Chapter 3: The Boundaries of Firms: A Global Systems Perspective
3. The boundaries of ﬁrms: a global systems perspective 3.1 INTRODUCTION This chapter analyses the boundaries of the ﬁrm from a system-wide perspective. It re-examines some of the issues raised in the previous chapter. New hypotheses are generated by situating the previous analysis within a systems approach. In the previous chapter the unit of analysis was the individual ﬁrm. In the present chapter the unit of analysis is the global economy. The analysis predicts not only where the boundaries of any given ﬁrm will be drawn, but how many ﬁrms there will be, and where their boundaries will interface with one another. Despite the frequent references to ‘globalization’ within the IB literature, a coherent account of the economic structure of the global economy is hard to ﬁnd. When they appeal to formal models, IB scholars tend to cite standard economic theories of international trade: these may be theories of factor substitution, such as the Heckscher–Ohlin–Stolper–Samuelson theory (see for example, Kemp, 1964), or the theories of strategic trade policy based on transport costs and increasing returns to scale (Helpman and Krugman, 1985). It is well known, however, that such theories focus upon industries rather than ﬁrms. To take a systems view of the MNE it is necessary to disaggregate the global economy from the industry level to the level of the individual production facilities. In this chapter the global economy is portrayed as a collection of facilities linked together by a complex web of product and knowledge ﬂows....
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