Showing papers on "Multinational corporation published in 1995"

Overcoming the Liability of Foreignness

Abstract: This study addressed the question of whether firms in a competitive, globally integrated environment face a “liability of foreignness” and to what extent either importing home-country organizational capabilities or copying the practices of successful local firms can help them overcome this liability. Predictions were tested with a paired sample of 24 foreign exchange trading rooms of major Western and Japanese banks in New York and Tokyo. Results support the existence of a liability of foreignness and the role of a firm's administrative heritage in providing competitive advantage to its multinational subunits. They also highlight the difficulty firms face in copying organizational practices from other firms.

The Boundaries of Multinational Enterprises and the Theory of International Trade

Abstract: This paper begins with a review of empirical evidence on multinational firms. Conceptual underpinnings of a theory are developed, relying in particular on the notion of knowledge capital as a mobile, joint input into geographically separated production facilities. This idea is embedded in a simple two-country general equilibrium model that supports multinational production in equilibrium under conditions consistent with the empirical evidence. The final section examines internalization and shows why certain properties of knowledge capital also imply a preference for transferring technologies internally within the firm, rather than through arm's-length markets.

Multinational Firms and The New Trade Theory

Abstract: A model is constructed in which multinational firms may arise endogenously. Multinationals exist in equilibrium when transport and tariff costs are high, incomes are high, and firm-level scale economies are important relative to plant-level scale economies. Less obvious, multinationals are more important in total economic activity when countries are more similar in incomes, relative factor endowments, and technologies. The model may thus be useful in explaining several stylized facts, including (a) the growing importance of direct investment relative to trade among the developed countries over time and (b) the greater ratio of investment to trade among the developed countries relative to this ratio for 'north-south' or 'south-south' economic relationships. The model offers predictions about the volume of trade that contrast with those of the 'new trade theory', predicting that trade at first rises and then falls as countries converge in incomes, relative endowments, and technologies. Welfare is also considered, and it is shown that direct investment makes the smaller (or high cost) country better off, but may make the larger (or low cost) country worse off.

Empirical Research in Transaction Cost Economics: A Review and Assessment

Abstract: This article summarizes and assesses the growing body of empirical research in transaction cost economics (TCE). Originally an explanation for the scale and scope of the firm, TCE is now used to study a variety of economic relationships, ranging from vertical and lateral integration to transfer pricing, corporate finance, marketing, the organization of work, long-term commercial contracting, franchising, regulation, the multinational corporation, company towns, and many other contractual relationships. The main insights and predictions of TCE-in particular, the importance of govering transactions-are becoming increasingly accepted. The empirical support for these claims, however, is much less known. We believe the empirical literature, on the whole, is remarkably consistent with the predictions of TCE-more so than is typically the case in economics. After presenting an overview of the theory and a discussion of some theoretical and methodological preliminaries, we summarize the major findings and discuss their implications, particularly the potential applications to public policy. In an appendix we provide a more comprehensive list of articles, arranged by type of study, as a reference aid for researchers.

Foreign entry and survival: effects of strategic choices on performance in international markets

Abstract: This paper investigates effective strategies that can reduce the risk of failure in international expansion by examining the entry and survival of foreign subsidiaries in the U.S. computer and pharmaceutical industries over the 1974-89 period. Using a hazard rate model, we examine the effects of (1) diversification strategies, (2) entry strategies, and (3) organizational learning and experience on the survival probabilities of foreign subsidiaries. The results show a higher exit rate for foreign acquisitions and joint ventures than for subsidiaries established through greenfield investments. The results also indicate a higher exit rate for subsidiaries that diversify than for those that stay in the parent firm's main product areas. Finally, the results show that firms benefit from learning and experience in foreign operations, which improves the chances of success for subsequent foreign investments. These findings shed light on the dynamic process of international expansion and the evolution of the multinational corporation.

The R&D Activities of Foreign Firms in the United States

Abstract: (1995). The R&D Activities of Foreign Firms in the United States. International Studies of Management & Organization: Vol. 25, The Dynamic Multinational Firm, pp. 39-74.

The Influence of International Risk on Entry Mode Strategy in the Computer Software Industry

Abstract: Introduction As the business world becomes more global and the level of international competition continues to increase, managers will find themselves facing increasingly complex strategic decisions. Perhaps first and foremost among these decisions are the decisions relating to methods of expanding the firms' international operations. However, as one considers the prospects of international expansion one can not help but be aware of the many and varied risks facing firms in these "strange new lands." Ghoshal (1987) has postulated that managing risks is one of three strategic objectives for managers of multinational firms. Yasai-Ardekani (1986) has suggested that industry environmental characteristics such as risk, influence management perception which, in turn, leads to an influence on the structure of the organization. Carman and Langeard (1980) have stated that service firms face far greater risks in international expansion than do product firms: (1) the inseparability of production and consumption for services eliminates certain entry mode choices, (2) the lack of visibility of services (intangibility) increases the time needed to diffuse service innovation, and (3) service providers may be perceived by host governments as contributing little to the national economy while draining resources, precipitating regulations that favor domestic service providers over foreign providers. Existing research has shown a relationship between risk and international diversification, i.e. how firms can reduce overall financial risk by diversifying into international markets (see Rugman 1979 for a discussion). Risk has also been shown as a motivation for international expansion, e.g. entry into competitor markets as a bargaining tool through the "exchange of threats" (Casson 1987, Graham 1985, Vernon 1985, Vernon 1974). In addition entry mode research has included "risk" as$a key element in many of their studies of entry mode determinants (Root 1987, Anderson and Gatignon 1986, Hennart 1988, Contractor 1990, Buckley and Mathew 1980). Vernon (1985) and Miller (1992) have suggested that the perception of a more comprehensive "international" risk and the strategic choice of entry mode may be related. They suggest that looking at individual international risks, such as exchange rate or political risks, in isolation of the other international risks results in an incorrect analysis of the internalization question and can lead to an incorrect entry mode choice. This study is part of a more expansive research project designed to measure perceived risks in different parts of the world and relate these risk perceptions to the strategic choices made by managers. To focus in on the risk-strategy relationship, we first identify key components of the international risks involved in strategic decisions making and then we explore ways in which management can minimize the impact of these risks on the firm through the strategies, i.e. entry mode selected. Once a theoretical base is formed, we present the results of a pilot study to test the risk-entry mode relationships, using a small sample of international high-tech service firms. Whet is International Risk? Both Miller (1992) and Vernon (1985) refer to international risk, however only Miller provides details of a three part integration of international risk variables. The three parts consist of (1) general environmental, (2) industry, and (3) firm-specific risks. General environmental uncertainty refers to those variables that are consistent across all industries within a given country. Included in this factor are such variables as political risk, government policy uncertainty, economic uncertainty, social uncertainty, and natural uncertainty (uncertainty caused by nature itself, such as floows or typhoons). Miller's second grouping, industry uncertainty, contains the risks associated with differences in industry/product-specific variables. Among these variables are the input market uncertainties associated with production inputs, such as material/labor supply availability, quality, and quantity. …

Multinational Firms and the New Trade Theory

Abstract: A model is constructed in which multinational firms may arise endogenously. Multinationals exist in equilibrium when transport and tariff costs are high, incomes are high, and firm-level scale economies are important relative to plant-level scale economies. Less obvious, multinationals are more important in total economic activity when countries are more similar in incomes, relative factor endowments, and technologies. The model may thus be useful in explaining several stylized facts, including (a) the growing importance of direct investment relative to trade among the developed countries over time and (b) the greater ratio of investment to trade among the developed countries relative to this ratio for 'north-south' or 'south-south' economic relationships. The model offers predictions about the volume of trade that contrast with those of the 'new trade theory', predicting that trade at first rises and then falls as countries converge in incomes, relative endowments, and technologies. Welfare is also considered, and it is shown that direct investment makes the smaller (or high cost) country better off, but may make the larger (or low cost) country worse off.

The Changing European Firm: Limits to convergence

Abstract: Throughout Europe, governments have acted in accordance with the conviction that a larger and uniform market would enable greater economics of scale and the growth of large corporations. This is seen in terms of the spread of multinational, US-style companies, enforcing a uniform type of firm across countries. The contributions to this volume, in contrast, show how the nature of firms is embedded in the larger societal context of nations, preventing a homogenised firm-type spreading across European countries. It becomes clear that researchers should locate the firm in the social context in which it is rooted, rather than looking to economic science to explain a 'non-ideal type.' Areas covered by the contributors include the comparison of typical firms in Denmark adn Finland; the limited transformation of large enterprises in Hungary; and an analysis of supply networks in Britain and Germany. Through these essays and a discussion of the variations in the nature of the firm in Europe by leading Eur

Exploring New Markets: Direct Investment, Contractual Relations and the Multinational Enterprise

Abstract: We consider the multinational firm's decision on whether to enter a new market immediately via direct investment or to contract initially with a local agent and (possibly) invest later. Use of a local agent allows the multinational to avoid costly mistakes by finding out if the market is large enough to support direct investment. However, the agent is able to extract information rents from the multinational due to being better informed about market characteristics. We find that direct investment is the desirable mode of entry when the market is on average large and there is little down- side risk in expected profits.

Multinational corporation management strategies and international human resources practices: bringing IHRM to the bottom line

Abstract: This paper examined the relationship between multinational corporations' global management strategies and the resulting international human resource practices. Four global strategies, which vary in their extent of global integration and local responsiveness, were examined (ethnocentric, regiocentric, polycentric and geocentric). Data from international human resource professionals in forty-six companies generally supported the hypothesis that HR practices (recruitment, selection, socialization) varied by global strategy. In particular, strategies varied especially between the ethnocentric and geocentric companies. These strategies were further found to be related to a composite Multinational Corporation Success Index of economic variables (return on capital, sales growth, return on equity, profit margin). Companies which had ethnocentric strategies were found to be less successful than companies operating under any of the other three strategies. Findings suggested that local responsiveness should be incor...

Business Strategy, Market Structure, and Performance of International Joint Ventures: The Case of Joint Ventures in China 1

Abstract: Introduction As the world's largest developing country and fastest-growing economy, China continues to attract a great amount of foreign direct investment (FDI) and has now become the second largest FDI recipient in the world (surpassed only by the United States) International joint ventures (IJVs) constitute the predominant mode of entry into this promising market However, the Chinese market can present daunting challenges to the unwary investor Success in China requires an understanding of the unique investment environment and the adoption of a realistic organizational strategy Theoretical literature in the business policy area has increasingly emphasized a clear distinction between two levels of organizational strategy: 1) industry or corporate-level strategy, concerned with questions about what industry or business to compete in, and 2) business-level strategy, concerned with questions of how to compete within a particular industry Both business strategy and market structure determinants of corporate success have been extensively analyzed and investigated (Calof 1994, Chauvin and Hirschey 1993, Hoskisson and Johnson 1992, Levin and Meisel 1992, McWilliams and Smart 1993) In the IJV literature, however, previous studies have not systematically examined the simultaneous impact of business strategy variables and market structure elements on IJV performance The present paper attempts to fill this empirical gap The selection of China as the analytical context seems particularly meaningful since that country, as stated earlier, is a major FDI recipient in the world Moreover, its transitional market structure provides a great scope for investigatory analysis This study is, therefore, designed to research empirically the underlying linkage between firm- and industry-specific variables and the performance of IJVs in China, based on data collected in Jiangsu province, PRC To the extent that the Chinese settings are analogous to those in other developing countries, the findings of this study have implications for international firms entering these markets Literature Review In recent years, multinational corporations have increasingly used IJV as a vehicle for foreign direct investment (Beamish and Banks 1987, Geringer 1991, Parkhe 1993) As an alternative to either full integration or simple market exchange, the IJV facilitates inter-firm learning and transfer of intangible assets (Buckley and Casson 1988, Hamel 1991) Moreover, if the benefits deriving from joint efforts, minus the transaction costs specific to the formation and operation of the IJV, remain greater than the sum of those benefits from exploiting firm-specific advantages separately, an IJV creates "synergies" and enhances economic rents to the partners (Hennart 1991) These synergies can be the result of risk reduction, economies of scale and scope, production rationalization, convergence of technologies and better local acceptance (Harrigan 1988, Parkhe 1993) As a corollary, the synergistic effects are larger the greater the complementarity between foreign and indigenous firms Hence, in a host country with unfamiliar cultural, political and economic systems, an investing company is more likely to cooperate with an indigenous firm, which has unique industry- or firm-specific skills and advantages that are very costly to duplicate (Hamel 1991, Parkhe 1991) In less developed and non-market economies in transition (eg, China), forming IJVs with local partners constitutes a particularly attractive entry strategy; indeed, in those environments, MNEs confront a higher intensity of interaction with their external environment and face greater difficulties in local adaptation and information collection (Ghoshal and Bartlett 1990) Such difficulties result from a host of factors, including dissimilar cultures, social and political pressures, different economic development stages, and idiosyncratic business practices In recent years, MNEs' investment flows have increasingly been directed toward developing countries where the market structures are perceived to be less perfect than those of developed countries …

Power and the Diffusion of Organizational Change within Multinational Enterprises

Abstract: A key question in debates on the multinational enterprise (MNE) is how it transmits industrial relations and other practices between units operating in different countries. This article treats MNEs as structures of power. It examines aspects of organizational power such as the possession and exchange of resources, the exercise of formal authority and the structuring of interests through `corporate culture'. In MNEs, it is argued, these strands of power give rise to different `channels of influence' for transmitting organizational practices across national borders. Having speculated on which `channels of influence' are likely to be found in different kinds of MNE, the article illustrates the functioning of MNE power structures by examining one concrete mechanism of cross-national transmission: the diffusion of best practice through `coercive comparisons'. It also considers the way in which corporate structures of power interact with systems of national power and authority, and how this affects the cross-na...

The Evolution of International Business: An Introduction

Abstract: 1. Multinationals: Theories and Concepts 1.1 Issues 1.2 Definition 1.3 Theories of the Multinational Enterprise 1.4 Entrepeneurs, Firms, Hierarchies and Networks 1.5 The Organization of MNEs. 2. International Business in the World Economy 2.1 The Environment of International Business 2.2 Origins before 1880 2.3 Growth 1880-1930 2.4 Alternatives to Multinational Enterprise 2.5 Resurgence 1950-1980 2.6 Global Business. 3. Multinationals and Natural Resources 3.1 International Business and Natural Resources 3.2 Origins and Growth 3.3 Determinants 3.4 International Collusion 3.5 The Growth of Large Integrated Firms 3.6 New Entrants and the Decline of Integration. 4. Multinational Manufacturing 4.1 International Business and Manufacturing 4.2 Origins and Growth 4.3 Determinants 4.4 The Interwar Cartels 4.5 Renewal and Growth 4.6 Global Integration and Networks. 5. Multinationals and Services 5.1 International Business and Services 5.2 Origins and Growth 5.3 Determinants 5.4 Equity and Non-Equity Strategies in a Regulated Environment 5.5 Sogo Shosha 5.6 Multinational Banking. 6. The Competitiveness of Firms and Nations 6.1 Comparative Home Economies 6.2 The Home Economy Impact on MNEs 6.3 MNEs and National Competitiveness 6.4 Policy and Outward Investment 6.5 The End of Nationality? 7. Multinationals as Engines of Growth 7.1 Comparative Host Economies 7.2 The Impact of Host Economies 7.3 Resource Transfers 7.4 Trade 7.5 Market Structure and Linkages 7.6 Sovereignty and Culture 7.7 Host Economies over Time. 8. Governments and Multinationals 8.1 Policy and Inward Investment 8.2 Governments and MNEs in Developed Economies 8.3 Japan and the MNEs 8.4 MNEs and Governments in Developing Countries 8.5 Comparative Host Governments: India, Brazil and Singapore since 1950.

Headquarters’ Knowledge of Subsidiary Network Contexts in the Multinational Corporation

Abstract: Competence development in the multinational corporation (MNC) is driven by competition in local industrial clusters, and the operating units engaged in those clusters are critical in the development of the MNC, as Porter, Solvell, and Zander (1990) posit. They assume that the operations of the single, unique subsidiary in relation to its unique industrial setting are critical in the development of the MNC. In this view, competence development is not created by organizational arrangements; rather, it is the outcome of a struggle in the market. But it does not take place in response to general market forces; it is driven by interaction with customers, suppliers, and competitors in the industrial cluster.

A Procedural Justice Model of Strategic Decision Making: Strategy Content Implications in the Multinational

Abstract: How can a multinational formulate an effective global strategy? This paper attempts to address this question by assessing the effect of a procedural justice model of strategic decision making (Kim and Mauborgne [Kim, W. C., R. A. Mauborgne. 1991. Implementing global strategies: The role of procedural justice. Strategic Management J. 12125–143.], [Kim, W. C., R. A. Mauborgne. 1993a. Procedural justice theory and the multinational corporation. S. Ghoshal, D. E. Westney, eds. Organization Theory and the Multinational Corporation. Macmillan, London, UK.]) on the multinational’s ability to formulate effective global strategies. There are five designing principles that define a procedural justice model of strategic decision making. These are: bilateral communication between the head office and subsidiary units; the subsidiary units’ ability to challenge and refute the strategic views of the head office; head office familiarity with the local situation of subsidiary units; a full account for the head office’s fi...

Comments concerning the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations

Abstract: The OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations provide guidance on the application of the “arm’s length principle”, which is the international consensus on transfer pricing, i.e. on the valuation, for tax purposes, of cross-border transactions between associated enterprises. In a global economy where multinational enterprises (MNEs) play a prominent role, transfer pricing is high on the agenda of tax administrators and taxpayers alike. Governments need to ensure that the taxable profits of MNEs are not artificially shifted out of their jurisdictions and that the tax base reported by MNEs in their respective countries reflects the economic activity undertaken therein. For taxpayers, it is essential to limit the risks of economic double taxation that may result from a dispute between two countries on the determination of an arm’s length remuneration for their cross-border transactions with associated enterprises.

Multinational Corporations, Outsourcing, and American Wage Divergence

Abstract: Many economists studying America's wage divergence in the 1980's have concluded that its primary cause was a within-industry shift in relative labor demand toward the more-skilled. Following the modeling framework and empirical methods developed in Slaughter (1993), in this paper I try to determine the extent to which outsourcing by multinational corporations contributed to this labor-demand shift. To do this, I use data from the Bureau of Economic Analysis (BEA) on U.S. manufacturing multinationals in the 1980's. My main finding is that the data are inconsistent with U.S. multinationals having outsourced heavily in the 1980's. First, I construct a set of stylized facts about the employment, investment, and production patterns of these firms. I find that most of these facts are inconsistent with widespread outsourcing. Second, to test more rigorously whether these firms substitute between U.S. and foreign production labor I estimate their factor-price elasticities of demand in a translog-cost-function specification. I find that home and foreign production labor at best seem to be weak price substitutes and in fact may be price complements. Taken together, these findings indicate that multinational outsourcing contributed very little to rising wage inequality.

Organization of the Dynamic Multinational Enterprise : The Home Based and the Heterarchical MNE

Abstract: Organization of the Dynamic Multinational Enterprise : The Home Based and the Heterarchical MNE

Greening Business: Profiting the Corporation and the Environment

Abstract: 1. Corporate Environmental Challenges of the 21st Century 2. Sustainable Development and Sustainable Corporations 3. Global Environmental Competitiveness and Quality 4. Ethical and Political Imperatives for Greening 5. Missionary Greening: The Body Shop 6. The Systems Approach: Procter and Gamble, Inc. 7. Green Trading: Loblaw International Merchants, Inc. 8. Organic Greening: Ben and Jerry's Homemade Ice Creams Inc. 9. Rational Pragmatic Greening: The Volvo Car Company 10. Cost Effective Green Technologies: The 3M Company 11. Green Japan, Inc. 12. Greening Vision, Inputs, Throughputs and Outputs 13. Green Hand Tools and Processes 14. Towards Second Order Greenings: The Bioregionally Sustainable Multinational Corporation.

Human resource management in developing economies: a comparison of India and Thailand

Abstract: This paper reports the results of surveys of firms that were conducted both in India and Thailand. The surveys centred on a wide range of human resource management practices (staffing, training, compensation and evaluation). The sample consisted of both the subsidiaries of multinational corporations and locally owned companies. Statistical analysis suggests pronounced differences in employment practices between India and Thailand in some areas, while considerable similarities in other areas. The study controls for a variety of organizational factors (e.g., firm size, ownership (foreign versus domestic), union status).

Enterprise and Competitiveness: A Systems View of International Business

Abstract: An examination of the system of linkages that determine the success of multinational firms and the resulting performance of nations.

Multinational Corporations, Outsourcing, and American Wage Divergence

Abstract: Many economists studying America's wage divergence in the 1980's have concluded that its primary cause was a within-industry shift in relative labor demand toward the more-skilled. Following the modeling framework and empirical methods developed in Slaughter (1993), in this paper I try to determine the extent to which outsourcing by multinational corporations contributed to this labor-demand shift. To do this, I use data from the Bureau of Economic Analysis (BEA) on U.S. manufacturing multinationals in the 1980's. My main finding is that the data are inconsistent with U.S. multinationals having outsourced heavily in the 1980's. First, I construct a set of stylized facts about the employment, investment, and production patterns of these firms. I find that most of these facts are inconsistent with widespread outsourcing. Second, to test more rigorously whether these firms substitute between U.S. and foreign production labor I estimate their factor-price elasticities of demand in a translog-cost-function specification. I find that home and foreign production labor at best seem to be weak price substitutes and in fact may be price complements. Taken together, these findings indicate that multinational outsourcing contributed very little to rising wage inequality.

A Guide to bea Statistics on U.S. Multinational Companies

Abstract: BEA’s statistics on U.S. multinational companies (MNC’s) provide a comprehensive and integrated data set for empirical analysis of MNC’s. Balance of payments data measure transactions between U.S. parents and their foreign affiliates, and direct investment position data measure the cumulative value of parents” investments in their affiliates. Financial and operating data provide a wide variety of indicators of the overall domestic and foreign operations of U.S. MNC’s. BEA’s statistics can help to answer such questions as "Where are U.S. MNC’s investing?" "Are U.S. companies shifting their operations abroad?" and "What portion of U.S. cross-border trade is between U.S. parents and their foreign affiliates?"