Economics of International Business

Economics of International Business

A New Research Agenda

Mark Casson

Economics of International Business sets out a new agenda for international business research. Mark Casson asserts that it is time to move the subject on from sterile debates about transaction cost economies and resource-based theories of the firm. Instead of focusing on the individual firm, the new agenda focuses on the global systems view of international business. A static view of the firm’s environment is replaced by a dynamic view which highlights the volatility of the international business environment. Coping with volatility requires entrepreneurial skills, flexibility and the need to synthesize information on a global basis. To co-ordinate the global system properly, entrepreneurs must co-operate through social networks of trust, as well as competing. Constructing a network of joint ventures, it is argued, is simply not enough.

Chapter 2: Foreign Market Entry: A Formal Extension of Internalization Theory

Mark Casson

Subjects: business and management, international business, research methods in business and management, economics and finance, industrial organisation, international business, research methods, research methods in business and management


with Peter J. Buckley 2.1 INTRODUCTION Empirical studies of FDI have become much more ambitious in scope over the last 30 years. In the 1960s the main focus of the Hymer–Kindleberger theory (Hymer, 1976; Kindleberger, 1969) and the product cycle theory (Vernon, 1966) was exporting versus FDI. In the 1970s the internalization approach identified licensing, franchising and subcontracting as other strategic options. The resurgence of mergers and acquisitions in the 1980s – often as a ‘quick fix’ route to globalization – highlighted the choice between greenfield ventures and acquisitions. At the same time, the growing participation of US firms in international joint ventures (IJVs) drew attention to the role of co-operative arrangements. In the 1990s the role of FDI in ‘transitional’ or ‘emerging’ economies (East and Central Europe, China, Vietnam, and so on) has brought back into focus some of the classic issues of the 1960s: the ‘costs of doing business abroad’ and the importance of ‘psychic distance’. It has renewed interest in the general question of why some modes of entry offer lower costs than others, and of why certain circumstances seem to favour certain modes over others. Linking all these issues together generates a high degree of complexity. Although the eclectic theory has been regularly revised and updated to accommodate the changing foci of applied research, it is too much of a ‘paradigm’ or ‘framework’ and too little of a ‘model’ to provide detailed advice on research design and hypothesis testing (Dunning, 1980). Complexity appears to have...

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