in terms of metrics and milestones where the former include measurements of the constructive changes described above and where the latter refer to reaching significant stages – for example the shift from an Ethnocentric to a Geocentric (world-centric) mindset. The framework for Meeting Global Civilization Building Challenges was derived from my research and consulting in global enterprises as well as in each of the Global Civilization Domains – with hospitals, cities, the UN and governments in advanced and developing countries as well in the WHO. My main hypothesis is that the 21st century should be considered a Race between the opposing forces leading the First Global Civilization and the Last Global Civilization in all civilizational domains – for example, the race to transform religions to a Reverence for Life as opposed to a Reverence for Death in suicide-bombing.
From a Planetary to a Cosmic Perspective The First Global Civilization includes the human expansion from an exclusive planetary focus to a spatial or cosmic view which began with the International Space station now considering the re-exploration of the Moon and a mission to Mars as well as the building of high colonies in space.
Patterns in the Turbulence As we look to the future and the forces of both constructive and destructive interdependence, three sets of scenarios became evident from current events and trends. The First set of Futures is called Fragile and Fragmented, where the vulnerability to failures in meeting Global Civilization Building Challenges are identified in the various regions of the world and in the civilization domains by organizations such as the International Crisis Group who follow
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inter-religious conflicts manifested in jihadist terror attacks and various Western measures of counter-terrorism. Other sources indicate where enterprise and international investment play a largely constructive role. A second set of Futures has two variations: Fatal Futures involving catastrophes and Final or Doomsday Futures in each Civilization Domain. Examples of Fatal Futures include current manifestations of genocide and global pandemics for which few countermeasures seem adequate. As regards the Final Futures or Doomsday Scenarios, a single scientist could within 20 years, using nanotechnology, alter the earth’s atmosphere thereby leading to the extinction of all of humankind or the widespread use of Chemical, Biological and Nuclear weapons as Destructive Forces starting in the Middle East and moving worldwide into a Final Stage. A third set of futures are called Fertile in the first part of the 21st century and Flourishing in the latter part because of the scale of cooperative behavior worldwide that would lead eventually to the building of a virtual World Community. Here, the role of enterprise is potentially very great to the degree that it promotes constructive global interdependence. Current examples of a Fertile Future are found in 1. Claude Fussler et al. Raising the Bar: The Global Compact project; 2. Scenarios of the UNs Millennium Project and especially a Global Status Report for January 1, 2050; 3. Overcoming Islamic-West Interfaith Deep Dialog Deficits as is attempted by the Tannenbaum Projects; 4. Various projects of The World Economic Forum, especially those of the Young Global Leaders; and 5. The Clinton Global Initiative. Fertile and Flourishing Futures manifest a growing need for Globally Civilized Leadership whose actions contribute to the acceleration of the Constructive Global Interdependence Learning Curves in the 21st century through Deep Dialog and collaborative social architecture. Here we need to include current debates of the stages in the expansion of our Humanity Stages from the exclusively Global Science (Darwinian/ Evolutionary) approach of Richard Dawkins The God Delusion and Francis Collins The Language of God: A Scientist Presents Evidence for Belief and the Global Science of Francis Collins in co-existence with the acceptance of Global Spirituality and the widening respect for the spiritual dignity of all humans, male and female, everywhere in the world. In addition, we should consider the contribution of Kenneth Wilber (Integral Spirituality) and the new frontiers of the Global Civilization presented in
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Cosmos magazine by such persons as P. Mische and M. Merkling Towards a Global Civilization? The Contributions of Religions, to name but a few. In this final section, I must stress the increasing vulnerability of our civilization to even a few people. According to prehistoric research, 22 previous species of humans became extinct, so what are the prospects that a 23rd extinction could happen in the future? Sir Martin Rees in The Final Hour has serious misgivings for Humanity’s survival in the 21st Century in a Universal (Planetary and Cosmic) Future.
BUILDING THE VIRTUAL UNIVERSITY OF THE UNIVERSE I am led to suggest the mobilization of human minds everywhere in the world and in space stations to build a Virtual University of the Universe which would include all higher institutions of learning and whose agenda and curriculum would include works on proposals for Fertile and Flourishing institutions by the mid-21st century. The goal is to build a Social Architecture for an Expanded, Transformed and Transparent Universal Civilization (including Space) with a major role for transnational corporations collaborating toward a Social Architecture for a Universal Human Future. I am encouraged by the results of my students’ proposals for meeting 21st Century Apocalyptic Global Challenges in all Civilization domains. The future curriculum requires Deep Dialog between faculty and students everywhere in the world on the Internet, focusing on such subjects as: 1. Organizing for Worldwide Wisdom and a Universal Human Future toward a First World Community. 2. A Universal Political Community: with peaceful coexistence among Fundamentalist Islam, Western religions and Eastern faiths. 3. The role of the UN and of Universal Law and Security. 4. Developing the world economy with roles for the First World, the defined Second World of Brazil, Russia, India and China, and the Third and Fourth Worlds. 5. Dialogs on the Arts around the world for shared and diverse aesthetic concepts of Beauty in a Universal Human Future. 6. Meeting Global Health Challenges for a Universal Human Future. 7. A Deep Dialog Discussion of Global Demographics Differences of new Male and Female, Young and Old roles in a Universal Human Future.
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8. R&D on Genetics, Robotics, Information Technology and Nanotechnology for a Universal Human Future. 9. Dealing with the Ecological Challenges (including Global Warming) for a Universal Human Future. 10. Facing the Challenges of Colonies in Space in a Universal Human Future.
CONCLUSION Can the Race be Won in the 21st Century, given our increasing vulnerability to competing nations and religions and malevolent individuals who can, for example, mobilize technologies like nanotechnology for apocalyptic futures? What level of surveillance would be necessary if we are to avoid the de-humanizing alternatives of George Orwell’s 1984 and Aldous Huxley’s Brave New World ?
REFERENCES 1. The key ideas in this essay can be found in my book which is in preparation: First or Last Global Civilization? The Race. 2. The Conceptual Heptagon was based on my following publications: a. Paradigms for Societal Transition (with Eric Trist) Human Relations, 1986 b. Digging Beneath Deep Dialog, Optimize Magazine, January 2002 c. On the Rocky Road to the First Global Civilization d. Theory and Practice of Social Architecture (Tavistock, 1965) e. The Tortuous Evolution of the Globally Civilized Enterprise (Texas A&M Laredo) 3. A new wealth of management and related literature for the 21st century is now available. I have found the references below very helpful in envisaging the type of social architecture that will be needed in each of the global civilizational domains: a. Gary Hamel, The Future of Management b. Yoram (Jerry) Wind and Colin Crook, The Power of Impossible Thinking c. Henry Chesebrough, Open Business Models d. Lowell Bryan and Claudia Joyce, Mobilizing Minds
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e. Yochai Benkler, The Wealth of Networks f. James Surowiecki, The Wisdom of Crowds g. Lester Brown, Plan B 3.0 Mobilizing To Save Civilization h. Ken Wilber, Integral Vision i. Don Tapscott and David Ticoll, The Naked Corporation 4. Key ideas on a great variety of future scenarios are found in the UN Millennium Project 2007 and in the State of the Future 2007 by Jerome Glenn and Theodore Gordon. Included in this volume is a Chapter 3 on ‘‘Future Possibilities for Education and Learning’’ which was one useful input to the vision of the Virtual University of the Universe.
AUTHOR INDEX Adler, N.J. 238, 327–328, 331, 335 Agarwal, J. 239 Agarwal, M. 280 Aggarwal, R. 115, 121, 126, 129, 132–133 Agmon, T. 180 Aharoni, Y. 7, 177, 187, 191, 196 Ahour, S. 284, 287 Alashban, A.A. 280, 286, 288 Albach, H. 385 Albaum, G. 230 Albrecht, H. 369 Alchian, A. 127 Alden, D.L. 234 Aliber, R.Z. 196 Al-Laham, A. 377 Amsden, A.H. 183 Anastassopoulos, J.P. 191 Anderson, J.C. 233–235, 242 Andrews, J.C. 240 Angell, N. 298 Arndt, J. 283 Aron, R. 347 Atuahene-Gima, K. 234 Aulakh, P. 351 Axelrod, R. 344 Azevedo, A. 238, 243
Bamberger, I. 381 Barnard, H. 190 Barnes, M.L. 281 Barney, J.B. 260 Bartholomaei, M. 346 Bartlett, C.A. 148, 156, 167, 284 Barua, A. 346 Bassen, A. 381 Batra, R. 234 Baumgartner, H. 230, 239–241 Baumol, W.J. 272 Bausch, A. 378 Beamish, P.W. 156 Beechler, S. 251 Behnam, M. 378, 381 Behrman, J.N. 11, 203 Beije, P.R. 260 Beise, M. 378 Bekaert, G. 132 Bendt, A. 380 Bensaou, M. 237 Berg, N. 263, 380, 382 Bettis, R. 263 Bingham, C.B. 319 Black, J.S. 11 Blanc, G. 191 Blaszczyk, R.L. 107 Blei, C. 381 Boddewyn, J.J. 1, 5–6, 8–9, 11, 15, 192, 230, 280, 283 Boehlecke, B. 240 Bollen, K.A. 234, 243 Bolz, J. 383 Bonin, H. 103 Borghoff, T. 378
Baalbaki, I.B. 280 Backhaus, K. 383 Baden-Fuller, C.W.F. 301 Baggozi, R.P. 5 Balazs, L. 280, 286, 288 Balconi, M. 347 Baldwin, R. 194 401
402 Borrmann, W. 369 Botkin, J.W. 334 Bouneau, C. 103 Boyacigiller, N.A. 238, 251 Boyce, G. 105 Bradley, S. 263 Brewer, L. Th. 11 Brislin, R.W. 240 Brockhoff, K. 377 Brodel, D. 377–378 Bu¨schgen, H.E. 383 Bu¨schken, J. 383 Bo¨ttcher, R. 380 Buckley, P.J. 2, 5, 8, 116, 156–159, 162, 164–165, 178, 180, 190, 336 Bull, J. 343 Ba¨urle, I. 373 Burt, R.S. 235 Butler, K.C. 336 Buzzell, R.D. 146, 282 Cadotte, E.R. 323 Cailluet, L. 103 Cairncross, F. 119 Calantone, R.J. 230, 233, 240 Cantwell, J. 190 Carlos, A. 104 Casson, M. 156–159, 162, 164–165, 178, 180 Caves, R. 103 Caves, R.E. 133, 159 Cavusgil, S.T. 149, 186, 231, 235–238, 240–241, 283–284, 289–290 Chanda, N. 360 Chandler, A.D. 101–102, 360 Chandra, A. 286, 288 Chapman, S. 104 Chesbrough, H. 348 Christensen, C.M. 146 Chung, H.F.L. 280, 287 Churchill, G.A. 234 Clegg, J. 190 Clemons, E. 347
AUTHOR INDEX Coase, R. 164 Cohen, W. 356 Colberg, W. 371 Contractor, F.J. 156, 170, 339, 342, 346, 352–353, 355 Cooperrider, D.L. 332 Copeland, M.V. 186 Cornejo, O. 281 Cowan, R. 347 Coyne, M. 237 Craig, C.S. 139–140, 144, 149–151, 230, 237, 239–240 Craig, S.C. 283 Crawford, R. 127 Cross, A. 190 Cross, J. 262 Csikszentmihalyi, M. 334 Cunningham, I. 282 Cunningham, W. 282 Dalsace, F. 260, 266, 269, 272–273 Dane, E. 261 Daniels, J.D. 252 Das, T. 340 David, K.T. 191, 283 David, P. 347 Davis, H.L. 240 D’Cruz, J. 169 De Soto, H. 130 Delaforce, P. 281 Deligonul, S. 231 Deschampsneufs, H. 281 Devellis, R.F. 240 Da¨hn, M. 370, 377 Diamantopoulos, A. 236 Diamond, J. 334 Dichtl, E. 371 Dinardo, J. 237 Dion, M. 193 Dix, L.F. 280 Du¨lfer, E. 377, 382 Doig, S.J. 260 Donnelly, J.H. 282
Author Index
403
Doremus, P. 194 Douglas, S.P. 139–140, 144, 149–151, 230, 237, 239–240, 283 Dowling, P.J. 383 Doz, Y. 167, 349 Drazin, R. 261 Drost, E.A. 238, 243 Dunning, J.H. 109, 158, 163–164, 184–185, 187, 247–248, 256, 267, 346 Durnev, A. 131 Durvasula, S. 240 Dvorak, T. 131
Finnegan, D.A. 235–238, 240–241 Fisch, J.H. 380–381, 383 Fliess, B. 359 Fligstein, N. 132 Foray, D. 347 Fornell, C. 234 Foss, N.J. 147 Fowler, J. 345, 352 Franko, L. 101 Frehse, J. 381 Friedman, T. 132 Friesen, P.H. 373 Fukuyama, F. 130
Eckert, S. 381–382 Eden, L. 1, 157 Einhorn, B. 142 Eisenhardt, K.M. 319 Eiteman, D. 117 Elinder, E. 281–282, 289 Elkind, P. 329 Elmandjra, M. 334 Engardio, P. 141 Engelhard, J. 370, 372, 377, 382 Erramilli, M.K. 275 Escher, F. 352 Estelle-Holmer, S. 360 Ettinger, K.E. 281 Evans, P. 192 Ewing, J. 148
Galtung, J. 372 Gassenheimer, J.B. 230, 233, 240 Gemu¨nden, H.G. 378 George, V. 352 Gerber, S. 370 Gerbing, D.W. 234–235, 242 Gerybadze, A. 378 Ghemawat, P. 148, 161, 171 Ghoshal, S. 148, 156, 167, 284 Gibb, G.S. 98 Gibson, C.B. 236 Gibson, S. 356 Gilbert, D.U. 378, 381 Glaum, M. 377 Goldbrunner, T. 349 Goldstein, A. 190 Gonzalez-Padron, C.A. 235–238, 240–241 Goodell, J. 133 Gopalan, R. 126 Gordon, K. 359 Gottfredson, M. 260 Govindarajan, V. 147 Grace, C. 351 Granovetter, M. 130 Green, R. 282 Green, R.T. 230 Griffith, D.A. 229, 239, 279–280, 286, 288
Faccio, M. 132 Fagerberg, J. 256 Farbigar, F.R. 234 Farrell, D. 274, 346 Farrell, R. 182 Fatt, A.C. 281, 289 Featherstone, M. 145 Feeny, D.F. 260 Fernandez, A. 103 Ferraro, F. 328 Festing, M. 377, 380, 383 Fieldhouse, D.K. 102, 105
404 Griffith, D.J. 235–238, 240–241 Grosse, R. 6, 11 Guillen, M. 190 Guiso, L. 130 Gupta, A.K. 147 Halliday, F. 297, 306 Hamann, H. 380 Hambrick, D.C. 261 Hamel, G. 263, 358 Harley, C.K. 136 Harmancioglu, T.L. 235–238, 240–241 Harris, G. 284, 287 Hart, O. 127–129 Hart, S. 146 Harvey, C.R. 132 Harvey, M.G. 239, 284, 288–289 Hattie, J. 234 Hausman, W. 103, 105, 109 Hayes, L. 280, 286, 288 Hein, S. 380 Heinen, H. 370 Helgesen, T. 283 Hellauer, J. 367 Henderson, B.L. 132 Henderson, D. 253 Henisz, W.J. 251 Hennart, J-F. 157–158, 165 Hertner, P. 103, 105, 109 Hidy, M. 98 Hidy, R. 98 Hill, F.E. 98 Hill, J.S. 283–284 Hilmer, F.G. 262 Hirst, P. 194 Hitt, G. 194 Hoff, E.J. 283 Hoffmann, C.D. 369 Hofstede, G. 129 Hollander, S.C. 280 Holmstrom, B. 129 Holtbru¨gge, D. 378, 380–382
AUTHOR INDEX Holzmu¨ller, H.H. 371, 377 Hong, H. 130 Horn, J.L. 239 Hornik, J. 283 Hsieh, C.M. 260 Hsu, C. 156, 170 Huang, N. 235–238, 240–241 Hult, G.T.M. 235–238, 240–241 Hunt, S. 289 Hymer, S.H. 157, 162, 185 Iwasa, T. 347 Iyer, G. 5–6, 9 Jackson, R. 193 Jahrreiss, W. 371 Jain, S.C. 146, 279, 283–284, 288–290 James, W.L. 284 Jegadeesh, N. 132 Jiang, J. 280, 285 Jin, L. 131 Johansson, J.K. 284 Johnason, J. 185, 189 Johnston, J. 237 Jones, D.G.B. 280 Jones, G. 98–99, 103–106, 108–109 Joreskog, K.G. 243 Juhl, M. 369 Kabst, R. 381 Kaka, N. 346 Kale, S.H. 283 Kammer, K. 381 Kan, L. 131 Kanso, A. 280, 284–285 Kaplan, A. 241 Kapur, D. 183, 186 Kaspar, H. 371 Kaynak, E. 283 Keegan, W.J. 282–283 Keller, W.W. 194 Ketchen, Jr. 235–238, 240–241
Author Index Ko¨glmayr, H.-G. 371 Khanna, T. 98–99, 105–106, 108, 196 Kindleberger, C.P. 159, 162, 180, 197 Kinugasa, Y. 101 Kirpalani, V.H. 280 Kitchen, P. 280, 285 Klein, B. 127 Knight, G.A. 186 Knowlton, E.H. 98 Kogut, B. 156, 168 Kokko, A. 197 Kornmeier, M. 378, 382 Kotabe, M. 259–260, 262–265, 269–270, 272–273, 351 Kravis, J.B. 371 Kreikebaum, H. 378 Kripalani, M. 274 Krist, M. 378 Krott, M. 360 Kubik, J.D. 130 Kuhn, T. 329 Kulhavy, E. 383 Kumar, B. 369 Kumar, V. 233, 238 Kundu, S.K. 156, 170 Kutschker, M. 373, 382 La Porta, R. 130, 132 Lacity, M.C. 260 LaFraniere, S. 333 Larcker, D.F. 234 Laroche, M. 280 Lash, S. 145 Layard, R. 252 Lazzarini, S.G. 260 Lei, D. 261 Leiblein, M.J. 260, 266, 269, 272–273 Lenway, S. 1 Lessard, D.R. 2, 5, 8, 336 Leung, K. 240 Levine, R. 123
405 Levinthal, D. 356 Levitt, T. 146, 156, 166–167, 280, 283 Levy, D.L. 260 Levy, O. 251 Lewin, A.Y. 273 Li, H. 234 Li, S. 191 Lindner, D. 380 Lindsey, N.A.M. 281–282 Link, W. 378 Lins, K.V. 123 Loh, L. 262 Lonner, W.J. 240 Lopez-de-Silvanes, F. 130, 132 Lorange, P. 342, 346 Lu, J.W. 156 Luhmann, N. 130 Lundan, S. 109, 256 Lysonski, S. 240 MacCallum, R.C. 234 Macharzina, K. 365, 371–372, 377, 379–380, 382–383 Madhok, A. 129 Malhotra, N.K. 239, 280 Malitza, M. 334 Mani, D. 346 Marcus, C. 281 Markides, C.C. 263 Markoff, J. 142 Martin, P. 194 Marzagalli, S. 103 Masulis, R.W. 132 Mathews, J.A. 188 McConnell, J.J. 132 McLean, B. 329 Meckl, R. 377, 379, 383 Meffert, H. 383 Meissner, H.G. 369–370 Messick, S. 238 Metiu, A. 352 Meuller, S.L. 190 Mian, A. 131
406 Miles, R.E. 265 Miller, D. 373 Miller, S. 157 Mintu, A.T. 230, 233, 240 Miskell, P. 106 Mu¨ller, S. 371, 378, 382 Mu¨ller-Camen, M. 379 Moffet, M. 117 Mohanty, S. 132 Mol, M.J. 273 Mol, M.J. 259–260, 265, 271–272 Monczka, R.M. 264 Morck, R. 131, 133 Morris, T. 240 Morrison, A.J. 148 Morschett, D. 379, 382 Moss, A.P. 233 Mo¨sslang, A.M. 381 Mueller, U. 343 Mullen, M.R. 230, 238–240, 243 Murphy, C. 142 Murray, J.Y. 259, 265, 269–270 Myers, D. 334 Myers, M.B. 230, 239–240 Myers, S. 131 Nakata, C. 236 Nanda, V. 126 Narayana, C.L. 282 Nelson, R. 340 Netemeyer, R.G. 240 Nicholas, S. 104 Nickerson, J.A. 260 Nijssen, E.J. 150 North, D.C. 126 Nowak, M. 345–346 Nunnally, J. 234 Oberparleiter, K. 367 Odagiri, H. 347 Oechsler, W.A. 377 Oesterle, M.-J. 377, 383
AUTHOR INDEX Oh, C.H. 166 Ohmae, K. 194 Okazaki, S. 280, 285, 288 Olson, M. 133 Omura, G.S. 262 Onkvisit, S. 284 Ostler, N. 357, 360 Oxelheim, L. 118 Page, T.J. 230, 240 Palepu, K. 196 Parameswaran, R. 240, 283 Park, S.H. 191 Paul, T. 378 Pauly, L.W. 194 Peebles, D. 281–282 Peeters, C. 273 Peng, M.W. 11, 336 Perlitz, M. 371, 382 Perlmutter, H.V. 393 Peske, T. 383 Peter, J.P. 234 Peters, R. 379 Petersen, T. 147 Peterson, R.A. 230 Pfeffer, J. 328 Phillips, S. 260 Picard, J. 280, 283 Pierce, B. 357 Pierre, D. 191 Pieterse, J.N. 145 Pons, F. 280 Poole, M.S. 373 Porter, M.E. 196 Powell, W. 352 Pradhan, J.P. 183 Prahalad, C.K. 142–143, 358 Pratt, E.E. 282 Pratt, M.G. 261 Pravett, C.M. 240 Prescott, J.E. 268 Pritchard, W. 190 Propson, C.F. 281
Author Index Pulley, B. 350 Purushothaman, R. 141, 306 Puryear, R. 260 Quelch, J.A. 283 Quinn, J.B. 262 Raddatz, C. 123 Rajan, R.G. 133 Ramamurti, R. 177, 183, 186, 192 Randoy, T. 118 Rangan, S. 267 Rank, O.N. 380 Rao, C.P. 275 Rassuli, K.M. 280 Reader, W.J. 102 Reddi, S. 347 Reich, R.B. 197 Reich, S. 194 Reinhardt, A. 142 Rensberger, B. 344 Renz, T. 377 Reuer, J.J. 125, 260, 266, 269, 272–273 Reynolds, N.L. 236 Ro¨h, C. 380 Rhodes, M. 190 Ricks, D.A. 283 Riedl, C. 380 Risak, J. 373 Ritter, R.C. 260 Roberts, J. 129 Rosenkopf, L. 352 Rosenzweig, P.M. 9 Roth, K. 148 Rourke, M. 331 Roxin, J. 377 Rugman, A.M. 129, 155–156, 158–162, 164–171, 189, 196 Ruigrock, W. 377 Ryans, J.K. 279–280, 282, 286, 288 Sachs, J. 343 Sahay, A. 351
407 Sahoo, M.K. 183 Salo, S. 350 Salzberger, T. 236 Sapienza, P. 130 Saxenian, A. 186 Scherer, A. 378 Scherle, N. 381 Scherm, E. 383 Schleglmilch, B.B. 236, 378 Schmid, S. 373, 377, 382 Schmidt, J.B. 240 Schmidt, S. 373 Schneider, K. 369 Scholz, C. 379 Scholz, J. 378 Schramm-Klein, H. 365, 383 Schrank, R. 383 Schro¨ter, H. 109 Schuler, R.S. 383 Schulte, A. 381 Schwarz, N. 238 Schwens, C. 381 Scranton, P.B. 107 Sekaran, U. 230, 239–240 Seligman, M.E.P. 334 Seru, A. 126 Servan-Schreiber, J.J. 192 Seyda Deligonul, Z. 229 Shapiro, C. 355 Shaw, J.J. 284 Shenkar, O. 2, 230, 247 Sheth, J.N. 283 Shleifer, A. 130, 132 Sigmund, K. 345–346 Silk, A.J. 240 Simintiras, A.C. 236 Simmonds, K. 283 Simon, H. 366 Singh, J. 230, 240–241 Sinkovics, R.R. 236 Sivakumar, K. 236 Smith, A. 341, 360 Smith, S. 348–349
408 Snow, C.C. 265 Soehl, R. 280, 283 Solberg, C.A. 280, 287 Sonenshein, S. 332 Song, F. 132 Song, X.M. 240 Sonndorfer, R. 367 Sorbom, D. 243 Sorenson, R.Z. 282 Specker, T. 381 Speckhals, K. 260 Sperber, A.D. 240 Spreitzer, G. 332 Srhofee, M. 256 Stavros, J.M. 332 Steenkamp, J.-B. 230, 234, 239–241 Stein, J. 130 Steinmann, H. 378 Stiglitz, J.E. 191 Still, R.R. 283 Stonehill, A.I. 117–118 Stopford, J.M. 101, 170, 295, 301, 304 Strange, S. 304 Strickland, D. 123 Sto¨ttinger, B. 378 Studt, T. 348 Stulz, R.M. 132 Sturze, S. 346 Su¨X, S. 383 Sudharshan, D. 283 Sullivan, D.P. 252 Sundaram, A.K. 11 Sutton, R.I. 328 Swamidass, P.M. 264 Sweiger, D.M. 148 Swoboda, B. 365, 382–383 Talay, Y. 235–238, 240–241 Tamer Cavusgil, S. 229 Taylor, C.R. 230, 240 Taylor, G.R. 280, 285, 288
AUTHOR INDEX Taylor, S. 251 Tempel, A. 379 Teng, B. 340 Terpstra, V. 283 Thomas, A.S. 190 Thompson, G. 194 Thorelli, H. 309 Thorndike, R.M. 240 Tong, T.W. 125 Trent, R.J. 264 Tsurumi, Y. 101 Uchino, B.N. 234 Vahlne, J.-E. 185, 189 Van de Ven, A.H. 261, 373 van de Vijver, F. 240 Van Tulder, R.J.M. 260, 377 Varian, H. 355 Veldhoen, S. 349 Venkatraman, N. 237, 262 Verbeke, A. 129, 155, 159–160, 162, 165–168, 171 Vernon, I.R. 282 Vernon, R. 158, 170, 181, 185, 191, 303–304, 352 Vishny, R.W. 130, 132 Vladimir, I.A. 281 Voeth, M. 383 Voss, H. 190 Wagenhofer, A. 383 Wagner, D.T. 234 Wald, A. 380 Wa¨chter, H. 379 Weber, W. 377, 383 Wei, R. 280, 285 Weisbach, M.S. 132 Weisman, A. 334 Welge, M.K. 377–379, 382 Wells, L. 170 Wertheimer, S. 330 Whinston, A. 346
Author Index White, J. 349 White, P.D. 230 White, R. 357 Whitman, M.v.N. 107 Whitney, D. 332 Wu¨hrer, G.A. 373, 379 Wiechmann, U.E. 282 Wilcox, T. 343 Wildt, A.R. 269 Wilkins, M. 97–101, 103–106, 108–109, 180 Willcocks, L.P. 260 Williamson, O.E. 128, 157, 164, 267, 270, 346 Williamsson, K. 360 Wilson, C. 98, 101, 104 Wilson, D. 141, 306 Wilson, K. 349 Wind, Y. 283 Winter, S. 340 Wolf, J. 379–380, 382–383 Wolf, M. 193 Wolfenzon, D. 133 Woolson, D. 260 Wrona, T. 378, 381
409 Wu, T. 239 Wu, W. 131 Yaprak, A. 231, 240, 283 Yergin, D. 180 Yeung, B. 131, 133 Yip, G.S. 156, 166–167, 284, 301 Yonekawa, S. 101 Yoshino, M.Y. 101 Zaby, A.M. 380 Zaheer, S. 8, 157, 185 Zander, U. 156, 168 Zenner, M. 123 Zentes, J. 382–383 Zhao, S. 129 Zheng, P. 190 Zhou, J.N. 269 Zhou, L. 280 Zingales, L. 130, 133 Zinkhan, G.M. 280, 286, 288 Zong, S. 126 Zou, S. 149, 280, 283–285, 288–290
SUBJECT INDEX Advantages, 6, 100, 125, 129, 133, 135, 141, 151, 157–158, 160–162, 164, 180, 184–185, 188–190, 192, 195–197, 203, 206–207, 259, 261–262, 265–266, 274, 298, 313, 353, 371, 377 Alliance capitalism, 251, 346 Arbitrage, 7, 160–161, 171 Arts, 359, 394, 397
Academy of International Business, 1, 15–17, 31, 36, 70–71, 74, 77, 81–82, 93, 97, 324, 335 Adaptation, 145, 158, 160–161, 208, 226, 279–285, 287–290, 349, 372 AIB Fellows, 1–2, 4–5, 11, 15–19, 21, 23, 25, 27, 29, 31, 33, 35, 37, 39, 41, 43, 45, 47–49, 51, 53, 55, 57–61, 63, 65, 67, 69–71, 73, 75, 77, 79, 81–85, 87, 89, 91, 93, 95, 97–99, 108–109, 115, 139, 155, 177, 203, 229, 247, 259, 279, 295, 309, 327, 339, 365, 383, 393 Constitutions, 250 Deans, 32, 34, 36–38, 45, 52, 63–64, 66, 76, 80, 84, 92 Deceased Fellows, 47, 78, 91 Elections, 22, 30, 37, 39–40, 42–43, 45–46, 50, 54, 60, 62–65, 72–73, 77 Eminent Scholars, 1, 15, 29, 41, 51–52, 56, 63, 66, 75–76, 92 History, 10–11, 15, 17, 19, 21, 23, 25, 27, 29, 31, 33, 35, 37, 39, 41, 43, 45, 47, 49, 51, 53, 55, 57, 59, 61, 63, 65, 67, 69–71, 73, 75, 77, 79, 81, 83, 85, 87, 89, 91, 93, 95, 97–109, 156, 223, 227, 334–335, 342, 345, 353, 356, 359 Inactive Fellows, 26, 91 International Deans and Educator of the Year, 55 International Executives of the Year, 34, 39, 92 Participating Fellows, 10, 50, 53, 79, 81, 84, 89–90
Balance, 11, 45, 125, 129, 140, 167, 182, 208, 214, 220, 259–261, 265, 267, 270–272, 284, 313, 315, 320 Branding, 160, 165, 343 Bribery, 221 Bureaucracy, 215, 266 Business Administration, 365–369, 377, 382, 385 Business-Government relations, 3, 9, 11 Capabilities, 3, 139–140, 146–147, 149, 159, 162–163, 165–166, 168–169, 171, 181, 207, 219, 248–249, 251–252, 254, 260, 340–341, 345, 358 Capital Markets, 177, 186, 195, 305, 375 Causality, 295 Centralization, 3, 8, 11, 284 Civilizations, 10, 339, 359, 393–397 Civil society, 52, 204, 211, 213, 222–223 Codes of Conduct, 205, 228, 359 Configuration, 139, 149, 151, 374, 379 Collaboration, 142, 205–208, 225, 255, 302, 340, 349, 353, 379 Commensurability, 229, 231–233, 239, 241–242
411
412 Communication, 5, 8, 47, 100, 104, 118–119, 135, 148–149, 185–186, 195, 206, 208, 220, 251–252, 264, 266, 324, 345–346, 355–356, 359, 366 Community, 11, 143–144, 203–204, 206–209, 212–213, 221–222, 225–227, 274, 282, 297, 334, 385, 396–397 Community of Interests, 203, 206, 227 Competition, 7, 134, 140–141, 145, 148–149, 183, 185, 190, 192, 208, 219, 226, 262–263, 275, 284–286, 288, 340, 343, 349, 357 Competitiveness, 187, 205, 217–219, 251, 255, 267, 301, 342 Conditions, 5–8, 26, 124, 140, 146–148, 150–151, 162, 166, 170, 206, 211, 218–220, 225, 228, 230, 241–242, 272, 287, 298, 305, 340, 349, 356, 378 Configural Advantage, 139–140, 148–150 Conflict, 121, 209, 226, 303, 331, 361 Control, 45, 64, 99–100, 104, 106, 116, 123–124, 127, 159, 168, 170, 192, 207, 212, 214, 222, 227, 249, 285, 312–313, 333, 353–355, 375–376, 379 Cooperating Networks, 339, 342 Cooperation, 4, 10, 35, 69, 207–208, 214, 225, 262, 322, 339–347, 349–353, 355–361 Coordination, 45, 100, 104, 168, 171, 262, 275, 341, 343, 349, 375, 379–380 Corruption, 135, 210–211, 216, 221–222, 372, 382 Cultural Diversity and Heterogeneity, 139 Culture, 11, 105, 115–117, 122, 124–125, 135, 144–146, 150–151, 204, 212, 214, 222–224, 238, 256, 283–285, 289, 303, 306, 340, 344, 357, 377, 379, 394 Currencies, 182, 320
SUBJECT INDEX Decentralization, 3, 284 Developed Markets and Economies, 132, 139, 141, 151 Divestment, 4–8, 11, 373, 381 Doomsday scenario, 396 Ecology, 220, 394 Economic development, 31, 52, 163, 249, 351 Economics, 2–3, 41, 51, 54, 92, 115, 119, 126, 128, 132–133, 158–159, 162, 164–165, 171, 204, 256, 267, 271, 298–302, 304–305, 311–312, 315, 328, 340, 365–367, 375, 377 Education, 10–11, 15, 17, 19–20, 23, 26, 49, 63, 65, 67, 71, 77, 82, 219, 250, 286, 288, 297, 306, 309–311, 313, 315, 317, 319, 321, 323, 331, 369, 385 Efficiency, 6, 127, 143, 150–151, 156, 158, 163–165, 177, 182, 187, 197, 206, 226, 273, 343, 359, 379 Emergining markets and economies, 139 Entrepreneurship, 219, 250, 315, 320, 324, 378, 381 Environments, 116, 124–125, 127, 129–130, 148, 205, 209, 223, 248, 252, 261, 269, 328, 341, 373 Ethics, 209, 255, 378 Ethnocentrism, 394–395 Evolutionary perspective, 339 Exports, 6, 165, 180, 182, 185–186, 192, 216, 219, 248, 256, 330, 367–368, 371 Final Futures, 393, 396 Final products, 262 Firm-specific advantages, 157, 161, 185, 189, 196 First global civilization, 393–395
Subject Index Fit, 7, 11, 17, 45, 101, 103–106, 134, 168, 189, 208, 259, 261, 268–272, 274, 283, 343, 371–373 Foreign Direct Investment, 2, 6–7, 9, 44, 48, 55, 133, 157–158, 164, 178, 193, 204, 248, 298, 345, 367, 371, 384 Geocentrism, 394–395 Geography, 52, 255, 340 German-speaking countries, 365 Global civilization, 10, 339, 359, 393–397 Global Marketing Strategy, 139–141, 143, 145, 147, 149, 151 Globalization, 1, 10, 48–49, 52, 69, 99, 106, 118–122, 130, 136, 156, 160, 166, 179, 182, 186, 191, 193–194, 197–198, 203–228, 252, 255, 273, 295–298, 303, 305–306, 372, 374–378, 381, 383–384 Governance, 9, 105, 124, 132, 135, 157–158, 165, 168–169, 171, 210, 227, 249, 251–252, 254, 287, 372, 394 Government, 3, 9, 11, 20, 24, 100, 102, 105, 108, 131, 148, 157, 162–164, 177, 182–183, 190–193, 195, 203, 205, 210–212, 214–216, 221, 225–226, 284–285, 300, 302–303, 306, 314, 324, 353, 355, 357–358 Hedging, 322 Hierarchies, 6, 305, 341, 360, 374 Human environment, 248, 250, 252 Human resources, 148, 369, 371, 375, 380, 382 Imports, 165, 367 Incentives, 209, 250, 266, 305, 353–354 Information, 31–32, 55, 57, 119–120, 126–128, 131, 142–143, 147–148, 157, 160, 195, 216–217, 226, 249, 251, 255, 262–263, 271, 284, 298, 310, 312–313, 320, 345, 372, 375, 380, 398 Innovation, 41, 59, 69, 146, 164, 195, 265, 347–348, 358, 377–378, 383
413 Insight, 295–297, 299, 301, 303, 305–306 Institutional theory, 253, 335 Integration, 2, 122, 129, 131–132, 149, 157, 167–168, 192, 203–209, 212, 216–218, 220, 223–224, 226–227, 254, 256, 259, 266, 283, 315, 345–347, 355, 358, 360, 367, 378, 380, 384 Interdependence, 204, 209, 222, 239, 252–254, 298, 393–396 Intermediate products, 157, 262, 264, 266 International business, 1–4, 10–11, 15–22, 29–32, 35–36, 40, 49, 51, 55, 59–60, 65–67, 70–72, 74, 77–78, 81–82, 92–93, 95, 97–99, 101–103, 105–109, 115–117, 119, 121–123, 125, 127, 129, 131, 133–135, 139, 155–157, 159, 161–162, 167, 171, 177, 184, 203–204, 229–233, 235, 237, 239, 241, 247, 259, 267, 279, 295–296, 302, 305, 309–310, 324, 327, 333–336, 339, 365, 369, 372, 377, 382, 393 Education, 1, 15, 16, 17, 31, 36, 70, 71, 74, 77, 81, 82, 93, 97, 324, 335 History, 97, 98, 99, 101, 103, 105, 107, 108 Research, 11, 40, 203, 229, 231, 232, 233, 235, 237, 239, 241, 295 Scholarship, 1, 15, 29, 60, 97, 115, 122, 139, 155, 177, 203, 229, 247, 259, 279, 295, 309, 327, 334, 339, 365, 393 Strategy, 159, 162 International finance, 37, 105, 131–132, 324, 378, 381, 383 International management, 3, 9, 49, 165, 302, 365, 368, 382–383 International marketing, 30, 146, 151, 279, 286, 383 International strategic management, 382
414 Internationalization, 15, 25, 31–32, 37–38, 51, 56, 67, 170, 177, 179–181, 183, 185–187, 189, 191, 193, 195, 197–198, 254, 266, 306, 370–371, 373–375, 377–378, 380–381, 383–384 Interorganizational cooperation, 339–341, 343, 345, 347, 349, 351, 353, 355, 357, 359–360 Joint ventures, 9, 158, 171, 191, 265, 322, 343, 349, 358, 369, 377 Knowledge, 2–4, 32, 66, 71, 77–78, 100, 103, 107, 117, 119, 125, 135, 147, 157–158, 162–163, 168–169, 171, 177, 179, 186, 190, 192, 194–195, 197, 216, 238, 249–252, 261, 263–264, 271–272, 287, 333, 341, 346–348, 351, 353, 355–356, 358–360, 365,367, 369, 371, 373, 375, 377–381, 383, 385 Labor, 7, 65, 124, 150, 162, 183, 187, 219, 228, 249–250, 263–264, 323, 359, 375 Leadership, 7, 29–30, 32, 39, 42, 48, 59–60, 63–67, 71, 74, 77, 102, 149, 207, 209, 211, 214, 223, 225, 302, 306, 328, 330, 396 Learning, 8, 10, 139, 141, 146, 168, 250, 252, 255, 271, 297, 309, 312–313, 315, 323–324, 328, 330, 334, 341, 352, 377, 396–397 Licensing, 6, 158–159, 164, 171, 265, 322, 342–343, 346, 349, 351, 353, 358 Location-specific advantages, 161 Logistics, 100, 261–262, 272, 324, 367 Manifest destiny, 10, 339–341, 343, 345, 347, 349, 351, 353, 355, 357, 359, 361 Market, 3, 6–7, 9, 106, 119–120, 124, 127–129, 132–136, 139–151, 157–159, 163–164, 177, 179, 181, 183, 185, 192, 194, 196, 203–205, 207, 209, 213, 216–217, 220, 222, 226–228, 250, 253,
SUBJECT INDEX 264, 269–270, 281, 283–287, 289, 297–299, 301, 310, 312, 315–317, 341, 346, 349–350, 352–354, 356, 360, 371, 373, 376–377, 380, 382, 385 Economies, 139, 209 Failures, 157, 192, 194, 253, 346 Imperfections, 133, 134, 159, 163, 164 Signals, 124, 203, 220, 222, 226 Marketing mix, 149 Motivations, 5, 7–8, 129 Multinational Enterprises, 3, 98–99, 101–102, 105–106, 108, 211, 228, 248, 303 Boundaries, 106, 115, 145, 149–150, 253 European, 101 History, 101, 105, 108 Japanese, 101, 102 Internationalization, 369, 373, 377, 379, 384 U.S., 99 Networks, 104–105, 143–144, 159, 171, 177, 180, 195, 226, 232–233, 251, 254, 267, 271, 305, 316, 339–342, 348, 356, 359, 374, 377, 395 Offshoring, 3, 26, 260, 262–263, 266– 267, 270–275 Organizational design and structure, 155–156 Outsourcing, 103, 140, 148, 150, 259– 263, 265–266, 268–275, 322, 327, 343, 346–347, 356 Ownership advantages, 158, 180, 184, 196 Performance, 6–8, 11, 33, 106, 147, 156, 169–170, 248, 259–261, 263–274, 284–285, 287, 289, 303, 311–312, 314–316, 319, 329, 346, 371, 378–379, 385 Physical environment, 248–249, 256
Subject Index Political risk, 124, 135 Power, 3, 6, 22, 92–93, 105, 118, 132, 142–143, 150, 181, 191–193, 204, 213–214, 216–217, 226–227, 264–265, 297–298, 300, 304, 311, 328, 352, 360 Practical action, 295 Precipitating circumstances, 5, 8 Prices, 7, 124, 131, 142–143, 146, 182, 186, 217 Property rights, 105, 126, 130, 163, 204, 210, 349, 351 Public policy, 108 Purchasing, 132, 158, 191, 330, 381 Raw materials, 124, 183, 262, 264, 266 Reality systems, 309 Regions, 103, 147, 158, 160–161, 166, 170, 189, 264, 314, 366, 376, 382, 393–395 Regulation, 7, 11, 145, 164–165, 192, 205, 236, 250, 298, 301, 353 Relationships, 9, 25, 64, 66, 102–106, 127, 140, 150, 166, 195, 203, 217, 220, 224, 226–227, 230, 233, 241, 253–254, 269, 290, 305, 311, 342, 346, 349, 355, 379–380 Reputation, 6, 250, 324, 345–346 Research methodology, 290 Resources, 3, 6–7, 116, 124, 128, 133, 136, 139, 141–142, 144, 146–151, 171, 180, 183, 191–192, 195, 197, 205–207, 214–215, 218, 220–221, 226, 248–254, 261, 263, 269, 304, 347–348, 355, 367, 369, 371, 375, 380, 382 Responsiveness, 160, 165, 167, 236 Rigor, 229–231, 233, 235, 237–239, 241–242, 282, 295–297, 377 Risk, 7–8, 31, 47, 108, 124–125, 130, 133, 135, 150, 159, 193, 217, 220, 242, 253, 272, 333, 342–343, 346, 348, 350, 358, 360, 376
415 Scenarios, 393, 395–396 Services, 41, 56, 58, 60, 105, 120, 141, 149, 160, 183–186, 190, 194–195, 206, 210, 217, 219–220, 248, 255, 260, 262–263, 266, 269–270, 275, 282, 320, 342, 346–347, 355–356, 360 Shareholders, 210, 253, 320, 360 Simulation, 10, 309–315, 317–324, 346 Social architecture, 394, 396–397 Social capital, 130, 251, 255 Social responsibility, 205, 253, 359 Sourcing, 11, 100, 143, 147, 150, 219, 259–275, 313, 315, 359 Stakeholders, 255, 394–395 Standardization, 146, 218, 239, 279–290 Strategic alliances, 195, 377 Subsidiaries, 123–124, 158–160, 165, 170–171, 180, 182, 195, 249, 262, 285–286, 347, 356, 379–381 Success, 11, 41, 66, 105–106, 120, 149, 162, 168, 205, 213, 251, 254–255, 260, 281–282, 313, 327–328, 333–335, 344, 349, 357–358, 371, 377–381 Supply Chains, 105, 186, 253, 259, 262, 264, 327, 343 Tariffs, 185, 191, 219 Technology, 20, 69, 92, 101, 115, 117– 123, 125, 127, 129, 135, 139, 142–143, 147, 149, 159–160, 168–169, 177, 181, 192, 194, 207, 211, 216, 218–219, 221, 225, 228, 249, 262–263, 271, 286, 288, 296, 298, 312–313, 342, 345, 349–351, 353, 356, 358, 369, 371, 394, 398 Theory, 3, 7, 9–10, 31, 51, 98, 117, 125, 128, 133–134, 155–161, 163–167, 169–171, 187, 189, 196–197, 227, 230–234, 239, 242, 253, 261, 272, 279–280, 284, 286, 289, 295–297, 299, 301, 305–307, 310–311, 319, 323, 335, 368, 372, 375, 378 Eclectic Paradigm, 2–5, 158, 161, 163
416 Industrial Organization, 2, 7, 159, 210, 271 Institutional, 7, 115–116, 124–125, 127, 129–131, 134, 155–158, 162, 167, 210, 247, 250, 252–255, 264, 267, 271, 335, 351, 365, 368, 370, 372, 378, 382, 384–385, 395 Intermediate, 3, 5, 8, 157, 169, 262, 264, 266 Internalization, 3–4, 6, 9–10, 128, 155–167, 169–171, 345–346, 353, 355, 358, 371 Transaction-cost, 3, 9, 115, 126, 128, 171, 269, 271, 335, 371, 380 Universal, 9, 105, 117, 150, 281, 300, 307, 328, 397–398 Training, 35, 219, 224, 250, 297, 313 Transaction-cost economics, 3, 171, 271 Transnational solution, 156, 166–168 Transparency, 108, 130–131, 210–211, 216, 250 Transportation, 63, 120, 148, 166, 261, 266
SUBJECT INDEX Trust, 105, 130, 133–135, 208, 218, 250–251, 341, 345 Truth, 5, 332, 361 Uncertainty, 127, 157, 217, 264, 266, 269–270, 274, 376 Validity, 229–232, 234–235, 237–240, 242, 290 Value added, 265, 353 Value creation, 304, 382 Values, 7, 52, 130–132, 145, 164, 204, 207, 209, 211, 223–226, 238, 254, 355, 372, 394 Vertical integration, 129, 259, 346, 355, 358, 360, 378 Virtual reality, 10, 309–313, 315, 317, 319, 321, 323 Virtual university, 397 Wealth creation, 249, 255
