Docstoc

INTERNATIONALISATION

Document Sample
INTERNATIONALISATION Powered By Docstoc
					Teerayut Wattanasupachoke




                          Internationalisation:
                        Motives and Consequences


                                            By


                      Teerayut Wattanasupachoke*, Ph.D.




Abstract                                     Firms can undergo international
                                             operations by investment entry modes.
     In recent decades, the global           These entail joint ventures, consisting
business environment has been growing        of contractual operations, equity joint-
dramatically. We are living in a more-       venture and strategic alliance, and sole
than-ever-interdependent world. Many         ventures or the establishment of a
firms involve in the process of              wholly owned subsidiary
internationalisation, engaging their
operations outside the boundary of                The      advanced      technological
their home country.       The level of       change, trade liberalisation and
involvement of firms in international        intensified international competition
process can be specified by different        are the factors that facilitate and drive
types of foreign market entry modes          such process of economic activities.
ranging        from       import/export,     Yet, it is not sufficient to explain the
contractual and investment entry             reason why firms decide to operate
modes. Import and export entry modes         their activities abroad. As the business
are the traditional form of international    environment       has    increased     in
activities of firms. International           uncertainty and complexity, firms must
licensing and franchising are the            immediately recognise the critical
example of contractual entry modes.          changes and respond to them rapidly to

 * Ph.D. in Strategic Management, Warwick Business School, University of Warwick, UK
 Member of Committee of the M.Sc. in IT in Business Program, Chulalongkorn University.
 Currently, Associate Director of MBA program, Chulalongkorn University.




                                                                                    16
                                                                          Internationalisation




survive in the industry. It is generally               The purpose of this paper is
accepted that the first and the most              to investigate some explanatory
important motive of the businesses in             frameworks and motivations to explain
the capitalism economy is the profit              the process of internationalisation of
maximisation by either increasing the             the firms. The second part of the paper
revenue or decreasing the cost of                 is devoted to the examination of the
production. In the face of an globally            consequence of such development of the
increasing competition, firms not only            political power of the nation states.
compete with the rivals in home
countries but also the international
competitors. Therefore, the pursuit
of global profit becomes the key                  The Motives of Internationalisation
motive of the enterprises (Dicken;                of Firms
1992). Every activity of the firms,
including the expansion of their                       The        origins       of      the
activities across border, is aimed at             internationalisation of the commerce
increasing or protecting the profits. The         and industry can be traced by both
sheer variety of competing explanations           macroeconomics approach, regarded as
derived from different theories and               a general-system approach which is
motivations have been advanced to                 focused on the capitalist system as a
explain the internationalisation of               whole, and microeconomics approach,
businesses.                                       based upon a firm-specific level. In
                                                  a macroeconomics approach, the
     The transition of social relation            expansion of firms‟ activities beyond
also emerges along the processes of               their home countries can be explained
internationalisation of business. In              by the circuits of capital and the theory
an era of globalisation, it is possible           of new international division of labour.
to say that the process of                        A microeconomics approach entails the
internationalisation of the commerce              Dunning‟s eclectic paradigm and the
and industry has an implication for               theory of product life cycle.
political power of nation state.
Clearly, historical evidences suggest
that it substantially affects the world
political landscape. Particularly, the            The Macroeconomics Approach
proliferation of the worldwide-basis
operation of MNCs in the past two                 1) The New International Division of
decades requires us to rethink the                Labour Concept
traditional thought of the relationship
between the governments of the nation                 The new international division of
states and the firms.                             labour, first proposed by Stephen
                                                  Hymer, is used to explain the shift of




ABAC Journal Vol. 22, No.3 (September - December, 2002), pp. 16 - 30                       17
Teerayut Wattanasupachoke




industrial production from the core,       The Microeconomics Approach
the industrialised countries, to the
periphery, the developing countries.          ECLECTIC PARADIGM
Firms in developed countries facing
increasing wage in their home countries          First articulated by John Dunning
are forced to seek the alternative         in 1976, the eclectic paradigm of
locations, which are the third world       international production is derived from
countries, providing cheap labour.         various theoretical approaches such as
Dicken (1992) points out that even         theory of         firm,    trade   theory,
though this concept has some validity      organisation theory and location theory.
in explanation of internationalisation     It attempts to integrate three general and
process, it also contains several          interrelated concepts to identify and
drawbacks. Firstly, it is excessively      evaluate the significance of factors
narrow and one-dimensional. In other       influencing both the initial act of cross-
words, it oversimplifies the variety of    border production by firms and the
strategic options available to firms.      growth of such production.
Secondly, it overstates the extent to
which industrial production has been            Within the increasing competitive
relocated to the global periphery.         pressure on firms to sustain or increase
                                           profits, the eclectic paradigm avers that
                                           at any given moment of time, the extent
2) The Circuits of Capital Concept         and pattern of international production
                                           can be determined by a set of three
     The circuits of capital concept are   factors which are ownership-specific
based on the capital system as a whole.    advantage, internalisation advantage
As quoted „this capitalist world must be   and location-specific advantage. Each
subject as a whole to the laws of motion   factor will be discussed in turn.
of capitalism…international firms must
be understood in term of the
internationalisation of capital and the    Ownership-Specific Advantages
accumulation of capital (Radice; 1975).
The idea behind this concept is to              They arise when a firm of one
increase profits and accumulate capital    nationality possesses certain specific
by extracting surplus value from the       advantage over the competing firm of
production process as a continuous         other nationalities. They are internal
circuit                                    assets which are not available to other
                                           firms. These include those created by
                                           the firm itself, such as knowledge,
                                           organisational and human skill,
                                           purchased form other institutions, taken
                                           the form of a legally protected right or




                                                                                  18
                                                                          Internationalisation




of a commercial monopoly, and those               Location-Specific Advantages
of size, diversity or technical
characteristics of firms (Dunning;                     This factor affects the decision of
1980). Stephen Hymer first states that            the location of production. To this
outbound activities could occur only if           extent, firm finds that it must be more
the firm possesses a particular                   profitable to exploit its assets in
advantage over the local firms to                 overseas location rather than domestic
compensate for the lack of the                    location. Dunning defines location-
understanding of the local market                 specific factors as „those which are
environment.                                      available, on the same terms, to all
                                                  firms whatever their size and
                                                  nationality, but which are specific in
Internalisation Advantages                        origin to particular locations and have
                                                  to be used in those locations‟. As
     These advantages arise when a firm           classified by Dicken, there are several
internalises the use of its ownership-            major types of location-specific
specific advantage. To this extent, the           advantages which will be identified in
firm perceives it to be in its best interest      turn.
to exploit its ownership-specific
advantage rather than sell them or the               Variations in Size and Nature of the
right to use them to foreign firms.                   Market: The global market exhibits
According to Dicken (1992), the key                   an enormous variation in income
incentives for firm to internalise market             level, an approximate measure of
are     market       imperfection       and           market     size,    suggesting     the
uncertainty. The greater degree of                    difference in magnitude and nature
market imperfection and uncertainty,                  of consumption patterns across
the greater the incentive and advantage               countries.
for firm to perform the function of the              The     Political    and      Cultural
market itself by internalising the market             Dimension: This includes political
transactions.       Internalisation       is          climate, government policies, trade
especially likely to occur in the case of             policies, national attitude, language
knowledge and technology because they                 and culture. It has been accepted
contain public-goods characteristics                  that the important source of market
which is easily transmitted across the                imperfection is the government
country boundary. Because of huge                     interventions. For this reason,
amount of money spent on R&D, firm                    government policies significantly
will have incentive to retain technology              affect the pattern of international
and exploit it directly on the world-wide             production. The historical evidences
basis rather than sell or lease it to                 also suggest that many overseas
foreign firms.                                        investments occur in the countries
                                                      of similar culture and language.




ABAC Journal Vol. 22, No.3 (September - December, 2002), pp. 16 - 30                       19
Teerayut Wattanasupachoke




   Variation in Production Costs: The          THE   PRODUCT-LIFE-CYCLE
    spatial variation in production costs,       THEORY
    especially in labour factor, has
    contributed significantly to the              The product life cycle theory, first
    shape of international production in     articulated by Professor Raymond
    the worldwide basis. To the context      Vernon in 1966, was developed to
    of different labour factor across        explain the locational tendencies for
    countries, several aspects of            each phase of the product cycle-
    variation are in presence. These are     particular the US MNCs.
    geographical variation in wage cost,
    labour productivity, degree of                In the beginning of the cycle, the
    labour controllability, and mobility     production facilities take place in the
    of labour. Dicken (1992) points out      home country (the US) with high
    that one way to handle the               income and labour costs. The products
    uncertainty of future production cost    are exported to overseas markets. To
    in different locations is to locate      increase the competitiveness and reduce
    similar activities in the various        the production costs, firms start moving
    different locations and adopt a          the production activities to the other
    flexible system of production            developed markets. In the last stage,
    allocations between locations.           within the intense competition in
                                             standardised products, firms are forced
     According to the paradigm, firms        to move their production facilities to
will involve in international production     exploit the relatively cheap labours in
if and only if these all three conditions    the developing countries. To this extent,
are satisfied. The configuration of          the developed countries become net
ownership, location and internalisation      importers whereas the developing
(OLI) advantages and disadvantages           countries become net exporters.
determine the structure, nature and
strategy of the firm. The merit of                Dicken (1992) points out that this
this paradigm is that it incorporates a      model has its own merit in such a way
major characteristic of the diversity of     that it is an ideal-type model which
transnational investment in the global       sheds the light on the dynamic nature of
economy (Dicken; 1992). Yet, Taylor          the processes. However, some authors
and Thrift (1986) contend that this          and even Vernon himself began to cast
paradigm is merely „a list of factors        some doubts that the model is losing
likely to be important in the explanation    some of its relevance as the explanation
of    the     modern…       (transnational   of international investment. Giddy
corporations)…      rather     than    the   (1978) stated that „as an explanation of
explanation itself. Theoretical relations    international business behaviour, the
between the different factors too often      product cycle model has only limited
remain untheorised‟.                         explanatory power…..The multinational




                                                                                   20
                                                                           Internationalisation




enterprise, however, has succeeded in             explain the location of multinational
developing a number of other strategies           production and R&D: the theory
for surviving in overseas production              predicts that new product development
and marketing. Hence, the product cycle           will spread, and it has”.
model must now take its place as only
one facet of the more general                          So far, the preceding theories have
phenomenon of large international firms           been advanced to explain the
successfully applying a diversity of              motivation of the internationalisation of
monopolistic advantages across national           the firms. In general, it can be said that
boundaries in order to internalise                companies are attracted to cross-border
imperfectly competitive factor markets‟.          activities because of the dynamic of and
Dicken (1992) also criticises that the            interaction between external and
model can no longer explain the                   internal        factors.      In       fact,
international investment pattern by the           internationalisation results from a
MNCs. Firstly, it explains merely a               combination of factors rather a single
general sequence but it fails to provide          factor. Both kind of factors not only
the length of each stage and the timing           provide the explanation of cross-border
of the transition from one stage to               activities of firms but also shed the light
another. Secondly, as being in the more           of         organisations‟         strategic
complex      and     uncertain    global          response(Ellis and Williams;1995).
environment, it is unwise to assume
evolutionary sequence from home                        The external factors which are
country to foreign country. Rather, the           influential    in     internationalisation
initial source of innovation and                  process are described by the factors
production may be from any point in               outside the control of the firms. In
global network of the firm. Thirdly, it           other words, they represent the
fails to explain the fact that much of            opportunities and threats of the firm.
international investment occurs between           Ellis and Williams (1995) classify
advanced industrial countries. At last,           external factors into three level;
he points out that the application to             Meta level, industry level and firm-
real-world circumstance must be time-             specific level. Meta level factors are
and place-specific.                               concerned with the changes in the broad
                                                  environment       including      political,
    However, the product-life-cycle               economic, ecological, social, and
theory still has significant power for            technological factors. Industry-level
explanation of internationalisation               factor is competitive forces within the
process of firms. Carnoy (1996) points            industry. Firm-specific factors involve
out that “The equalisation of labour              either a merger/take-over resulting in
costs and income per capita among the             change in ownership or shareholder
developed countries has not altered the           pressure.
power of product-cycle theory to




ABAC Journal Vol. 22, No.3 (September - December, 2002), pp. 16 - 30                        21
Teerayut Wattanasupachoke




     Internal factors deal with the               Conversely, the aggressive or
change within the organisation and           proactive reasons are regarded as the
vision of the firms‟ executives i.e. risk    pull factors that entice firms to move
aversion of the decision makers of the       into foreign boundaries. They arise out
companies. To put it more simply, they       of     realised     attractiveness   and
are strengths and weaknesses of the          profitability of cross-border operations.
firm. According to Ellis and Williams        These include the attractiveness in
(1995), they embrace organisational          potential new-open markets, cheaper
crisis, management succession, business      operating costs, and favourable
performance and internal dissent. They       incentive offered by host government.
also point out that the importance of the
internal context is substantially affected        According to Dunning (1994), the
by the culture of the company. This          motives of cross-border operations of
proposition explains why different           firms can be divided into four groups.
companies respond differently to the         Firstly,    companies       decide     to
same external stimulus.                      internationally disperse their operations
                                             because of the resource related factors.
     As     indicated    earlier,   the      In this respect, the availability of
international expansion of firms‟            cheaper resources and security of
activities has to be seen within the         supply sources can be powerful
context of the firms‟ attempts to            incentives to drive firms to invest
maintain or increase their profit in an      abroad. These resources include labour
increasingly competitive, complex and        force, natural resources and managerial
uncertain global environment. To this        and technological skills. The second
extent, the reasons of cross-border          group of factors are market related.
expansion may be regarded as either          The traditional way to attract FDI is to
defensive     or   aggressive or a           impose trade barriers on the imports.
combination of both.                         The more recent instrument is to offer
                                             the most favourable incentive to attract
     The defensive or reactive reasons       FDI. The market related motives can be
are considered the push factors that         aimed at protecting existing markets
drive firms to engage crossing national      (defensive) or exploiting new markets
borders when firms perceive some             (aggressive). Firms may have to follow
difficulties     in    their    business     their customers and suppliers abroad to
performances and try to maintain their       sustain the business. To prevent
profitability and competitive position in    themselves from being left behind,
the markets. These difficulties include      firms want to set a foothold in the
decreasing profits, market saturation in     markets that their competitors are
home or existing market, increasing          already there or going to enter the
costs of production and government           markets. MNCs are also attracted by
regulations, and fierce competition.         country-specific attractiveness such as




                                                                                   22
                                                                          Internationalisation




large, increasing-grow markets. Thirdly,               Operating the business beyond
firms are motivated by strategy related           home-country boundary inevitably
factors. The international operations             involves costs or risk such as exchange
may be part of the global strategy to             rate exposure, country risk, and any
increase the global awareness of                  other risks that may arise from cross-
products and build up a global brand.             border operations. Clearly, these risks
Being international entity creates good           results from complex and uncertain
image, prestige and power to the                  environment. The risks involved can be
company and in turn boosts sales in               either systematic (undiversifiable) or
home and host countries. Further,                 unsystematic (diversifiable) risks. The
companies acquire the assets of foreign           diversifiable risk such as exchange rate
firms to pursue their long-term strategic         exposure can be managed by the so-
objectives. Forth are efficiency related          called hedging. The country risk
factors. Companies involve in beyond-             regarded as systematic risk can also be
border activities in order to benefit from        reduced via insurance.
economies of scope and scale and risk
diversification. Investing in several
countries can help diversify and reduce           Consequences of Internationalisation
risks.                                            of Firms for Political Power of States

     The fundamental point to be                       The rapid growth of degree of
appreciated is that most MNCs‟ motives            interdependence      in     international
of going abroad are identified by several         political economy require us to reassess
reasons rather than a single motive.              the landscape of contemporary world.
Internationalisation process may be               The processes result in a new economic,
characterised in term of defensive or             political and cultural transition. The
aggressive and motivated by either                internationalisation of the commerce
internal or external triggers or a                and industry is the starting point of the
combination of both. For given firm,              huge empire of the MNCs. In fact,
these factors can change over time for            MNCs are one of the vehicles for
each circumstance and stage of                    increasing global interdependence. To
development of firms. However, as                 date, these giant corporations exert a
mentioned earlier, the principal                  pervasive influence over the particular
objective of firms is long-term profit            countries. Their global operations
maximisation. It appears that the                 contribute a lion share of world trade
process of internationalisation is a              and production. The dominant and
rational decision-making activity (Ellis          expanding economic and political
and Williams;1995). Therefore, to                 power of these MNCs is a result of their
justify any cross-border activities, the          firm-specific advantage which is the
expected benefits must outweigh the               capacity to pool the resources through
costs or risk of such activities.                 the financial resources and established




ABAC Journal Vol. 22, No.3 (September - December, 2002), pp. 16 - 30                       23
Teerayut Wattanasupachoke




worldwide network. The advanced               discuss later on, it might not be
technology and better managerial              necessarily the case.
practices also give the MNCs a
worldwide specific advantage.                      In the early day, the MNCs‟
                                              expansion was dominated by American
     As their increasing economic             MNCs. Consequently, the Western
power corresponds to the growing              European and Japanese counterparts
social and political influence over the       follow the American‟s footstep. As a
other state, the relationship between the     result, today, most of the leading MNCs
MNCs and host countries is a primary          are from the Triad area. The
site of debate in the past two decades. It    proliferation of Triad‟s MNCs is
is argued that the national governments       equivalent to the expansion of the
loss their power to control and impose        political power of these nations.
any constraint toward the MNCs due to
the increasing power of the MNCs.                  The existence of these large
Clearly, in the battlefield between           corporations      with       international
MNCs and host countries, there is a           monopoly power undoubtedly has an
conflict of interests leading to an uneasy    effect on the redistribution of power on
relationship between them. This is            the global basis. The national
because       they     pursue     different   governments are competing with each
objectives. The MNCs, like any                other, by offering the most favourable
business enterprise, want to maximise         incentive such as grant, subsidy,
the corporate profits regardless the          unlimited repatriation of profits and
interests of any particular country. In       favourable taxation, to attract FDI
contrast, nation states want to achieve       because they hope to use the MNCs‟
their national goals of promoting             operations as an engine for promoting
economic growth and welfare for               their economic growth. The FDI is
national citizen. As the world economy        expected to bring a host of benefits to
is dominated by multinational capital,        the host countries. These include
the challenge has been posed to the           increasing local production, increasing
nation states‟ ability to regulate the        the demand for local inputs, a wider
MNCs operating in their territory.            range of goods at lower prices. Further,
Thanks to their high efficiency of the        the MNCs give the contribution to
worldwide operations, the MNCs can            capital inflows, exports, supply of
easily escape the regulations imposed         foreign exchange, improvement of
by the national governments. Given the        balance of payment, transfer of
internationalisation of capital through       managerial skills and technological
the MNCs‟ operations, it is argued that       capabilities to local producers, and
this might be the end of the sovereignty      employment creation.
of the nation state. Yet, as we will




                                                                                     24
                                                                          Internationalisation




     Despite the positive roles of the            growth in contribution to world trade.
MNCs, the capital inflow of FDI from              This intra-firm trade is manipulated and
MNCs also induce costs to host                    conducted on the transfer price basis,
countries. The issues of a lack of                rather than an arm‟s length basis. By
commitment, uneven development,                   bypassing the market and setting up
dependency,       screwdriver       plants,       their own prices, the MNCs then can
environmental degradation and transfer            escape taxes and transfer the profits
pricing have been big concerns for the            back home. MNCs also have little
host countries. The MNCs spend a lot              commitments to the recipient countries.
of time and resources on R&D to                   Further, the capital inflows and exports
acquire new technology and then rarely            created by FDI may be offset by larger
willing to transfer the technology and            foreign exchange outflows through
skill to the local managers and                   imports of components, repatriated
entrepreneurs. Therefore, not much will           profits and licence and franchising fee.
be left behind when they decide to shut
down the activities in host countries.                 The question is how to distribute
The existence of MNCs also                        the benefits and costs of MNC activities
discourages the locals to acquire and             between two parties. Form the hosts‟
build up their own technology and                 standpoint, they try to maximise the
capacity. This is nothing but economic            value added, created by the operation of
and technological dependency. Further,            the MNCs. In this respect, it largely
It is unlikely that the MNCs will place           depends on the relative bargaining
the highest-return and highest-level              power between two parties.
activities in foreign country (Carnoy;
1996). The investment in recipient                     A single national market now
countries, particularly in the third world        seems to be self-insufficient to satisfy
countries, can only be a assembly base            the economic requirements of its
or so-called screwdriver plant. In                citizens. Nation state‟s control over its
addition, the national governments are            own economic affairs will give away to
aware of the exploitation of the                  these international corporations that
indigenous resources resulting in                 better suited the economic needs of
environmental damage. Even though                 people. The cost of inefficiency of the
FDI creates employment, it can also               assertion of national sovereignty in
create unemployment when MNCs                     order to achieve national goals would
drive out the small indigenous business,          be too high. It is argued that national
causing a net loss of employment. The             economic goal can only be achieved
increasing monopolistic power may                 through participation in the world
finally lead to the higher local prices.          economy.
The inter-firm trade, the cross-border
transactions between subsidiaries of the              Given the advantages brought to
same corporation, has been a significant          host countries, no government would




ABAC Journal Vol. 22, No.3 (September - December, 2002), pp. 16 - 30                       25
Teerayut Wattanasupachoke




shut out the MNCs and thereby forgo         and the shorten product life cycle, they
benefits these corporations bring to        can move to a more favourable country
countries. Up to this point, they seem to   once the existing host country can no
be     more     powerful      than   host   longer provide the acceptable condition
governments as governments become           for their business development. The
incapable of legally controlling the        freedom of host countries to regulate
activities and policies of MNCs. Then,      MNCs is not only restricted by the
they lose control over internal economic    footloose ability of MNCs but also by
affairs.    Can     state     retain  its   the policies implemented by home
independence and sovereignty and            countries‟ governments. That is, MNCs
simultaneously meet the expanding           can lobby their home governments to
economic needs of its citizens?             put the pressures on the host countries
Unfortunately, it seems that the            on their behalf.
bargaining advantages are on the side of
MNCs.                                            Nothing gives a better picture than
                                            the case of Japanese government, as
     The attractiveness of host countries   pointed out by Dunning (1994). In
to MNCs depends on the local                earlier times, Japan pursued a restrictive
economic conditions. The countries will     policy towards the FDI. By doing so,
be in a better bargaining power if they     governments decided to forgo the short-
have potential large markets, natural       term benefits form FDI for long-term
resources and high-skill, low-cost and      benefits. As a result of substantial
trainable or well-trained local labour,     investment in training, education, and
and good communication systems and          technology, Japan now can welcome the
infrastructures. Similarly, the MNCs        FDI into the country without any fear of
with high firm-specific advantages and      losing the autonomy.
high potential contribution are in a
better position. Yet, the terms may be           The benefits enjoyed by MNCs,
re-negotiated as the bargaining position    however, has been challenged by the
is changing over time depending on the      rise of the economic nationalism.
continued attractiveness of the host        Governments try to get greater local
countries and the MNCs.                     control     through   joint    venture,
                                            nationalisation,    etc.       National
     The     intensifying    competitive    governments increasingly make MNCs
bidding of prospective host for FDI will    serve local interests and prevent
increase the bargaining power of the        themselves not to be exploited by the
MNCs. It is argued that once the plants     big foreign company as they used to be.
are set up in host country, the national
government will gain an upper hand.             The regulations toward the FDI and
This might not be the case. According       MNCs appear in various guises and can
to the footloose character of the MNCs      change over time depending upon the




                                                                                   26
                                                                          Internationalisation




relative bargaining power we discussed            behaviour. Countries collaborate with
earlier. Host governments may pose the            each other to harmonise the policies
regulations to increase local equity              against MNCs and increase their
participation or specify the sectors or           bargaining positions. UNCTC (United
types of activities which are of impor-           Nations Centre of Transnational
tance in economic development. Often,             corporations) was set up to advise and
the MNCs are forced to locate their               assist governments on how to be in the
activities in high unemployment area.             better bargaining position and gain the
To avoid being screwdriver plants,                most benefits of the presence of FDI.
governments may implement the                     However, the multilateral actions are
regulations to increase local value               difficult to enforce in practice. MNCs
added. These include imposing trade               may ignore the international codes if
barriers on the imports of components             they are against the interest of the
to encourage firms to buy locally and             firms. In the light of regional
specifying the minimum amount or                  integration, it may be hard to unify
certain percentage of local value added.          and reconcile the interest of countries.
Host governments are increasingly                 The more powerful nations may gain at
aware of revenue leakage due to                   the expense of the small countries
transfer pricing. They try to control             (Dunning; 1994).
such practices by encouraging arm‟s-
length-basis transactions.                             It is accepted that both corporations
                                                  and host governments seek to maximise
     However, in an era of perceived              their economic interest and were well
powerful MNCs, the national unilateral            aware of the useful support from each
regulation is no longer adequate. It              other. The MNCs help promote
appears that the multilateral or interna-         economic growth of the recipient
tional regulatory framework might be              countries. In return, nation states have a
the more effective way to control and             major role in providing well-educated,
regulate the behaviour of the MNCs.               high-skill      labour,      sophisticated
Countries realised that the collective            communication and infrastructure to
actions by group of countries are far             maximise the operational efficiency of
more effective than going-alone actions.          the MNCs.
The international codes of conduct or
guidelines of MNC behaviour is one                     It follows that nation states still
form of the collaborative actions.                play a major role. In other words, an
However, these guidelines are not                 effective private sector supports, and is
legally forced. Rather, countries are             supported by, an efficient public sector.
encouraged to abide by such guidelines.           In this respect, there is an optimistic
The regional integration in several parts         view that the MNCs and host
of the world is a clear manifestation of          government will consider each other
the collective actions towards MNC                with less confrontation and more




ABAC Journal Vol. 22, No.3 (September - December, 2002), pp. 16 - 30                       27
Teerayut Wattanasupachoke




constructive view to maximise mutual          single explanation of such expansion
benefits for both parties                     across national boundary. Each
                                              framework or theory has its own merit
                                              and pitfalls. It would be illusive to seek
                                              for an all-embracing explanation
Concluding Remarks                            (Dicken; 1992). Therefore, it is unwise
                                              to put any effort to produce a single and
     In the face of globalisation, firms      clear-cut explanation. In stead, the
learn to operate their activities with a      triggers to the internationalisation
number of geographically dispersed            process are the dynamic interact of a
operations. The internationalisation          variety of factors.
process of the enterprises is one of the
primary sites of attention. Discoveries            To this extent, Dunning (1995)
in telecommunications and computer            suggests that most behavioural and
facilities lessen the costs of cross-         theoretical    explanations   do     not
border operations and encourage firms         explicitly identify the motives of the
to internationally disperse their             firms, but merely the variables that are
activities. In today‟s dynamic world, the     likely to influence firms‟ behaviour. In
geographical       boundary      between      addition, most explanations involve
countries becomes irrelevant. Most            articulating what firms actually do
firms are driven to internationalise their    rather than what they should do.
economic activities by global forces.
This paper is intended to investigate the          Furthermore, it is clear that it is no
determinants and consequences of the          longer the choice for companies to
processes of internationalisation of          involve in cross-border operation. In
business.                                     stead, firms are forced to undergo
                                              internationalisation     process        and
     It appears that internationalisation     compete globally. It become one of the
is     an     identifiable     evolutionary   key strategic decisions for firms to
sequential process. As discussed earlier,     maximise or at least sustain profits to
firms internalise their economic              survive in the world of uncertainty and
activities for a host of different motives.   complexity.
The explanation for that can be
approached in various ways and levels.             The global economic expansion has
Many theories tried to explain such           been largely facilitated by the growth of
processes. Internationalisation process       MNCs. They dominate world trade and
may be characterised in terms of              capital movement. Some large MNCs
defensiveness or aggressiveness and           have turnover exceeding the GNP of
motivated by either internal or external      some countries. These corporations
triggers or a combination of both.            continue to grow and influence the
Clearly, there is no universally and          landscape of the world economy.




                                                                                      28
                                                                              Internationalisation




     The main concern is not only the             or how to regulate and control MNCs
economic consequences but also the                but how to maximise the value-added or
political and social outcomes of MNC              contribution, created by such activities,
activities. It is argued that high                to long-run economic growth.
economic power allows the MNCs to
gain an upper hand over the host                                       ____
governments by exerting leverage over
policy making. They have been accused
of exploiting recipient countries, being                          REFERENCE
a cause of uneven development and
erosion of the sovereignty of home                Ball      D. A., W. H. McCulloch,
countries. Therefore, the relationships                  International Business: Introduc-
between host countries and MNCs seem                     tion and Essentials, Texas:
to be contradictory rather than co-                      Business Publication, Inc., 1985.
operative.
                                                  Bartlett,    C.   A., S.   Ghoshal,
     However, it might not be totally                  Transnational Management: Text,
justified to claim that the host                       Case, and Readings in Cross-
government lose the control over the                   Broader Management, Chicago:
multinationals. There has been the rise                Irwin, 1995.
of economic nationalism and national
identity. Being an Economic power and             Brett, E. A. The World Economy Since
a key actor of re-shaping new world                    the War: The Politics of Uneven
order of the MNCs do not invalidate the                Development, London: Macmillan,
roles of the nation states. There is still a           1993.
role for the nation states in providing a
good-quality infrastructure for the               Carnoy, M., M. Castells, S. S. Cohen
MNCs. Clearly, both parties are likely                and F. H. Cardoso. The New
to work together to promote economic                  Economy in the Information Age.
welfare for both parties.                             Pennsylvania: The Pennsylvania
                                                      State University Press, 1996.
     Taken all together, the international
political economy has undergone a                 Daniels, J. D., L. H. Radebaugh,
profound change. Government has to                    International Business: Environm-
act like a business entity and the                    ents and Operations, Reading:
business entity has to move toward                    Addison-Wesley, 1997
diplomacy. The thrust of the argument
is the conflicting interest between the           Dicken, P., Global Shift: The
nation state and the MNCs. The                        Internationalization of Economic
challenge facing the recipient countries              Activity, London: Pual Chapman
is not whether to work with the MNCs                  Publishing, 1992.




ABAC Journal Vol. 22, No.3 (September - December, 2002), pp. 16 - 30                           29
Teerayut Wattanasupachoke




Dunning,   J.    H., Multinational        Porter, M. E., Competitive Strategy,
   Enterprises and the Global                 New York: Macmillan Publishing,
   Economy, Workingham: Addison-              1980.
   Weslay, 1994.
                                          Radice, H (ed), International Firms and
Ellis J., D. Williams, International          Modern Imperialism, Harmond-
     Business Strategy, London: Pitman        sworth: Penguin, 1975.
     Publishing, 1995.
                                          Strickland T., Strategic Management:
Giddy, I. H., “The Demise of the               Concepts & Cases, Chicago: Irwin,
    Product     Cycle     Model     in         1996.
    International Business Theory”,
    Columbia Journal of World             Tayeb, M. H., The Global Business
    Business, and 13, 90-97 (1978).           Environment: An Introduction,
                                              London: Sage Publications, 1992.
Grant, R. M., Contemporary Strategy
    Analysis; Concept, Techniques,        Wells, L. T. Jr.(ed), The Product Life
    and Application, Massachusetts:           Cycle and International Trade,
    Blackwell, 1997.                          Boston : Harvard Business
                                              School(1972).
Hannagan T., Management: Concepts
   & Practices, London: Pitman            Wit, B. D., R. Meyer, Strategy:
   Publishing, 1995.                          Process, Content, Context; An
                                              Introduction Perspective, New
Hill C. L., G. R. Jones, Strategic            York: West Publishing Company,
    Management       Theory:   An             1994.
    Integrated Approach, Boston:
    Houghton Mufflin, 1995.
                                                          _____
Hinger J. D., T. L. Wheelen., Strategic
    Management, Reading: Addison-
    Wesley, 1993.

Levitt T., “The Globalisation of
    Market,”  Harvard    Business
    Review, May-June 1983, pp.92-
    102.

Mendenhal M., B. J. Punnett, D. Ricks,
   Global Management, Massachu-
   setts: Blackwell, 1995.




                                                                              30

				
wanghonghx wanghonghx http://
About