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Introduction

Networked Multinational Enterprises in the Modern Global Economy

Peter J. Buckley

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The Governance of the Global Factory: Location and Control of World Economic Activity

Networked Multinational Enterprises in the Modern Global Economy

Peter J. Buckley and Roger Strange

Recent years have witnessed major changes in the global location of economic activity, with the emerging economies assuming greater shares relative to the advanced economies. These developments have led many authors to refer to the idea of the global factory. But little attention has been given to who has control over the geographically dispersed activities—or, to put it another way, about the governance of the global factory. Have the changes in the global location of economic activity come about primarily through the growth of locally owned firms in the emerging economies, or through increased FDI by MNEs from the advanced economies, or through the proliferation of outsourcing arrangements coordinated by firms in the advanced economies? These control/governance issues have profound implications for the capture of the profits/rents earned in global value chains, and hence for the global distribution of income. This paper explores these issues, and considers who has benefited most from the contemporary phase of globalization.

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Global Interfirm Networks: The Division of Entrepreneurial Labor Between MNEs and SMEs

Networked Multinational Enterprises in the Modern Global Economy

Peter J. Buckley and Shameen Prashantham

We advance a multifaceted and spatially anchored account of the who, the how, and the where of global interfirm networks through our novel conceptualization of the division of entrepreneurial labor between multinational enterprises (MNEs) and small and medium-size enterprises (SMEs). The capability dimension pertains to the differential capability sets of SMEs and MNEs in exploration and exploitation, repsectively (the who). The connectivity dimension posits network orchestration/participation and dialogue as differentially addressing the distinct facets of interdependence–viz., mutual dependence and power imbalance, respectively (the how). The contextuality dimension concerns the differential approaches adopted in advanced versus emerging economies (the where).

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The Global Factory

Networked Multinational Enterprises in the Modern Global Economy

Peter J. Buckley

This key new book synthesises Peter Buckley's work on ‘the global factory’ – the modern networked multinational enterprise. The role of interfirm networks, entrepreneurship and cooperation in the creation and management of global factories leads to a discussion of their governance, internal knowledge transfer strategies and performance, including their role in potentially combating societal failures. Emerging country multinationals are examined as a special case of global factories with a focus on Indian and Chinese multinationals, their involvement in tax havens and offshore financial centres, the performance and processes of their acquisition strategies – all seen as key aspects of globalisation.
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Foreword

Networked Multinational Enterprises in the Modern Global Economy

Peter J. Buckley

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Trade and FDI revisited: the role of location

A Narrative of Theory and Practice

Robert Pearce

In terms of the broad theoretical prospectus (OLI) this chapter elaborates on location advantage, but does this through an exposition of the ideas of Kojima. The chapter presents the case of ‘trade-creating FDI’ (ES operations in NH-from Chapter 4) as reflecting the ability of MNEs (in a freer-trade context) to activate a country’s sources of ‘static comparative advantage’ as positive LAs, thereby generating enhanced efficiency and welfare and providing host economies with a strong impetus to growth and development. This is contrasted with the case of ‘trade-destroying FDI’ where a constrained international environment (trade barriers operating as negative LAs) generates the inefficiencies of MS operations in the MH.

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Multinationals: in theory and practice

A Narrative of Theory and Practice

Robert Pearce

Outlines the aims, themes and content/structure of the book (i) To track the development of a theory of IB that will allow the understanding and evaluation of MNEs as agents in the global economy. (ii) To trace the evolution of the MNE as an organisational structure that has changed through time in response to changes (institutional and technological) in the global economy. (iii) To point up the ways in which these two analytical strands have overlapped in mutually supportive and elucidatory ways. (iv) Provides and elaborates a definition of the MNE.

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Robert Pearce

The established mainstream theorising in IB (expounded in Chapters 2, 3, 5, 6) was based on MNEs from fully industrialised ‘Western’ economies. This then assumed that firms internationalised when they felt confident in their ability to do so and could discern reasons for doing so. The recent appearance of significant numbers of MNEs from emerging economies (that is, at relatively early stages in their technological and industrial development) has been argued to defy the basic tenets of IB and to need new theorising. This chapter aims to refute this. Firstly, by showing how the extant theorising can help clarify the precise nature of the challenges raised by the EE-MNEs. They expand internationally before the level of development of their home country should have allowed them to generate the competitive capacities to do so. Secondly, by then repositioning elements of the established analytical approaches so as to provide a coherent understanding of the new EE-MNEs. The essence of the later viewpoint is to see these new MNEs as integral to the ongoing development of their home country. There are two strands to this. One, that they are able to overcome the vulnerability of their in-house competences by various supports (capital; foreign exchange; diplomatic support) from their home country. Two, they secure this support by projecting their ability to achieve international objectives in support of their country’s ongoing developmental needs. As exemplified by the case of China there are two such needs discerned. Access to resources (a ‘resource-seeking’ role for the MNEs) that become necessary to underpin the persistence of current developmental priorities (based primarily on low-cost labour). Secondly, access to new innovation-supporting technologies (KS strategies for MNEs) so as to help create new directions for development.

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Robert Pearce

The two hierarchical organisation structures discussed in Chapter 4 both involved the ‘exploitation’ of firms’ mature sources of competitiveness. The organisational ‘transition’ analysed here involves the increased relevance of the other key priority: ‘exploration’ for new sources of competitiveness. This is analysed as ‘knowledge seeking’ (KS) with MNEs addressing the diverse knowledge and innovation capabilities of an increasing number of countries that possess different creative potentials. The adoption of KS alongside ES (and possibly elements of MS) characterises the modern MNE as a dynamic differentiated network or heterarchy/transnational. The chapter explores in detail two key manifestations of the KS imperative in these MNEs. (i) The decentralisation of innovation. This section incorporates an elaboration of the different competitive roles now played by subsidiaries in the modern MNE, so as to emphasise the emergence of those subsidiaries (product mandates; strategic leaders; competence creating subsidiaries) that aim to innovate for their MNE group from attributes of the host economy. (ii) The decentralisation of R & D. Traces how the academic understanding of R & D in MNEs evolved from an initial quantitative awareness of its significance to a more qualitative comprehension of the varied roles that have been played by differently positioned overseas R & D labs. Some of these roles are seen as co-determined with innovation subsidiaries but others take more stand-alone positions (basic-research units).

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Robert Pearce

Presents the essence of ‘internalisation’ theory as market failures for intermediate goods. Asserts that, in itself, internalisation has no innate ‘international’ component; its relevance in IB emerges when the transfer of the intermediate good (involving the internalising/externalising choice) will cross national borders. Thus internalisation theory invokes elements of the theory of the firm to analyse market failure for particular intermediate goods. As there are innumerable such intermediate goods the chapter offers a categorisation of these relevant to a positioning in IB. (i) Outward internalisation: relates to the international expansion of a firm, based around the internalised use of its current defining sources of competitiveness. Can be seen as ‘strategic’ in that it involves key decisions about the future nature of the firm’s operations as based around these established competences. (ii) Inward internalisation: relates to the internalisation of sources of supply of inputs to the firm’s already defined operations (for example, raw materials; components; services). Considered as ‘tactical’ since the aim is to optimise access to standardised intermediates whose need is determined by the firm’s in-place competitive objectives. (iii) Vertical internalisation: the internalisation of a sequence of intermediate good transfers positioned within the series of value-adding stages of a vertically integrated MNE. The chapter discusses the classic case of market failure for technology as an intermediate good, with particular emphasis on ‘seller uncertainty’, which is often relatively overlooked compared to ‘buyer uncertainty’.