Research summary International business strategy and international management are two distinct but related fields of study. This article explores the connections between them. It shows how internalization theory can act as a bridge between them. The key is to analyze not only core activities, such as production, marketing and R&D, but support services such as human resource management, information technology, and corporate finance. Internalization decisions and location decisions must be analyzed holistically, and diagrammatic techniques show how this can be done. These diagrams reveal the networks of communication and the hierarchical structures that emerge from such decisions. Managerial summary The organizational structure of a multinational enterprise is inherently complex, making it difficult to determine whether one organizational structure is more efficient than another. Delayering, decentralization, and agility are recommended, but what are their practical implications? Internalization theory addresses these problems in a simple and coherent way. It shows that it is not only core activities, namely production, marketing and R&D, that need to be coordinated, but support services too. Decisions on the location and out-sourcing of support services must be aligned with similar decisions on core activities. A diagrammatic analysis is presented that facilitates the solution of these problems.
This paper presents an agenda for extending the theory of international business in order to explain a wider range of phenomena. This, however, has to be done with due attention to the requirements of good social science theory. Relevant criteria are set out, together with a list of issues that new theory must address. Theory needs to focus on industries as well as firms, and make greater use of formal multi-actor models. 'Generalizing from the particular' should be avoided; theory needs to be derived from general social science principles that have proved successful in cognate disciplines.
A cartel is an association of independent businesses for the purpose of regulating trade in an industry. There are three important reasons for studying international cartels: they will become important in the future; they are of immense historical significance; and they are poorly understood. This paper reviews the economic, political, and historical literatures on international cartels and considers the lessons for international business theory and policy. If IB researchers are to retain their reputation for policy-relevance, they must engage with the issue of institutional responses to globalization, and this must include the analysis of cartels.
This paper reviews the scope for economic modelling in international business. It argues for a multi-level theory based on classical internalisation theory. The theory extends the ‘systems approach’ to the multinational enterprise in which modular activities, such as production, marketing and R&D, are linked by flows of semi-processed products and proprietary knowledge. It is shown how this theory can be extended from the firm level to the industry level in order to analyse inter-firm co-operation and rivalry. The theory can be extended to higher levels (e.g., the global economy) and lower levels (e.g., personal relationships within plants and offices).
The introduction introduces the key issues addressed in the book. These include the economic geography of global production, the role of trade and communications in coordinating economic activity, the political threats to global integration, and the roots of these threats in growing inequalities within leading countries. To theorise these issues, it is suggested, a unified social science is required, of which the theory of international business would be a small but significant part.
This article engages in a methodological experiment by using historical evidence to challenge a common misperception about internalization theory. The theory has often been criticized for maintaining that it assumes a hierarchically organized MNE based on knowledge flowing from the home country. This is not an accurate description of how global firms operate in recent decades, but this article shows it has never been true historically. Using longitudinal data on individual firms from the nineteenth century onwards, it reveals evidence of how entrepreneurs and firms with multinational activity faced with market imperfections changed the design of their headquarters and their organizational structures.
This study extends conventional IB theory by embedding internalisation theory in a wider and explicitly temporal perspective. The concept of time helps structure and interpret evidence on the evolution of international business. This chapter offers a causal interpretation of historical evidence, focusing on Western Europe 1200-2000. It identifies two main drivers of change: scientific progress (from ‘experience’ to ‘experiment’) and cultural and institutional change (‘secularisation’ and the ‘rise of economic individualism’). Their impact has been framed by geographical fundamentals (climate, mineral deposits and sea routes) which remain broadly constant over time. These factors have combined to generate seven key long-term trends in the international business system.
This chapter was written in response to a controversial paper in the Journal of International Business, at the suggestion of the Editor-in-chief. The paper that is criticised below claimed that IB studies was not a complex field of study when compared to many others, and that scholars who asserted differently suffered from what the authors called ‘false uniqueness bias’. In response to this paper, this chapter demonstrates that international business is inherently complex for four main reasons: the large number of countries, products, technologies and firms involved; the intricate connectivity of international transport and communications networks, the diversity of the political, cultural and regulatory environment, and the speed and unpredictability of change. The complexity created by these features can be measured using the techniques presented in this chapter. IB has developed simple and powerful theories which abstract from inessential details and thereby reduce the complexity of theory to a minimum. The assumptions underlying this theory are common to other disciplines, and provide a basis for future inter-disciplinary research.
