The Competitiveness of Nations in a Global Knowledge-Based Economy
Global-Local Tensions: Firms and States in the Global
Space-Economy
Economic Geography, 70
(2)
Apr. 1994,
101-128
Content
Abstract
An Analytical Point of Entry: Production Chains and
Relational Networks
Firm-Firm Competition: The Changing World of the
Transnational Corporation
State-State Interaction: The Emergence of the
“Competition State”
Firm-State Interactions: Dynamic Bargaining
Relationships
Conclusion: The Global-Local, Debate
Revisited
References
A key
issue facing researchers of economic, political, social, and cultural change is
the dialectical tension between globalizing and localizing processes. From an economic geography perspective, a
major question concerns the relationship between the globalizing tendencies of
many business firms and the prospects for a genuinely local economic
development, particularly in light of the organizational and technological
changes associated with the alleged transition to a post-Fordist world. This paper addresses a specific aspect of
the “global-local nexus” that has not been well developed in the geographic
literature: the relationships between transnational corporations and
nation-states. Each can be
conceptualized as highly embedded interacting networks. Firms and states are locked in
competitive struggles. The
competitive strategies they employ are both diverse and the outcome of contested
power relations, internal and external. Increasingly, too, they involve various
forms of collaborative relationship. Concrete spatial outcomes, therefore,
reflect complex competitive and bargaining relationships between and within
firms, between and within states, and between firms and
states.
These are exciting and challenging times in economic
geography, as we grapple with the problem of understanding the major
transformations in the way economic activities are organized and reorganized.
Not only does the pace of change
pose difficulties, but the complex interplay among processes operating at
different, but related, geographic scales has become increasingly intricate as
well. In an earlier Roepke lecture,
Brian Berry argued that “economic geography is in crisis. New intellectual vigor will come only if
there is creative reconstruction of the conceptual core” (1989, 1). In these days of theoretical plurality,
it is doubtful if we should be concerned with a single conceptual core. Indeed, one of the most stimulating
features of today’s economic geography is this plurality of approaches and the
healthy interchange of ideas that such diversity
stimulates.
Berry’s search for such a core led him to explore issues
of cultural differentiation at a global scale. Berry located nation-states in a
multidimensional cultural-geographic space, which, he suggested, constituted a
“differentiating checkerboard of culture” on which “in an increasingly tightly
knit global economy, multi-national corporations play their locational games
interactively with nation-states” (1989, 1). Berry did not, however, explore in any
depth the actions either of
* School of Geography, University of Manchester,
Manchester, M13 9PL, UK
The Roepke Lecture in Economic Geography was established
to honor the late Professor Howard G. Roepke, who served on the faculty of the
University of Illinois at Urbana-Champaign from 1952 until 1985. The lecturer is chosen by the geography
faculty of that institution in consultation with the editors of this journal.
The paper was read at the Annual
Meeting of the Association of American Geographers, Atlanta,
1993.
The author is grateful to Amy Glasmeier, James Huff,
Anne Huff, Jamie Peck, Adam Tickell, Liisa Cormode, Henry Yeung, and two
anonymous referees for their constructive comments.
101
multinational corporations or of nation-states. Rather, he devoted his attention to the
dimensions of global cultural differentiation.
In contrast, it is the actions - and, especially,
the interactions - of
international firms and nation-states that constitute the focus of this paper.
I share Berry’s view of the
centrality of international firms and nation-states in shaping the changing
geography of the global economy (Dicken 1986, 1992a). I want to frame my argument, however, in
the specific context of what has come to be seen as a major contemporary issue:
the “global-local nexus.” This is
far more than merely a question of the geographic scale at which economic
processes occur. More
fundamentally, it is a question of where power lies, and it is a central
problematic facing both firms and states.
Analysis of these processes is made more difficult by
the uncertainty surrounding the interpretation of the current structure of the
world economy. Making sense of the
present is, of course, always more difficult than making sense of the past,
because we do not really know where we are. Throughout history, most observers of the
contemporary scene have been tempted to argue for the “specialness” of their own
times; the present day is no exception. But, by definition, we cannot know which
of the current developments and changes are permanent and which are purely
ephemeral. The current debates over
the alleged new era of flexible accumulation, the transition from Fordism to
post-Fordism, the replacement of the “Old Competition” by the “New Competition”
(Best 1990) are cases in point. Gertler (1992) has recently drawn up a
very useful balance sheet of views, in which he identifies “areas of consensus,
continuing disagreement, and important but still neglected questions” (p. 259).
Considerable disagreement also
exists over the interpretation of current developments in the organization of
economic activities at the global scale and their implications for firms and
states. The crux of the debate is
the extent to which we are moving toward (or already live in) a
globalized, rather than an inter-national, economy. Robert Reich’s view is
that
We are living through a transformation that will
rearrange the politics and economics of the coming century. There will be no national products
or technologies, no national corporations, no national industries. There will no longer be national
economies, at least as we have come to understand that concept. ... As almost
every factor of production - money, technology, factories, and equipment - moves
effortlessly across borders, the very idea of an American economy is becoming
meaningless, as are the notions of an American corporation, American capital,
American products, and American technology. A similar transformation is affecting
every other nation, some faster and more profoundly than others; witness Europe,
hurtling toward economic union. (R. Reich 1991, 3, 8)
(The current hiatus within the European Community makes
Reich’s use of the term “hurtling” seem rather
exaggerated!)
While Reich appears, at least implicitly, to support the
view that we are now in a globalizing, if not a globalized,
economy, Hirst and Thompson (1992) are more skeptical. On the basis of a comparison between two
ideal types of structure - a globalized international economy and a
worldwide international economy - and from an analysis of empirical
trends in trade, investment, and political restructuring (notably toward the
development of supranational trading and economic blocs), they conclude, “we do
not have a fully globalized economy; we do have an international economy and
national policy responses to it” (Hirst and Thompson 1992, 394). Both Reich and Hirst and Thompson agree,
in their different ways, that the relationships between firms and states have
been drastically changed. Stopford
and Strange (1991) express this in terms of mutual dependence, which, they
argue, can be explored in terms of a triangular nexus of interactions
comprising firm-firm, state-state, and firm-state
relationships.
The aim of this paper is to explore
some
102
of these complex interactions between transnational
corporations (TNCs) and states in the context of the global-local debate through
a review of a wide variety of literature drawn from different disciplines. The paper is divided into five sections.
In the first, I make some basic
observations about the nature of the production system and its changing
organizational structure. The
second section focuses specifically upon the TNC and examines aspects of
changing competitive strategies. Section three is concerned with the
competitive rivalry between states. Section four explores the interactions
between TNCs and states. Finally,
in section five, I make some observations on the implications of the discussion
for what we might call the “seriously local.” It is important to emphasize that the
terms “global” and “local” are not fixed scales; rather, they represent the
extreme points of a dialectical continuum of complex mutual
interactions.
An Analytical Point of Entry: Production Chains and
Relational Networks
At the crux of the interrelationship between TNCs and
nation-states is control of the production system and the relative, distribution
of the costs and benefits associated with its operation. This suggests that we need, first, to
understand the production system itself. One useful point of entry is via the
concept of the production chain. Although the idea itself is far from
new, the notion of a chain or filière is central to several recent
attempts to explain how production is organized. In the economic geography literature, for
example, Walker (1988, 380) incorporates the concept of the
filière—“the connecting filament among technologically related
activities” -in his exploration of the geographic organization of production
systems. Storper (1992) uses the
concept of the commodity chain as the basis for his analysis of
technology districts in a global context, and the basic notion of the chain
(although the term is not used) forms part of Storper and Harrison’s (1991)
paper on flexibility, hierarchy, and regional development. Within the world systems literature,
Hopkins and Wallerstein (1986) employ a specific interpretation of the
commodity chain to exemplify the historical evolution of a capitalist
world economy, while Gereffi and Korzeniewicz (1990) provide one of the very few
attempts to apply the concept to a detailed empirical study (of the global
footwear industry). The business
literature is a third area in which the chain concept has been used. Porter (1985, 1986) uses the term
value chain; others, such as Johnston and Lawrence (1988), use the more
conventional term, value-added chain. Clearly, there is no universally
agreed upon term for what is essentially the same concept. I prefer the term
production
chain.
The basic structure - grossly oversimplified - of a
production chain is shown in Figure la. It consists of a transactionally linked
sequence of functions in which each stage in the sequence adds value to the
process of production, whether of goods or services. Both Hopkins and Wallerstein (1986) and
Gereffi and Korzeniewicz (1990) restrict themselves to this basic chain,
although they produce more elaborate versions. They do not incorporate the two
additional components shown in Figures lb and lc, yet both are fundamental.
Common to the entire chain of
transactionally linked functions are the technological processes involved in
production itself and in the physical movement of the constituent elements (Fig.
lb); the coordinative, regulatory, and financial functions (Fig. lc); and the
whole complex of labor processes that are embedded in each component part of the
chain. An entire production system,
therefore, can be thought of as a complex input-output system of linked
production chains with vertical, horizontal, and diagonal links (Fig.
ld).
There are, of course, many important issues relating to
the precise functioning of each of the stages in the
production
103
Source: based on Dickens, 1992a, Fig. 7.1
104
chain. Most
attention, however, has been focused on only a very narrow segment of the chain,
on production per se, while far less attention is paid to the other functions.
An obvious area of neglect by
economic geographers is marketing. Such marketing geography as does exist is
concerned overwhelmingly with retailing and, to a lesser extent, wholesaling.
Yet markets and marketing are just
as central to the operation of the production chain as “production” itself
(Wells and Cooke 1991). More
generally, overconcentration on production has obscured the importance of
services in production. Increasingly, “services have become a
major source of value-added.
Downstream services, in particular, are both a factor contributing to
competitive strength and a source of value added” (UNCTAD 1988, 178). But the value of services to the
competitiveness of products is more general than this and applies throughout the
production chain (Britton 1990).
For my present purposes, the most significant questions
relate to the way in which the production chain as a whole is coordinated and
regulated and how it is geographically configured. As Walker observes, “the pieces of
complex production-systems are not just divided up and sent their independent
ways on the assumption that their technological input-output imperatives will
keep the necessary relations intact. They must also be actively integrated
so that production may proceed to completion. That is, production-systems must be
physically linked up; their labor processes must be coordinated;
and the flows of materials, labor, and information between them must be
regulated” (1988, 381-82, emphasis added).
The issue of the organization - or governance -
of the production chain has been the subject of considerable debate
(see Dicken and Thrift 1992 for a summary of views). It is now widely accepted that the
market-hierarchy dichotomy is untenable, as is the notion that the determining
influence on the degree of internalization or externalization is transactions
costs (Best 1990; Cowling and Sugden 1987; Walker 1989). What we have, in reality, is a variety of
developmental trajectories and a spectrum of different forms of governance, that
are best captured by the notion of networked interrelationships structured by
different degrees and forms of power and influence. Such networks invariably consist of a
mix of intrafirm and interfirm structures.
Network relationships are central to the concept of the
social embeddedness of economic action developed in the literatures of
economic sociology and socioeconomics (see, for example, Etzioni and Lawrence
1991; Granovetter and Swedberg 1992; Perrow 1986; Thompson et al. 1991; Zukin
and DiMaggio 1990). Much of the
initiative in the business economics literature has been taken by Scandinavian
researchers, who have long argued that production systems as a whole, as well as
the firms within them, should be interpreted as networks (see, for example,
Christensen et al. 1990; Forsgren and Johanson 1992; Johanson 1989; Johanson and
Mattsson 1987; Hakanson 1989; Hagg and Johanson 1992).
Networks are relational structures and, as such,
take time to evolve, not least because they involve the building of trust. The nature of the relationships, however,
depends a good deal upon the particular power structure. Several writers have attempted to
conceptualize this phenomenon. Christensen et al. (1990), drawing upon the ideas
of Reve (1988), identify two broad groups of network organization, one centered
around a dominant corporate group and the other based on interface skills. Storper and Harrison (1991) take a
similar stance. They use a
core-ring representation of network power structures to identify four
types of network governance structures: (1) all ring, no core; (2) core-ring,
with coordinating firm; (3) core-ring, with lead firm; (4) all core, no ring.
Miles and Snow (1992) identify
three major types: (1) stable networks, (2) dynamic networks, and (3)
internal networks.
Whatever the precise form taken by networks, business
firms clearly remain central to their operation (Dicken and Thrift 1992). The network conceptualization
im
105
plies, however, that the boundaries of the firm need to
be redefined. Badaracco (1991)
explores this question in his attempt to draw a “new map” of the firm that
“displays no sharp dividing line separating the inside of the firm from the
outside. Rather, it shows the firm
as a dense network at the center of a web of relationships” (p. 314). All of this suggests that not all parts
of a production network are equal; key roles are played by certain firms. These are the firms that, in Cowling and
Sugden’s definition, possess “the means of coordinating production from one
centre of strategic decision making” (1987, 60). These are the kinds of firm with which I
am most concerned in this paper.
Network structures present firms with a considerable
degree of flexibility in the extent to which they can internalize or externalize
specific functions within the production chain. Although there may be a general tendency
for a particular pattern to develop between firms in a particular industry,
there is no a priori reason why this should be so. Similarly, there is no a priori way of
determining the particular ways in which production chains are configured
geographically. Different types
of production chain may be configured geographically in very different ways, but
the same production chain may be configured differently by different firms.
Certainly, the patterns change over
time. As Porter (1986) has pointed
out, the question of geographic configuration/location has to be resolved for
each separate function within the chain. These problems of coordination and
configuration of production chain functions face firms of all kinds, but they
take on a specific - and more complex - form at the international and global
levels and in the context of transnational corporations and their interactions
with nation-states.
Firm-Firm Competition: The Changing World of the
Transnational Corporation
TNCs today are restructuring their activities in ways
that involve: (1) reorganizing the coordination of production chain functions in
a complex realignment of internalized and externalized network relationships;
(2) reorganizing the geography of their production chains internationally and,
in some cases, globally; [1] (3)
redefining their core activities and repositioning themselves along the
production chain, with a particular emphasis on downstream, service functions.
These developments reflect the
nature of TNCs as highly embedded interacting networks involved in competitive
struggles in which a diversity of competitive strategies is used. Such strategies are, themselves, the
outcome of contested power relations both inside the firm and, externally, with
the constellation of institutions (including the state) with which TNCs
interact.
This kind of perspective necessitates a reconsideration
both of what we actually mean by a “TNC” and of our conceptualization of how
TNCs have evolved over time. Despite important shifts in the past
decade, the literature retains a distinction between those who continue to
regard ownership of equity in overseas opertions as the key
diagnostic feature of a TNC and those who adopt a broader definition that
recognizes the imprecision of firm boundaries, emphasizes the role of
coordination rather than ownership, and accepts that such coordination
extends beyond internalized functions to encompass externalized relationships
with independent or quasi-independent firms. Notwithstanding the problems created for
the acquisition of adequate empirical data, my own view is that Cowling and
Sugden have devised the most conceptually satisfying definition of a TNC: “a
transnational is the means of coordinating production
1. The terms “international” and “global” are not
used synonymously. Internationalization refers simply to the
extension of activities across national boundaries; globalization involves more
than this and is qualitatively different. It implies a degree of purposive
functional integration among geographically dispersed
activities.
106
from one centre of strategic decision making when this
coordination takes a firm across national boundaries” (Cowling and Sugden 1987,
60). Apart from adopting a less
restrictive definition than has often prevailed (and still does in some
quarters), we also need to rid ourselves of the stereotypic view of the temporal
process of TNC development.
Until relatively recently, much of the business and management literature projected a simplistic sequential path of TNC development. In fact, there is - and always has been - considerable diversity in TNC strategies and in the kinds of organizational coordination and geographic configuration employed to implement them (see, for example, Perlmutter 1969; Bartlett and Ghoshal 1989; Martinez and Jarillo 1989). Just as Perimutter (1969), somewhat ahead of his time, was sufficiently sensitive to point to substantial diversity among the “multinational” firms of the 1960s, so, too, it can be argued today that the term “global corporation” obscures a rich variety of actual forms.
Bartlett and Ghoshal’s (1989) typology provides a useful
perspective on this issue. They
identify three different organizational models, each with distinctive
structural, administrative, and management characteristics. The major characteristics of each ideal
type are summarized in
Table 1. Their multinational organization model
is characterized by a decentralized federation of activities and simple
financial control systems overlain on informal personal coordination. The company’s worldwide operations are
organized as a portfolio of national businesses. Each of the firm’s national units has a
considerable degree of autonomy; each has a predominantly “local” orientation.
Their international organization
model involves far more formal coordination and control by the corporate
headquarters over the overseas subsidiaries. Whereas multinational organizations are,
in effect, portfolios of quasi-independent businesses, international
organizations clearly regard their overseas operations as appendages to the
controlling domestic corporation. Thus the international firm’s
subsidiaries are more dependent on the center for the transfer of knowledge and
information, and the parent company makes greater use of formal systems to
control the subsidiaries. Their
“classic” global organization model is based on a centralization of
assets and responsibilities. The
role of the local units is to assemble and sell products and to implement plans
and policies developed at headquarters. Thus,
Basic Characteristics of Different
Types of Transnational Business Organization
Source: based on Bartlett and Ghoshal (1989, Fig. 3.1, 3.2 , 3.3)
107
overseas subsidiaries have far less freedom to create
new products or strategies or even to modify existing ones. Although each of these three ideal-type
models developed during specific historical periods, there is no suggestion that
one was sequentially replaced by another. Each form has tended to persist, to a
greater or lesser extent, producing a diverse population of transnational
corporations in the contemporary world economy.
Although we can continue to identify these forms of TNC,
new forms of transnational organization are also emerging that may - although
not inevitably - replace some of the existing forms. Bartlett and Ghoshal argue that each of
their three ideal types of organization possesses specific strengths, but each
also has severe contradictions and tensions. Thus, the global company capitalizes on
the achievement of scale economies in its activities and on centralized
knowledge and expertise. But this
implies that local market conditions tend to be ignored and the possibility of
local learning is precluded. The
more locally oriented multinational organization is able to respond to local
needs, but its very fragmentation imposes penalties for efficiency and for the
internal flow of knowledge and learning. The international company “is better able
to leverage the knowledge and capabilities of the parent company. But its resource configuration and
operating systems make it less efficient than the global company, and less
responsive than the multinational company” (Bartlett and Ghoshal 1989,
58-59).
As Bartlett and Ghoshal point out, the dilemma facing
firms - especially large firms - in turbulent competitive environments is that
to succeed on a global scale they must possess three capabilities
simultaneously. They need to be
globally efficient, multinationally flexible, and capable of capturing the
benefits of worldwide learning all at the same time. Rather confusingly, Bartlett and Ghoshal
use the term transnational to describe such an organization and write of
the “transnational solution.” Because I prefer to use the term
“transnational” in a generic sense, it is perhaps better to use the term
complex global firm for the newly emerging organizational form. Again, however, this does not imply an
inevitable sequential development, but rather that some firms are moving toward
such a complex global structure. A
key diagnostic feature of such organizations is their integrated network
configuration and their capacity to develop flexible coordinating
processes. Such capabilities
apply both inside the firm (the network of intrafirm relationships which, it is
argued, is displacing hierarchical governance relationships) and outside the
firm (the complex network of interfirm relationships).
Such a conceptualization of the contemporary TNC is
consistent with a number of other interpretations of current tendencies in the
nature and organization of international business activity. Best (1990) sees the “entrepreneurial
firm” as a key institution in the “New Competition” and emphasizes its
strategic, innovation-based, flexible nature and its dependence on learning.
These ideas are echoed in Storper’s
(1992) focus on production-based technological learning as a diagnostic
characteristic of new forms of production organization and also, indirectly, in
Buckley and Casson’s (1992) prognosis for “multinational enterprise in the 21st
century.” A related issue is the
apparently increasing emphasis on time as a competitive weapon in
business strategy (Best 1990; Stalk 1988; Stalk and Hout 1990; Schoenberger
1991), “the next source of competitive advantage” and one that pervades the
entire production process, from initial conceptualization to final marketing and
involves the compression of product development cycles.
A central feature of these models of contemporary
production organization is that they place particular emphasis on the rich
variety of external relationships within production networks. At the international scale, most
attention has been devoted to strategic alliances, which, as Kindleberger
(1988) has observed, are by no means a new phenomenon. But, as
108
Anderson (1992) has recently pointed out, there has been
much ambiguity and confusion of terminology in the literature, and it seems
better to use the more general term “collaborative venture” to encompass what
is, in fact, a bewildering variety of organizational relationships. Such relationships are frequently
multilateral rather than bilateral, polygamous rather than monogamous. Collaborative ventures are a
long-established form of international business organization that, in the past,
involved specific relationships between conventionally organized, hierarchically
structured firms as just one element in their competitive strategies. The argument now is rather different: not
only have collaborative ventures in the more traditional sense moved to the
center of firms’ strategies, but also - and more controversially - new forms of
collaboration are embedded within a much looser network structure, or webs of
enterprise (R. Reich 1991). This view, however, is very much a
Western perspective. Japanese
business organizations have long been embedded in a complex structure of
interorganizational alliances, epitomized by the horizontal and vertical
keiretsu (Gerlach 1992; Eli 1990; Helou 1991).
Seductive as these various ideas about new forms of
international business organization undoubtedly are, we face a major problem in
distinguishing what is actually happening (and may happen in the future) from
the hype and the rhetoric. When we
turn to the hard world of empirical reality we meet up with the intractability -
and even total absence - of comprehensive data. The only variable on which we have
(reasonably) comprehensive data is that of foreign direct investment
(FDI), which, unfortunately, exclude coverage of most nonequity
relationships and activities, the very ones that are becoming especially
important. Within their
limitations, however, FDI data provide an important, though partial, indicator
of changing levels and patterns of TNC activity at a global scale. [2]
This is
not the place to present a detailed analysis of FDI (see Dicken 1992a; Dunning
1993; Julius 1990; Thomsen 1992; UNCTC 1988, 1991, 1992), but it is important
for our present purposes to summarize the major contemporary
trends.
The recent temporal pattern of FDI growth displays a
major upsurge during the 1980s, on a scale exceeding even that of the 1960s.
Julius (1990, 6) estimates that
“whereas in the 1960s FDI grew at twice the rate of GNP, in the 1980s it has
grown more than four times as fast as GNP.” The most recent United Nations Center on
Transnational Corporations (UNCTC) figures reveal a slackening in FDI growth in
1990-91, associated with a recession in most industrialized countries, but
previous experience suggests that FDI growth will resume when the recession
eases. Not only has FDI been
growing faster than GNP, but it also has been growing at a much faster rate than
world exports, particularly since 1985 (UNCTC 1991). This figure alone suggests that FDI has
become a more significant integrating force in the global economy than the
traditional indicator of such integration, trade (Julius 1990). Indeed,
2. Dunning
observes that “in practice, statistical data on MNEs and their activities,
though markedly better than they were even a decade ago, are fragmentary,
variable in quantity and quality, and rarely comparable between countries,
industries, and firms or over time … while some governments ... compile a fairly
comprehensive range of statistics on inward and outward MNE activity, most
countries limit their data gathering to the foreign direct investment stake
(usually compiled irregularly on a survey or sample basis) and direct investment
flows (obtained largely from balance of payments statistics)” (1993, 7-8). He lists several important specific
deficiencies in FDI data, including: variations in coverage, both temporal and
spatial; problems associated with using inadequately adjusted book values;
variations in treatment of exchange rate differences; the fact that some
countries publish data relating to investment intentions while others refer to
actual investments.
because TNCs are themselves responsible for a large
proportion of international trade (much of this as intrafirm transactions),
their global significance becomes even more marked. Another notable trend has been the
massive internationalization of services, much of which has been driven by FDI
(Dicken 1992a).
Spatially, a number of important FDI trends can be
identified:
(1) Origins have diversified geographically, not only
within the industrialized countries, but also from several of the newly
industrializing economies (NIEs), notably in East Asia but including some Latin
American countries.
(2) Although the United States still accounts for the
largest share of the world’s stock of FDI, Japan is now the world’s
leading foreign direct investor on an annual flow basis. The recent collapse of Japan’s “bubble
economy,” however, has caused a substantial contraction (and geographic
reorientation) of Japanese FDI.
(3) There has been a major intensification of
cross-investment between the industrialized economies, an increasingly high
level of TNC interpenetration of national economies (Julius 1990). In this respect, the position of the
United States as a home and host country for FDI has shifted dramatically. In 1975, the U.S. ratio of outward FDI to
inward FDI was approximately 11:1; by the end of the 1980s, the ratio had fallen
to just below 1:1. In other words,
it is now at a level commensurate with that of the major European economies in
which FDI outflows have long been relatively symmetrical. Overall, then, the relative importance of
TNCs (both foreign and domestic) in each major economy has greatly increased,
while the global pattern of FDI has become strongly concentrated in the triad
regions.
(4) The intensified concentration of FDI in the
industrialized economies means that the share going to developing economies
remains low: some 18 percent of the world total compared with more than 60
percent on the eve of World War II. Within the developing countries, the
distribution of FDI is extremely uneven: a mere ten countries, primarily the
Asian NIEs and “proto-NIEs” and some Latin American countries (OECD 1993),
account for 75 percent of the FDI inflow.
(5) The recent political developments in the former
Soviet Union and in Eastern Europe have unexpectedly opened up investment
opportunities for foreign TNCs. Although the number of recorded direct
investments in those regions in 1992 was 34,422 (UNCTC 1992), their geographic
distribution was extremely uneven (almost one-third of the total was in
Hungary).
When we turn from FDI to other modes of TNC activity -
particularly the kinds of collaborative and network ventures that, it is
claimed, have become increasingly important - we face a serious paucity of
empirical data and a reliance on case studies and anecdotal evidence at either a
sectorally specific or company-specific level. Particularly useful studies of
collaborative ventures are provided by Anderson (1992) (aerospace, automobiles,
pharmaceuticals); Cooke (1988), Cooke et al. (1992), Wells and Cooke (1991)
(information technology, computers, telecommunications); National Research
Council (1992) (semiconductors); Ohmae (1985) (aerospace, automobiles,
biotechnology, computers, robotics, semiconductors). Strategic alliances are particularly
important in those sectors that tend to be “typified by high entry costs,
globalization, scale economies, rapidly changing technologies, and/or
substantial operating risks” (Morris and Hergert 1987, 18; Hagedoorn and
Schakenraad 1990).
Most strikingly, the majority of strategic alliances are
among competitors. Of the
839 agreements analyzed by Morris and Hergert (1987) between 1975 and 1986, no
less than 71 percent were between two firms in the same market. In addition, although alliances are
certainly not confined to particular sizes or types of firms, they are
undoubtedly especially
common between large TNCs with extensive international
operations. Geographically, most
alliances in the Morris and Hergert study were between firms from European
Community (EC) countries (31 percent) or between EC and U.S. firms (26 percent).
A further 10 percent of the
alliances were between EC and Japanese firms and 8 percent between United States
and Japanese firms. Anderson (1992)
shows that a substantial proportion of collaborative ventures in the aerospace,
automobile, and pharmaceutical industries are “cross-triad”
collaborations.
Empirical evidence on the existence and nature of the
kinds of dynamic network that are becoming especially important in the global
economy is even sparser than that on the more conventional collaborative
ventures. Here, we are limited to a
small number of cases, the most notable being the Italian clothing company,
Benetton (Elson 1989), and the U.S. athletic shoe company, Nike (Donaghu and
Barff 1990; Far Eastern Economic Review 1992). Clark (1992), however, has recently
produced a most interesting and detailed case study of an anonymous small
company, headquartered in the Western Pacific region, that appears to be a
paradigmatic dynamic network coordinator in the branded textile and apparel
industries. He shows how a small
company (a mere 140 direct employees) may, nevertheless, be a global corporation
because of its ability to orchestrate the activities of “more than a thousand
people involved in designing, producing, distributing and selling its products …
[with] … worldwide sales of about US$40 million” (Clark 1992, 2). Clark places particular emphasis on the
significance to such global network firms of access to global communications
systems.
The clear message is that transnational reality is one
of a spectrum of forms of TNC organization, a diversity of developmental
trajectories in which consciously planned global operations exist side-by- side
with firms that have internationalized in an unplanned, often adventitious,
way. Across the spectrum, complex
restructuring is occurring at all geographic scales, from the global to the
local, as strategic decisions have to be made regarding the organizational
coordination and geographic configuration of production chain functions. Decisions to centralize or decentralize
decision-making powers, or to cluster or to disperse some or all of the firm’s
functions in particular ways are, however, contested decisions (Stopford and
Strange 1991). They are the outcome
of power struggles within firms, both within their headquarters and between
headquarters and affiliates, and they reflect differences in goals and
objectives. How they are resolved depends very much upon the location and nature
of the dominant coalition. Such
decisions also have to be seen within the context of the fundamental tension
facing all firms that operate at a global scale: whether to globalize fully or
to respond to local differentiation.
Anecdotal evidence points to substantial internal
reorganization within global corporations, involving (1) allocating greater
autonomy to affiliates; (2) responding to major external changes (e.g., regional
integration) by spatial rationalization of production, particularly by placing
greater emphasis on the market-serving functions; and (3) transforming
relationships with supplier firms. Thus, for example, there has been an
outburst of corporate federalism in companies like IBM, Coca Cola, ABB, and BP
(Financial Times, 18 December 1992).
In some cases, this also involves a
global shift in major divisional headquarters, as in the cases of Hewlett
Packard, IBM, Monsanto, and Nestlé, among others. Spatial rationalization is a continuing
process in all TNCs, but, from time to time, specific events generate pressure
for wholesale change across the corporate spectrum. Such, for example, has been the effect
of the Single European Market (see, for example, Amin 1992; Amin, Charles, and
Howells 1992; Bachtler and Clement 1990; Cantwell 1987, 1992; UNCTC 1990),
although even here it is still too early to be sure of the
112
precise impact amid the flurry of rhetoric and
hyperbole.
