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 7: Real Options in International Business

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

Extract

with Mohamed Azzim Gulamhussen 7.1 INTRODUCTION The study of real options is a relatively new field (Campa, 1994; Dixit and Pindyck, 1994). It has important implications for the analysis of business behaviour. It can explain many of the characteristics of real-world decisions which until recently were believed by many people to defy analysis. It can explain the ‘wait and see’ approach to investment, which often seems to indicate procrastination and indecisiveness. In fact, ‘wait and see’ can be an entirely rational risk management strategy. Similarly, it is observed that many managers make only a token commitment of resources at the start of a project. The project has to ‘jump’ a succession of hurdles in order to expand to its full size. This apparently over-cautious ‘bureaucratic’ approach can also be understood as a rational risk management strategy. Not all the behaviour explained by real options is seemingly irrational, however. Real options can also explain sophisticated aspects of behaviour (Schmitzler, 1991). Real options can be used to analyse the pursuit of flexibility in modern international business strategy, as described in Chapter 1 (Kogut and Zander, 1993). Because the field of real options research is so new, some important conceptual issues need to be clarified. The term ‘real option’ is not always used in the same way by different writers. It is necessary to clear up some potential confusions when introducing the topic. Real options are non-trivial. Their logic is quite complex. They typically involve situations spanning several time periods, where items...

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