International Business

Peter Buckley

• Publisher: Routledge
• Year: 2017
• Topic: Business
• eBook ISBN:
  9781351776790
• Subtopic: International Business
• Index: Business

This book was published in 2003.Over the years the challenges of international business in organisation and culture have been one of the most intriguing issues facing managers. Attempts at organisational innovation have tried to strike a balance between local markets' responsiveness and global efficiency. This book presents an overview of changing attitudes to the globalization of the firm and traces the increasing sophistication of management techniques necessary to cope with the increasing complexity of business world wide. It contains readings on the management of international business from 1936 to 1998. Looking at managing abroad and the internationalism of firms including issues of appraising foreign investment opportunities, the foreign investment decision process and the evolution of the multinational enterprise. The operations and planning of the multinational firm are surveyed over time from early models of "Headquarters and Subsidiary" to global strategies. The key issues of international strategic alliances and joint ventures are also examined; concluding with approaches to forward looking international management.

Introduction

Principles of Selection

Any editor has a duty to justify his selection, particularly when picking from a rich field. I have taken an important lead from the series title — History of Management Thought — and have tried to select those essays that speak to the management of international business activities. I have therefore chosen not to select essays which develop the theory of international business and the multinational enterprise or those that provide statistical and numerical analyses of the development of international business (a prime example being the UNCTAD Annual World Investment Report). I have also omitted simple 'how to do it' pieces which add little to our understanding of international business beyond the provision of lists of immediate action —action which is highly circumscribed by immediate contingencies. Developments in 'pure' theory are developed in parallel in this Introduction.

The essays are organized into four Parts: 'Managing Abroad and Internationalization', 'Operations and Planning of the Multinational Firm', 'International Strategic Alliances and Joint Ventures', and 'Forward-looking Approaches'. I have taken the view that this volume will remain in use for some time and have therefore included in Part IV some recent essays which illustrate those phenomena of the 1980s and 1990s that will be important in the future.

International business is an issues-based field — this is its strength. It lies in the intersection of applied economics, the theory of finance, business policy and corporate strategy and organization theory. It is close to other applied management fields such as marketing. This poses selection problems, not least because of the related field of comparative cross-cultural management, which requires a volume of its own.

The Textbook Literature up to 1970

One important parallel strand of writing on international business is that found in the evolution of textbooks on the subject. This section pursues that strand to the 1970s when the recognizable texts of today came into being. Textbooks have often influenced thinking on the subject of international business, as well as reflecting the subject's key developments.

Although writers of international economics texts from the 1950s onwards often included chapters, or sections, on foreign direct investment as part of an overview of capital flows (see the successive editions of Kindleberger's International Economics (first edition, 1953)), these sections increased in importance over time and developed in parallel with texts on international business and international management. An early example of texts on the international economy which went beyond the pure theory of international trade is Krause (1955) which included sections on international cartels, international commodity agreements, state trade, international investment (including direct investment), economic development and analysis of some international institutions (IBRD, IMF).

Texts on international management began to appear in the 1960s with John Fayerweather's (1960) Management of International Operations: Text and Cases as an early leader. Fayerweather puts international personnel relations at the centre of his exposition by including chapters on personal relations, community relationships and labour relations together with marketing, organization, financial management and operating policies. The illustration of each of these sections by cases makes this text well ahead of its time. Some early texts took an institutional view of the world economy, examining trade policy, the institutions of world trade, differing national policies (including those on regional integration, much to the fore in Europe) and saw foreign investment as part of this policy overview (Stark, 1963). Perhaps the first book which took a holistic view of international business policy was Richard Robinson's 1966 book of that title, which set international business within the contexts of international economics, politics and law. The determination of policy was influenced by the historical, legal, economic and political, environmental and time dimensions of international business, again in a most forward-looking framework. Martyn (1964) used the term 'international business' in the title of his book, setting the issues at the level of the firm and extending this to macro-issues.

By the time the first edition of Farmer and Richman's International Business: an Operational Theory emerged in 1966, the interplay of the firm and its international environment, and the comparative management questions, had become core issues in international business texts. There remained (and perhaps still remains) the notion that 'international business is what American corporations do abroad', and this view was perhaps exacerbated by the split (presaged in the authors' Comparative Management and Economic Progress (1965)) in which 'comparative management' compares local with foreign firms but 'international business' concentrates on what are now called multinational companies. Other early works in this tradition include Blough (1966) and Kolde (1968).

Fayerweather's 1969 text International Business Management: A Conceptual Framework consolidated these developments and it, together with The Strategy of Multinational Enterprise by Michael Brooke (one of the first non-US authors) and Lee Remmers (1970) set the standards for the plethora of mega-texts which were to follow.

The development of these texts was influenced by the general research literature on international business, which the remainder of this volume traces. It is of great interest to see the research literature permeating texts and teaching. As many fields in business schools are defined by key textbooks, the intellectual origin of the ideas which they contain is an important issue.

Managing Abroad and Internationalization

The first essay in this volume (Chapter 1) is Dudley Maynard Phelps' 1936 chapter 'Policies of Migrating Companies' from his book Migration of Industry to South America. This remarkable book, examining US firms investing in Argentina, Brazil and Chile, is definitely ahead of the time and is an exception to books before the Second World War in that it concentrates firmly on the management issues of direct foreign investment (DFI). Indeed, two other chapters (4) 'Difficulties Encountered by Migrating Firms' and (7) 'Operating Differences and Difficulties' may well have been chosen in addition, as they are extremely valuable in highlighting problems of foreign operation.

Cleona Lewis undertook a valuable role in the preparation of her 1938 volume America's Stake in International Investments which gave a comprehensive inventory of US inward and outward investments, both portfolio and direct, up to the eve of the Second World War. Here 'Appraisal of Business Opportunities Abroad' from her 1948 study of US foreign investment problems is chosen for inclusion as Chapter 2. This well-organized, common-sense approach to the evaluation process prior to investment is typical of Lewis's clear, empirically-based writing. It is amply supported by extensive evidence from official reports, the business press and executives' direct experiences.

During the mid- to late 1950s foreign investment became much more salient and the issues surrounding the management of international business began to be clarified. Edith Penrose's 1956 essay (Chapter 3) illustrates the problems of success — the high profits made by General Motors Holden in Australia.

John Dunning's 1958 study of American investment in British manufacturing industry is a classic and the chapter from this book included here as Chapter 4 examines the managerial techniques used by US firms in Britain. It was, of course, realized that DFI was not simply a flow of capital or a change of ownership, but the conduit by which technology, skills and organizational expertise were transferred internationally. This and Dunning's later work did much to focus on managerial skills as a major factor in the success of international firms. Dunning's work was sporadically followed by others. Early examples include, on inward investment, Benin's (1963) study of foreign investment in France and Marcus and Marcus (1960) on investment in the developing regions of tropical Africa.

The year 1966 saw two important and fundamental contributions made to the understanding of the issues central to international business management. Yair Aharoni's 'The Foreign Investment Decision Process' (Chapter 5) offers a classic description of the behaviour of inexperienced firms in making their first foreign investment decision. The five-stage process which Aharoni discerns is outlined in the abridgement of his book made by the present editor and reproduced here as Chapter 5. Aharoni's central contribution is to view the foreign investment decision as a process, taking place over time, in which a number of subdecisions are present. He underlines the importance of uncertainty and the role of information as firms attempt to combat the uncertainty inherent in going abroad for the first time by collecting information. Furthermore, the search for information is subject to bias and other imperfections. The first four stages of Aharoni's process constitute an excellent description of short-run decision making under uncertainty; the final stage is more long-term and involves the firm in making organizational innovations (the setting up of an international division) which consolidate its international outlook, organization and strategy.

Raymond Vernon's classic 1966 essay (Chapter 6), applying the product cycle model to international investment, is fundamental for a number of reasons. First, it represents a major contribution to international business theory in introducing dynamic elements to explain the growth and direction of (US) DFI over time — initially as market-seeking investment to defend a foreign market share initially built up by exports and then cost-reducing or 'efficiency-seeking' (to use a later term) investment in cheap labour countries as the product matures. Second, this formed one of the first true planning models for international business, with a clear message for multinational managers. As the product matures, the imperatives are: first, innovate; second, secure markets by exporting and then by foreign direct investment; and, third, reduce costs by relocating production to cheaper countries. Finally, the basic assertions of the product cycle model become the foundation for future generations of international planning models — notably those of Bartlett and Ghoshal (see below).

It is worth examining the basic assertions of the product cycle model. There are four such assertions:

1. Products undergo predictable changes in production and marketing.
2. There is restricted information on technology — proprietary technology, owned and controlled by individual firms, is crucial.
3. Economies of scale in production are prevalent.
4. Tastes differ, but they do so in a predictable fashion — according to income — and therefore products can be standardized and tailored to fit specific income groups.

These notions provide predictability on both demand and supply sides, therefore allowing the firm to plan ahead.

By the 1960s, attention had become focused not on foreign direct investment but, increasingly, on the multinational firm, the major channel for FDI. Many terms competed to describe the international firm, but the multinational enterprise or corporation became the most usual. Howard Perlmutter caught this mood with his 1969 essay 'The Tortuous Evolution of the Multinational Corporation' (Chapter 7)

The shift to a focus on the multinational enterprise is customarily traced, in the theory of international business, to Stephen Hymer's 1960 MIT doctoral dissertation The International Operations of National Firms' (Hymer, 1976), largely originally mediated through Charles Kindleberger's American Business Abroad (1969) (Kindleberger was Hymer's PhD adviser). The Hymer—Kindleberger tradition focused on the multinational enterprise as the possessor of certain firm-specific advantages, which enabled a foreign firm to overcome the innate strength of indigenous firms when competing with them on their own turf. These propositions shifted the analysis away from the theory of capital movements, which was proving incapable of dealing with the multinational enterprise, into the theory of industrial organization.

The internationalization process of the firm was extensively studied and became a speciality of analysts at the University of Uppsala. The 'Uppsala internationalization process' has important implications for international business managements and is represented in this volume by two essays from 1975 and 1979. Johanson and Wiedersheim-Paul's study (Chapter 8) is based on just four case studies of the internationalization processes in Swedish companies, yet began a research tradition which still runs. The 'stages approach', or 'gradualist internationalization process' or 'creeping incrementalism' which it presents gave rise to considerable controversy and criticism (Turnbull, 1987). The principal criticisms were that the processes described were too rigid, were culturally specific to Swedish (or small-country) firms, were inapplicable across a wide range of industries (for example, services), were valid only for firms early in their international experience, and that the process ignored competition. All these criticisms were valid but were based on the proposition that the stages approach was rigid, invariant and universal, and that the firms involved were incapable of learning — either from other units of their own firm or from other firms. The process is not presented as set in stone, but as one approach among many (see Buckley, Newbould and Thurwell (1988); Buckley, Berkova and Newbould (1983)). Further elucidation was provided by Johanson and Vahlne (Chapter 9) who placed, in 1977, the internalization process in the context of knowledge developments — a factor which chimed in well with developments in the theory of the multinational firm occurring at about the same time.

The final chapter in Part I, by Hallén and Wiedersheim-Paul, examines the crucial issue of 'psychic distance' — the cultural distance from the investing country to the host country. This essay led the way to later studies of cultural distance between locations which became formalized (and, to some extent, straitjacketed) in the work of Geert Hofstede (1980). The essay by Hall...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• Acknowledgements
• Series Preface
• Introduction
• Name Index