Here on our website, we've listed the chapter synopsis from the book's expanded Table of Contents. Thesis statements are then provided for the main source(s) discussed in each section of the chapter, along with a list of additional readings discussed in the section. Where possible, we've provided links to publicly available sources. To read our detailed synopsis, discussion, and thoughts about the practical application of the ideas presented in the sources listed below, buy the chapter by clicking on the cover image (or buy the entire book).
Chapter 5: International Business
All companies—even new companies in new industries—must consider the global environment in which they operate. Key international business literature addresses dimensions such as theories of multinational enterprises, international political economy, multinational management, and culture. These dimensions provide managers with tools and concepts needed for growing beyond national borders.
Theories of the Multinational Enterprise
Understanding the reasons, processes, and outcomes associated with multinational business has been aided by recent development of theories of the multinational enterprise (MNE). Such theories address international operations and the control-based forms of multinationals, product lifecycles, stage theories of internationalization, and the eclectic theory based on ownership, location, and internalization advantages.
STEPHEN H. HYMER. 1960. The International Operations of National Firms: A Study of Direct Foreign Investment. Cambridge, MIT Press, 1976.
Thesis: Foreign investment is driven not by differing interest rates, but by the desire to achieve control of a foreign subsidiary and to increase profits. Foreign investment appears to be particular to certain industries and firms.
RAYMOND VERNON. 1971. Sovereignty@Bay: The Multinational Spread of U.S. Enterprises. New York, Basic Books.
Thesis: U.S. firms gather raw materials or manufacture goods overseas to achieve lower-cost production. Key elements are time, oligopoly, production factors, innovation, demand, price, risk, market change, and the cost of technology transfer.
JAN JOHANSON and JAN-ERIK VALHNE. 1977. "The Internationalization Process of the Firm: A Model of Knowledge Development and Increasing Foreign Commitments." Journal of International Business Studies 8(1), 23–32. Available from JSTOR.
Thesis: Knowledge is the most important scarce resource to be maximized; internationalization facilitates the acquisition and use of knowledge. Companies geographically diversify as they incrementally internalize knowledge from ever more psychically-distant countries.
JOHN H. DUNNING. 1988. "The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions." Journal of International Business Studies 19(1), 1–30. Available from JSTOR.
Thesis: The determinants of foreign direct investment (FDI) can be classified into three categories based on the ownership, location, and internalization (OLI) advantages available to multinational corporations (MNCs).
Thesis: Theories of multinationalization focus on the firm rather than on the nation. Explanations for multinationalization include product market competition and transaction cost economics.
- Caves, Richard E. 1996. Multinational Enterprise and Economic Analysis. Cambridge, Cambridge University Press.
- Buckley, Peter J. and Mark Casson. 1998. "Models of Multinational Enterprise." Journal of International Business Studies 29(1), 21–44. Available from JSTOR.
- Caves, Richard E. 1998. "Industrial Organization and New Findings on the Turnover and Mobility of Firms." Journal of Economic Literature 36, 1947–1982.
Internationalization Advantages and Approaches
Internationalization is intended to provide companies with competitive advantages, and companies take various approaches to their foreign market entry and expansion in the context of broader economic, political, and business activities. Knowledge acquisition and internalization are key to multinational corporate evolution.
JOHN H. DUNNING. 2001. "The Key Literature on IB Activities: 1960–2000." In A. Rugman and T. Brewer (editors), The Oxford Handbook of International Business. New York, Oxford University Press. Ch. 2.
Thesis: The literature on internationalization over the past forty years has emphasized the determinants of ownership and examined the impact of changes in the external environment on research itself.
BRUCE KOGUT and UDO ZANDER. 1993. "Knowledge of the Firm and the Evolutionary Theory of the Multinational Corporation." Journal of International Business Studies 24(4), 625–645.
Thesis: Firms exist because they are repositories of social knowledge that structure cooperative action. Knowledge includes information (e.g., a description of how to ride a bicycle) and know-how (e.g., knowing how to ride a bike).
WILBUR CHUNG. 2001. "Identifying Technology Transfer in Foreign Direct Investment: Influence of Industry Conditions and Investing Firm Motives." Journal of International Business Studies 32(2), 211–229.
Thesis: Multinationals transfer some capabilities to unaffiliated firms, such that the host country's industry gains from the presence of the MNE's subsidiaries.
ANNE-WILS HARZING. 2002. "Acquisitions versus Greenfield Investments: International Strategy and Management of Entry Modes." Strategic Management Journal 23(3), 211–227. Available from Wiley.
Thesis: A multinational's strategy links the choice of entry mode to the type of subsequent management. Overseas acquisitions are initially less controlled by headquarters and more responsive to local conditions than are greenfield overseas-startup subsidiaries.
FREEK VERMEULEN and HARRY BARKEMA. 2002. "Pace, Rhythm and Scope: Process Dependence in Building a Profitable Multinational Corporation." Strategic Management Journal 23(7), 637–653. Available from Wiley.
Thesis: The characteristics of a firm's international expansion impact its profitability. It takes time to accumulate resources, and there is a limit to each company's capacity to absorb new experience.
- Luo, Yadong and Seung Ho Park. 2004. "Multiparty Cooperation and Performance in International Equity Joint Ventures." Journal of International Business Studies 35(2), 142–160.
- Vachani, Sushil. 1991. "Distinguishing Between Related and Unrelated International Geographic Diversification: A Comprehensive Measure of Global Diversification." Journal of International Business Studies 22(2), 307–322. Available from JSTOR.
International Political Economy
The environment in which MNEs operate affects—and is affected by—the MNEs. As economic actors, MNEs affect other companies, the labor force, technological and overall economic growth in their host countries. As political actors, MNEs may influence the political environment in these countries in ways that can be inconsistent with the political aims of the corporate headquarters.
STEPHEN J. KOBRIN. 2001. "Sovereignty@Bay: Globalization, Multinational Enterprise, and the International Political System." In A. Rugman and T. Brewer (editors), The Oxford Handbook of International Business. New York, Oxford University Press. Ch. 7.
Thesis: International business research has touched on the relationship between multinationals and governments but has not (a) predicted the end of the nation-state, (b) shown that sovereignty is fatally compromised, nor (c) defined terms like sovereignty, autonomy, and control. The MNE and nation-states are inextricably linked.
ROBERT GILPIN. 2001. Global Political Economy: Understanding the International Economic Order. Princeton, Princeton University Press.
Thesis: International political economy extends the focus of economics to examine (a) the distribution of gains from market activities and (b) the impact of the world economy on nations' power, values, and political autonomy. The three archetypes of national economies are the U.S., Japanese, and German models.
THOMAS MURTHA and STEPHANIE LENWAY. 1994. "Country Capabilities and the Strategic State: How National Political Institutions Affect Multinational Corporations' Strategies." Strategic Management Journal 15(S2), 113–129.
Thesis: Multinational strategies interact with state strategies. National institutions contribute to state capabilities, forming a basis for competitive advantage.
TIMOTHY P. BLUMENTRITT and DOUGLAS NIGH. 2002. "The Integration of Subsidiary Political Activities in Multinational Corporations." Journal of International Business Studies 33(1), 57–77. Available from JSTOR.
Thesis: Strategic and political activities are connected: the more a corporate subsidiary is integrated with its affiliates strategically, the more it is integrated with other subsidiaries politically.
JOSEPH E. STIGLITZ. 2002. Globalization and its Discontents. New York, Norton.
Thesis: Globalization has brought both gains (e.g., faster growth, better technology, improved literacy) and losses; institutions like the World Bank and the International Monetary Fund have a mixed record. The IMF should adopt non-economic objectives, become more transparent, customize its approach more to each country, and engage in a staged process rather than all-at-once interventions.
- Rugman, Alan M. and Alain Verbeke. 1998. "Multinational Enterprises and Public Policy." Journal of International Business Studies 29(1), 115–136. Available from JSTOR.
- Hillman, Amy J. and Michael Hitt. 1999. "Corporate Political Strategy Formulation: A Model of Approach, Participation, and Strategy Decisions." Academy of Management Review 24(4), 825–842. Available from JSTOR.
- Furman, Jeffrey L., Michael Porter, and Scott Stern. 2002. "The Determinants of National Innovative Capacity." Research Policy 31, 899–933.
MNEs, as HQ and subsidiary units, affect the environments in which they operate (both politically and economically). In this context, MNE managers must determine how to structure the activities between headquarters and subsidiary. How should the structure map to the firm's strategy and learning, and the market needs of the industry globally and locally?
JOHN M. STOPFORD and LOUIS T. WELLS Jr. 1972. Managing the Multinational Enterprise. New York, Basic Books.
Thesis: A firm's structure evolves as its international activities increase. If the mismatch between a firm's structure and strategy is severe, it may incur higher costs or miss opportunities.
Thesis: Subsidiaries are increasingly concerned with resource development over market positioning, and subsidiaries have some freedom to shape their own strategy separate from headquarters. Companies need to install structures that allow the local managers sufficient autonomy.
BARTLETT, CHRISTOPHER A. and SUMANTRA GHOSHAL. 1998. Managing Across Borders. Cambridge, Harvard Business School Press.
Thesis: Organizational forms must match competitive demands. To compete globally, a transnational company must develop global competitiveness, multinational flexibility, and worldwide learning capability simultaneously.
RUGMAN, ALAN M. and ALAIN VERBEKE. 2001. "Subsidiary-Specific Advantages in Multinational Enterprises." Strategic Management Journal 22(3), 237–250.
Thesis: Multinationals develop firm-specific and subsidiary-specific advantages based on competencies that are unique to the MNC and to the location of each subsidiary.
INKPEN, ANDREW. 2001. "Strategic Alliances." In A. Rugman and T. Brewer (editors), The Oxford Handbook of International Business. New York, Oxford University Press. Ch. 15.
Thesis: Strategic alliances are enduring inter-firm cooperative arrangements that employ resources from autonomous organizations in different countries to create value unachievable by either parent organization acting alone.
- Martinez, Jon I. and J. Carlos Jarillo. 1989. "The Evolution of Research on Coordination Mechanisms in Multinational Corporations." Journal of International Business Studies 20(3), 489–514. Available from JSTOR.
- Harzing, Anne-Wils. 2000. "An Empirical Test and Extension of the Bartlett and Ghoshal Typology of Multinational Companies." Journal of International Business Studies 31(1), 101–120. Available from JSTOR.
In the international context, corporate culture mixes with national culture and becomes even more central to organizational performance. Culture affects foreign market entry mode, multinational management, and international negotiations.
GEERT HOFSTEDE. 2001. Culture's Consequences: Comparing Values, Behaviors, Institutions, and Organizations Across Nations. Thousand Oaks, Sage.
Thesis: National culture has five dimensions: power distance, uncertainty avoidance, individualism/collectivism, masculinity/femininity, and long-term/short-term orientation. The basic values of a multinational are determined by the nationality and personality of its founders and leaders; cultural profiles have distinctly different sets of competitive advantages and disadvantages.
IVAN M. MANEV and WILLIAM B. STEVENSON. 2001. "Nationality, Cultural Distance, and Expatriate Status: Effects on the Managerial Network in a Multinational Enterprise." Journal of International Business Studies 32(2), 285–303. Available from JSTOR.
Thesis: The characteristics of multinational managers influence how those managers exchange knowledge and adopt practices. Informal expressive ties tend to be stronger than formal instrumental ties, and such expressive ties are strengthened by having managers from the same nations and by having managers with smaller cultural distance and from similar status levels.
- Schwartz, Shalom H. 1999. "A Theory of Cultural Values and Some Implications for Work." Applied Psychology: An International Review 48(1), 23–47. Available from Wiley.