Network Knowledge in International Business

Network Knowledge in International Business

New Horizons in International Business series

Edited by Sarianna M. Lundan

This book focuses on current cutting-edge research concerning the increasing strategic importance of subsidiary networks to the multinational firm. It combines contributions from three major related areas of inquiry: the changing theoretical conception of networks and the structure of the multinational firm, the importance of spillovers and agglomeration economies related to multinational investments, and the management of the flow of information and knowledge from headquarters to subsidiaries and vice versa.

Chapter 1: Introduction

Sarianna M. Lundan

Subjects: business and management, international business


Sarianna M. Lundan Like much of the literature on strategic management today, we begin and end this introductory discussion by reference to resources. The resource-based view of the firm, whether applied in its original form (see e.g. Barney, 1991; Conner, 1991; Peteraf, 1993), or as a more general concept, postulates that differences in performance between firms are due to their different resource endowments. Thus the answer to the question of what makes one firm outcompete another is said to lie in the possession of resources that are value creating, rare and difficult to imitate. Of these, rarity seems to have the most explanatory power, if only because in addition to being the dismal science, economics is the science of scarcity, and the economic idea of value is inexorably linked to scarcity. Of course, to an extent rarity is a function of the time and effort someone is willing to put into imitation, but this seems a secondary condition, since by definition, things that are genuinely rare are not likely to be imitated very easily. Firms thus compete based on their ability to own and access rare resources, which in itself is not new. Firms have always had an incentive to integrate vertically, whether in the case of backward integration into resources, or forward integration into marketing and distribution outlets. Transaction cost analysis and the theory of internalization have been used to explain why, under conditions of uncertainty, the transaction costs over the market can become prohibitive, and firms would prefer...