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The Development of International Business

A Narrative of Theory and Practice

Robert Pearce

In this wide-ranging and groundbreaking new book, Robert Pearce provides an analytically-informed basis for understanding the modern multinational enterprise. It does this by tracing the development over the past half-century of two parallel strands of analysis in International Business; designated as the ‘theoretical’ and the ‘practical’. The book shows how the practical restructuring of the MNE as an organisational form has responded to changes in the wider global economy and how this evolution has interfaced with the enriching of the relevant theorising. By tracing the persisting dynamics of the MNEs’ structure and strategic positioning it demonstrates how what it is now can be used as a template for understanding and organising its further evolution as additional changes condition its environment.
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Introduction and acknowledgements

A Narrative of Theory and Practice

Robert Pearce

The aim of the book is to provide a broad-brush overview of frameworks and methodologies that can help us to understand and evaluate the role and status of the Multinational Enterprise (MNE) in the current global economy. The fact that the context of the ‘current’ global economy is coming under stresses and uncertainties that have emerged since the writing began in the spring of 2016 may, indeed, add an extra dimension of relevance to the approach adopted, since key emphasis will be placed on the MNE’s strong historic propensity for reactive dynamism and its possession of a strategic diversity that provides it with a range of evolutionary (rather than potentially disruptive) future options.

To address this overarching agenda the book adopts two, closely interlinked, organising themes. The first is to position our current understanding of International Business (IB) as the outcome of processes of change that we trace through roughly the past half-century. We will find the roots of our contemporary analysis and concerns emerging during the 1960s. This will conveniently underwrite the core proposition of the essential reactive adaptability of the MNE, since we can then stylise the institutional and policy contexts that conditioned the firms of that time as massively and categorically different from those faced today. Of course, in most areas of analysis and interpretation, an effective comprehension of any contemporary reality can be greatly enhanced through an understanding of from where that reality had emerged. But, quite suddenly, such knowledge of the evolutionary dynamics of IB may be taking on an enhanced and direct relevance. To a considerable degree the external contexts in which MNEs have functioned had seemed relatively settled (institutionally and ideologically) for several decades. As already suggested this no longer seems as reliably true. Knowledge of the MNE’s responsive dynamic capacities and its available scopes and options seem likely to come back into play. Whereas it seems implausible to anticipate ‘mirror image’ regression of MNEs into one of their antecedent formats, it does seem logical to expect its future dynamics to involve some reformulation or remix of its past experience and operative formulations. If its current structures and motivations do become a step on the road to a revised status in a new global economic order how it got here will provide essential pointers.

The second main organising principle of the narrative is then to trace out the development of two seemingly mostly independent strands of analysis, designated here as ‘theory’ and ‘practice’, and then to suggest and advocate the frequent intuitive and mutually supportive interdependencies between their processes of interpretive enhancement. Given the author’s career-long involvement with the ‘Reading School’ of IB the theoretical strand is, inevitably and unashamedly, positioned around the elements of Dunning’s ‘eclectic’ framework. But the narrative will reflect and build on the value of this eclecticism, by tracing the ways in which separate contributions (reflecting independent roots in different areas of economics) have fed into the overall paradigm. Different aspects of the argument can then be developed to provide separate analytical insights into ‘how’ firms are able to become MNEs, ‘when’ and ‘where’ this led them to initiate and locate overseas value-adding activities, as well as important decisions regarding ownership and control structures.

This eclectic agenda not only points to the practical versatility of Dunning’s paradigm but also to a key interpretive theme of this book. The defining purpose of IB, as it became formulated as an independent discipline, was to apply theoretically rigorous analytical constructs to the resolution of practical issues provoked by the expansion of national firms into international operations. The discipline emerged to provide orderly frameworks to elucidate a diverse and ever-changing reality.

The second, ‘practical’, strand then usefully reverses the analytical causation by arguing that once the broad tenets of these theory-based frameworks were in place they served very effectively to allow us to understand the origins, nature and implications of major organisational restructurings in MNEs. We can then see the MNE as a network of diverse subsidiary operations that is always open to reconfiguration as institutional and economic conditions change. We will systematise this process of evolution over the past half-century as one from a ‘multi-domestic hierarchy’ organisational structure (reflecting a protection dominated global economy) to a ‘network hierarchy’ (adapting to the potentials of freer trade and global supply networks) to the ‘heterarchy or transnational’ (internationalising their innovation and R&D in more heterogeneous and strategically diverse structures). Whereas the established theoretical modalities provided for a prompt and informed analysis of such evolving structures, the process of understanding such new dimensions of organisation and strategic complexity also fed back to an enrichment of the theoretical perspectives themselves; theory and practice in IB evolved together. The book can then conclude by reverting to a major objective by showing how the analytical intermeshing of the theoretical and practical strands – as well as acceptance of their mutually contingent interactions with the MNE’s external environment – can help us to formalise ways of evaluating the performance implications of these firms for explicit and implicit stakeholders. This too may take on new or revised facets as the national and international contexts face unexpected changes and forces.

As always, my greatest debt in production of the manuscript is to Jill Turner who typed it with her usual accuracy and patience. I am also grateful to Nick Turner for ‘sorting out’ the figures!

Robert Pearce

Reading

January 2017