An international business strategy approach

Globalization and development:  an international business strategy approach

The early debate on the role of foreign direct investment (FDI) in developing countries has been neatly characterized as “colourful and fluid” (Balasubramanyam, 1985, p. 159).  One reason for the colourfulness of this debate was its emergence within the politically-charged birth of development economicsper se and related attempts to co-opt it into disparate wider p o l i t i c a l - e c o n omi c   p o s t u r e s T h i s   p o i n t s   f o rwa r d   t o  my, hopefully calmer, concern here with the parallel need to evaluate t r a n s n a t i o n a l   c o r p o r a t i o n s   ( TNC s )   a s   p a r t i c i p a n t s   i n   t h e processes of globalization.  Another factor in leaving the early debates open and fluid was the lack of a commonly agreed methodology   for   analyzing,   in a convincing   manner an observable mode of international transaction (FDI) with an obvious potential for a wide-ranging diversity of often intangible or unmeasurable implications.  This meant that much early analysis of the developmental effects of FDI fractured around detailed investigations of specific aspects of a wide range of separate areas of concern (e.g. extent and appropriateness of technology transfer;  job generation and employment conditions; the allegation of decapitalization; balance-of-payments and trade effects;  bargaining mechanisms;  spillovers; industry structure). The  emergence of a separate analysis of the TNC (as the principal source  of  FDI )  and its  immediate  association with market imperfections further undermined attempts (e.g. MacDougall,1960) to formalize the evaluation of FDI around the constructs of orthodox trade theory and, in particular, perfect competition.

If  early  theorizing of   the  TNC helped  to  explain  the indecisiveness of attempts to evaluate the implications of FDI, then the subsequent analysis of these firms, now most usefully positioned at the interface of business strategy and economics, provides methodologies that are highly attuned to elucidation of issues of globalization and development.  Central to this analysis, and to the lines of argument developed here, is a preference for organizing an understanding of diversity, rather than simplifying it or assuming it away.  Two vectors of diversity define the structure of our subsequent analysis.

Firstly, the aims of an evaluation of TNCs in a globalized economy are seen as still having logical origins in the diversity of concerns addressed in early analysis of FDI.  However, to organize these into a more functional structure, I suggest that these variegated concerns can be subsumed into an evaluation framework of four distinct generic issues (Dunning and Pearce, 1994).  Within globalization, the opening of national economies (with an increasing freedom of trade) has been interpreted as a l lowing TNCs   to  improve   the  ways   in which productive resources are used, so that efficiency becomes an element of the framework through which we evaluate their performance.  By contrast the “flexibility and adaptability” (Balasubramanyam,1985, p. 160) provided to TNCs by globalization may limit their need for positive embeddedness in the growth and development processes of individual national economies.  This provides another concern for the evaluation framework.  However, an important insight of analysis of the growth of TNCs was thatorganizing globally through “an internal bureaucracy of the enterprise transcending the market” (Balasubramanyam, 1985,p. 161) gave them powers “in areas of pricing of products and technologies”, and in bargaining more generally, that raised issues of the distribution “of gains between [TNCs] and host countries”; furthermore, these characteristics of TNCs give them control over dispersed elements of a global strategy that can be “seen to pose a threat to the economic sovereignty of new nation states in the Third World” (Balasubramanyam, 1985, p. 161). The core of this article, therefore, seeks to evaluate the implications of TNCs in terms of the four broadly-defined issues of efficiency, distribution, sovereignty,   and   growth and development. To do this, it is useful to characterize the strategic posture of the contemporary TNC as one of seeking to use the increasing freedoms of international transfers, reflecting the essence of economic globalization, to leverage the differences between  economic are as. Such are as may,  in practice,  be national   economies ( especially  where  policy  factors   are influential), regions defined by the capacity to support costeffective production, or the type of technology- and skill-based agglomerative clusters that build around creative interdependencies and tacit-knowledge spillovers (Porter, 1998, chapter 7 ;     Birkinshaw and  Hoo d,  2000; Cantwell  and lammarino,1998; Balasubramanyam and Balasubramanyam, 2000).