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v

List of Figures and Tables vii

Foreword by Timothy Devinney xi

Acknowledgements xiv

List of Contributors xv

Introduction and Overview xvi

Section I Internalisation Theory and the Global Factory

1 International Integration and Coordination in the Global Factory 3Peter J. Buckley

2 Marketing and the Multinational: Extending Internalisation Theory 20Peter J. Buckley and Mark Casson

3 Risk and Uncertainty in Internationalisation and International Entrepreneurship Studies: Review and Conceptual Development 52Peter W. Liesch, Lawrence S. Welch, and Peter J. Buckley

4 Organizing the Modern Firm in the Worldwide Market for Market Transactions 78Peter W. Liesch, Peter J. Buckley, Bernard L. Simonin, and Gary Knight

5 Meta-analytic Research in International Business and International Management 100Peter J. Buckley, Timothy M. Devinney, and Ryan W. Tang

Section II FDI from Emerging Countries

6 FDI from Emerging to Advanced Countries: Some Insights on the Acquisition Strategies and on the Performance of Target Firms 137Peter J. Buckley, Stefano Elia, and Mario Kafouros

7 The Impact of Home Country Institutional Effects on the Internationalization Strategy of Chinese Firms 154Hinrich Voss, Peter J. Buckley, and Adam R. Cross

Contents



vi Contents

8 Host–Home Country Linkages and Host–Home Country Specific Advantages as Determinants of Foreign Acquisitions by Indian Firms 173Peter J. Buckley, Nicolas Forsans, and Surender Munjal

Section III Spatial and Institutional Analysis of MNEs

9 Combinations of Partners’ Joint Venture Formation Motives 203Elko Klijn, Jeffrey J. Reuer, Peter J. Buckley, and Keith W. Glaister

10 The Effects of Global Knowledge Reservoirs on the Productivity of Multinational Enterprise: The Role of International Depth and Breadth 220Mario I. Kafouros, Peter J. Buckley, and Jeremy Clegg

11 Japanese Foreign Direct Investment in India: An Institutional Theory Approach 255Peter J. Buckley, Adam R. Cross, and Sierk A. Horn

12 Realised Absorptive Capacity, Technology Acquisition and Performance in International Collaborative Formations: An Empirical Examination in the Korean Context 293Peter J. Buckley and Byung Il Park

13 The Spatial Redistribution of Japanese Direct Investment in the United Kingdom between 1991 and 2010 326Peter J. Buckley, Sierk A. Horn Adam R. Cross, and John Stillwell

Section IV Policy Analysis

14 Twenty Years of the World Investment Report: Retrospect and Prospects 363Peter J. Buckley

Index 386



Section IInternalisation Theory and the Global Factory



3

Reprinted with permission from Gabler-Verlag, All rights reserved. Management Inter-national Review (2011) 51(2), 269–283.

1International Integration and Coordination in the Global FactoryPeter J. BuckleyUniversity of International Business and Economics (UIBE), Beijing, China

• The new institutional form known as “the global factory” is the key to under-standing changes in the configuration of the world economy.

• The evolution of the global factory requires managers to act as orchestrators or co-ordinators across the system of globally inter-connected firms. Managerial styles need to accommodate these changes.

• Integration and coordination in the global factory are critical success factors. Control of information is central to these roles. Location and control are still key variables but extra degrees of freedom in location of activities and non-ownership forms of control are increasing in importance.

Introduction

The new institutional form known as “the global factory” is the key to understanding the changes in, and configuration of, the global economy. This paper examines globalisation and the growth of the global factory as a response to changing external circumstances and managerial innovations. It pays particular attention to the need to coordinate activities across the global factory and examines the changes in management style that are required to ensure success in a competitive global economy.

Technological changes, including the rise of e-commerce, have made global operations cheaper and more manageable. Managers in companies with global operations have learned to “fine slice” their activities and to locate each “stage” of activity in its optimal location and to control the whole supply chain, even when not owning all of it. These technological and managerial drivers have been augmented by political changes towards far more openness in previously closed economies. Even local factors can be seen to support global development. For instance, biases in the local capital market in China discriminate against whole swathes of local activity



4 Peter J. Buckley

in the domestic private sector and make foreign ownership more likely than the growth of smaller indigenous firms (Huang 2003). The nature of the global factory varies over time and space. There have been three major step changes in the geographical separation of previously connected activi-ties (Enderwick 2010). See Table 1.1. These are: (1) trade; the geographical separation of production and consumption, (2) foreign direct investment through the MNE; the geographical separation of (internalised) stages of value adding activities, (3) offshoring; the geographical separation of spe-cific tasks through the global factory. The last separation may be recon-nected through internalised or contract relations (captive or non captive offshored facilities). Differences in industrial systems across countries have been frequently noted (Whitley 1999). Particular differences can be noted in the degree of vertical integration (or internalisation of the value chain) as between Japanese and U.S. industry, Taiwan and South Korea, the rest of Italy versus the Emilia-Romagna region, and the British and U.S. textile industries in the first half of the nineteenth century. In all these examples, the first half of the pairing is much less vertically integrated (McLaren 2000).

The progress—and the differential speed of progress across different geo-graphical areas and types of market (Buckley and Ghauri 2004)—of globali-sation has co-evolved with faster and cheaper transportation and has led to far higher degrees of interspatial specialisation. This nexus of innovation

Table 1.1 Three historic geographical separations of activities

Unbundling Resulting from Policy focus Policy responses

Trade—geographical separation of production and consumption (trade)

Falling costs of trading (mostly) completed goods (affected most sectors equally)

Industrial sectors, broad labour groups eg skilled/unskilled

Focus on education and skill upgrading. Move to an “information society”. Sectoral protectionism

Production—geographical separation of stages of value-added (foreign direct investment)

Falling costs of managing productive resources and coordination (differential impact on sectors)

Industrial sectors, stages of value adding e.g. R&D, assembly

Focus on the attractiveness of the business environment, incentives etc. Business strategies with ‘limited’ separation eg Maquiladora twin plants, Asian offshoring from Japan

Tasks—geographical separation of specific tasks (offshoring)

Falling costs of trading ideas (subject to nature of task and task interconnections)

Labour market flexibility, manifested as falling wages or rising unemployment

Problem of understanding comparative competitiveness by task. Compounded by the problem of high trade costs with some tasks

Developed from Enderwick (2010).



International Integration and Coordination in the Global Factory 5

and globalisation (Bhide 2008) is driven by the actions of multinational enterprises. This article analyses the integration and responsiveness of MNEs as embodied in the global factory structure and examines the role of “place” and “distance” in their strategies.

The Global Factory—The Model

The model analyses a representative MNE that exploits an internationally transferable intangible public good, such as knowledge (Buckley and Casson 1976). It is assumed that this knowledge is embodied in a unique product (or product variety) which is monopolised by the firm usually protected by a brand. Whilst the product has competitors, alternative products are imper-fect substitutes (Chamberlin 1933). The firm therefore faces a downward-sloping demand schedule in each market. The firm defends its intellectual property by internalising the exploitation of this intangible asset. This means that the firm owns its own production facilities—it does not license or subcontract production—and it controls its own marketing—it does not franchise to independent distributors. The firm can, in principle, produce and sell in any part of the world. Any given market may be sourced by local production, or by imports, or a combination of the two. Any production plant may serve just the local market, or export markets too; in the limiting case it may become an ‘export platform’ which produces only for export.

If markets were fully integrated then MNEs would be obliged to charge the same price for the same product in every country, because if they did not then arbitragers would buy up their product in the cheaper markets and export it to the more expensive ones. Some counties have introduced competition policies to encourage arbitrage of this kind (e.g. internet retail-ing of motor car imports). In practice, though, many MNEs retain effective control over the pricing of their products—especially when products are branded, patented, or otherwise unique. It is assumed in this model that whilst the firm’s internal market is fully integrated, its home and foreign markets remain sufficiently distinct that it can set a different mark-up on the common internal price in each market.

By contrast, the firm has no power to impose discriminatory process on customers in a given country. It can set different prices in different coun-tries, but must charge the same price to all customers in the same country. This contrasting treatment is designed, not to simplify the model, but rather to reflect reality. In a typical industry there are normally more customers for the product than suppliers of production sites, and customers are more reluctant to enter into long-term contracts than suppliers. To achieve the same degree of control over a customer that it has over its production site a firm would normally need to integrate forward through acquisition of its customer’s business, which is often completely impractical, and usually uneconomic.



6 Peter J. Buckley

The competitive advantage of interconnected firms (Lavie 2006) arises from the ability of the focal firm to extract rents from assets that it does not necessarily own. Such assets may be quasi-internalised. This ideas can be traced to Penrose’s (1959) point that it is not the resources themselves, but the services that they provide, that generate value for the firm (Lavie 2006, p. 241). Forsgren et al. (2005) refer to the “embedded multinational” to reflect the close interconnection between firm and environment.

The dynamics of the global factory are a response to the modern global economy. Shocks are the norm. Failure is the norm. Only companies that can build resilience into their systems and their management systems will be able to survive more than one economic cycle. The global factory is rarely in equilibrium—it is constantly responding to exogenous shocks through a series of feedback loops (Buckley and Casson 1998).

Although complex in detail, the key analytical decisions in the global factory are very simple—control and location. The manager of the global factory has to ask two very straightforward questions of each activity in the global network. Where should this activity be located? How should this activity be controlled?

The first question of the optimum location for each activity is of course complicated by managing the interrelationships between activities. The relocation of one piece of the global network will have profound effects on many others as the links in Figure 1.1 illustrate but the principles of least cost location are paramount.

Figure 1.1 The global factory—a stylised representation

EngineeringContractor

DesignContractor

DesignEngineeringBrandingMarketing

BRAND OWNER

R&DContractor

Core Functions

ContractAssembler

PartsSupplier

ContractAssembler

PartsSupplier

PartsSupplier

Distributed Manufacturing

Warehousing,Distribution

andAdaptation

Local Market Adaptation

PartsSupplier

OutsourcedParts Supplier

PartsSupplier




The second question concerns the means of control. Should the activity be managed by the market via a contract and price relationship or should it be internalised and controlled by management? There are of course impor-tant mixed methods such as joint ventures which have elements of market relationships and elements of management fiat.

It is of course essential to realise that these decisions are taken in a volatile, risky and dynamic situation, that the decision making process is information intensive and the environment and competitive pressures are constantly changing. These decisions have to be revisited on a continuing basis. However the principles should never be overwhelmed by detail. The need for flexibility, for judicious collection and use of information and for a knowledge management strategy are complements to the key decisions of location and control.

Management is a social technology and so it is subject not only to tech-nological advancement in such issues as communications advances but it is also subject to changes in social conditions. This gives rise to differences in management techniques over time and over space, to psychic distance and to cultural differences and attitudes.

On one level, the goal of MNEs and global factories is to create the flat world beloved of Thomas Friedman (Friedman 2005). The external world in which global factories operate is decidedly spiky. It is riven with differ-ences in taxes, tariffs, governmental regulations, market imperfections and profound cultural differences across countries and classes. Within the global factory however, the goal is to create a flat world by means of a frictionless operating system.

William Egelhoff (2007) identified four tasks where “hierarchical struc-tures with a corporate HQ are superior to network structures in providing the necessary coordination” (p. 2).

1. Accountability to shareholders.2. Designing and implementing tight synchronisation among subsidiaries.3. Identifying and implementing economies of scale and scope.4. Identifying and addressing issues involving significant innovation.

The global factory structure achieves these objectives by combining central control with network systems.

The Focal Firm

There is, of course, a major problem in discussing the “strategy” of the global factory. Primarily what is understood by this is the strategy of the focal firm—the brand owner, the orchestrator. Consequently, a currently unresolved issue is the extent to which other firms in the system (suppliers, subcontractors, service providers) have independent strategies or simply



8 Peter J. Buckley

derive strategies from the actions of the focal firm and take these as envi-ronmental givens.

Clearly, focal firms provide opportunities for small and medium enter-prises (SMEs). They represent sources of demand, possibly financing, knowl-edge and managerial resources. The ‘interstices’ (Penrose 1959) between large companies have long been seen as areas where small firms can thrive but planning strategies within SMEs that fit into those of global factories is now a much more important strategic posture for SMEs given the control of the world economy exercised by key focal firms.

At the level of the system, it makes sense to talk about the strategy of the global factory in the same way that it makes sense to talk about the strat-egy of a unitary firm even though different managers, affiliates, divisions, business functions and units have separate strategies. The difference arises in that the level of coordination/control is not exercised by fiat but by a mixture of fiat and contractual control of quasi-internalisation (Blois 1972). Quasi-internalisation itself has developed from being a purely vertical exer-cise of dominance to encompassing horizontal coordination too.

The Transition from Vertically Integrated MNE to Global Factory

The role of time in the appearance of global factory structures is impor-tant. Many of today’s global factories evolved from vertically integrated MNEs. This transition has not been simple or uniform across firms. The combination of offshoring and outsourcing was pioneered by electronics companies (Moxon 1974). In today’s terms relatively large slices of activity were relocated in a small number of favoured locations (Singapore, Taiwan and ‘nearshoring’ Mexico). The slices of activity relocated were (unskilled) labour intensive, with high value: weight ratios, standardised manufactur-ing processes and with low US (or European) tariffs on re-imports.

From this largely cost-based beginning, management learning and changes in the environment allowed MNEs to differentiate activities more finely and choose locations for activities other than basic production. Cost ceased to be the only determining factory in offshoring and more fine-grained comparisons were made between buying in goods and services and producing in house. At first, excessive internalisation was eradicated by purchasing (particularly services) from the external market but then proac-tive outsourcing meant that market pressures were placed on activities that had not previously been considered for outsourcing. “Core functions” such as HRM, design and logistics were outsourced to rising numbers of specialist providers who achieved both economies of scale by catering to a large vari-ety of clients and customisation to individual MNE’s needs.

Basic offshoring thus led to fine slicing and outsourcing as the strategies of MNEs reacted to an increasingly responsive environment of providers.




In this context, it is useful to examine system, society and dominance effects (Smith and Meiksins 1995) in the emergence of the global factory (see also Kipping and Wright 2010). System effects cover the broad economic mode of production—in this case global capitalism—with its central institu-tions of competitive markets, the profit motive, shareholder returns and a widening division of labour. This package of evolving institutions, norms and rules of the game sets the broad framework within which global facto-ries can evolve—and create and reinforce these institutions. Societal effects centre on the differentiated nature of institutions and behaviour between countries and regions. Global factories have evolved and will continue to evolve differently according to their country of domicile, ownership and management of the focal firms. These elements—legal home, fiscal home and the culture of management are not necessarily the same and lead to some fascinating hypotheses about the way in which ‘nationality’ can be defined and the way it influences the strategy of the firm. Finally at given times, certain ‘best practices’ will be seen as optimal. Copying of these best practices induces a uniformity across global factories. These best practices can be identified with countries of origin (American multidivisional struc-tures, Japanese just-in-time systems) or by leading industries (electronics, biotechnology, software engineering) at given times.

Global factories are therefore amalgams of features of global capitalism, influences from their nationality and administrative heritage and the diffu-sion of knowledge on best practices.

The Analysis of Integration—Vertical Integration

The reasons for integration of activities within the (multinational) firm along the value chain and therefore the placing of the boundaries of the firm have been a key focus of analysis (Buckley and Casson 1976). The anal-ysis of (vertical) integration is a complex one because it is difficult to treat the forces leading to vertical integration as separate and separable elements as they are interrelated in several dimensions. For this reason, industry stud-ies are vital (Casson 1986).

Three key, but interrelated, explanations of vertical integration are market failure, bargaining issues and dynamic aspects including entry deterrence (Casson 1986). A simple listing of these issues might take the following form:

1. Market failures leading to internalisation • Disequilibrium pricing in Walrasian markets • Internal Transfer pricing benefits • Monopolistic price distortion and its substitution by internal markets • Fixed costs and indivisibilities • Imperfect information



10 Peter J. Buckley

2. Bargaining Problems • Multilateral bargaining and collusion

3. Dynamic aspects and entry deterrence • Competition and entry into downstream activities • Changes in division of labour over the industry life-cycle

4. Government policies

(derived from Casson 1986)

Classification of these issues is arbitrary. Market failures often (always?) have an information aspect, as do bargaining problems. Bargaining, market power and Government policies all have legitimacy, power and institutional aspects. The time factor is crucial throughout.

The result of this review is that the analysis relies on principles that are well established, but the application of the principles is situation and time specific. The global factory as an integrated and quasi integrated entity is likely to differ in time and place according to the special circumstances sur-rounding these general principles of integration. Careful applied analysis is required to determine its exact structure and the effects of that structure. This is a moving target. The dynamics of the industry, changing external markets including consumer demand and the managerial technologies available will determine the extent of the global factory at a particular point in time.

Coordination—Horizontal Integration

Horizontal integration is best dealt with as “coordination”. Integration does not equal coordination. Classically, coordination is defined “as effecting a Pareto-improvement in the allocation of resources such that someone is made better off, and no-one worse off than they would otherwise be” (Buckley and Casson 1988, p. 32). Despite the fact that coordination sounds as it is always a good thing, there are exceptions. These are: (1) Externalities; (2) Coordination under duress; (3) Empty threats and disappointments; (4) Autonomy of preferences.

The first issue refers to people outside the bargain, who may suffer. In the case of the global factory, these may be other organisations that are not part of the network who may lose by being frozen out. Second, where excessive bargaining power or other forms of coercion are used, the ben-eficial effects of coordination may not appear. Third, expectations may be erroneous on the part of some parties to the bargain or information may be distorted. Finally, the objectives of the parties may change after the bargain by involvement in the global factory. These new objectives may not be satis-fied (see Buckley and Casson 1988 for a fuller exposition in the context of joint ventures).

The externality problem extends to the impact of the global factory beyond the parties involved in being coordinated within the system




(suppliers, subcontractors and so on). Those firms and agencies that are not part of a global factory may find themselves excluded from the ability to trade. They may thus be coerced into joining another such network. The control of information within global factories may result in distorted, even coercive, bargains with weaker parties. Entry into global factory system may mean that (new) preferences are not realised.

The presumption that coordination leads to higher welfare for all concerned thus needs to be challenged. However, when examining the myriad of arrange-ments that lead to the existence and expansion of global factories, coordina-tion of activities in this way leads to many Pareto—improvements which increase world welfare. The analytical challenge is to examine the balance between these beneficial coordinating acts and the negative fallout for those excluded and the negative impact of coercive and damaging arrangements.

“The concept of the firm… does not depend on the ramifications of stock ownership or on the mere existence of the power to control, although exten-sive stock ownership may, and probably should, be on important considera-tion in any attempt to apply it. On the other hand, long term contracts, leases, and patent licence agreements may give an equally effective control” (Penrose 1959, pp. 20–21). The true nature of the firm is not a legal entity but as a planning unit (Blois 1972). The global factory is a system under which effective managerial planning extends across the whole network.

Unfortunately, the extent to this planning system is not evident in either published accounts, which follow legal definitions, or macro-data, which aggregate by artificial industry categories. An important future task is to ensure that data follow reality so that the extent and power of global facto-ries across the international economy can be adequately demonstrated. The quasi-integration of activities within global factories as exemplified by the unitary planning system is often more powerful than the legal or accounting rules that define “the firm”.

Integration Versus Responsiveness

The conflicting power relationships and the mixed allegiances of individu-als to their nation and their employer provide much of the background to the political economy of the global factory. Hymer (1970) examined the integration—responsiveness trade off (“an organisation structure to balance the need to coordinate and integrate operations with the need to adapt to a patchwork quilt of languages, laws and customs” p. 48). However, Hymer saw this entirely in terms of nationality. Thus the national subsidiary of an MNE was managed by local nationals and the hierarchy was primarily a national one with the US as hegemon. Hymer’s analysis (1970) led to a geographical analysis based on uneven development at the national level (Hymer 1971). The spatial division of labour (Hymer 1971) within the corporation was mirrored by nation states. The cross-cutting of national



12 Peter J. Buckley

frontiers and hierarchies by multinational firms was not a feature of Hymer’s analysis but the spatial distribution that is the result of global factories cross-cuts national frontiers and national groups and classes.

Local Versus Global Factors––“Place”

The true enemy of single nation global factories (even single region ones) is comparative advantage. Global factories are global because of differences in location give rise to national comparative advantages. The creation of ersatz global factories in single countries is often doomed to failure because no single country can replicate the cost and dynamic advantages of global com-petitors. The location of different stages of the global factory is determined by the advantages of different host countries. These can be augmented “artificially” by education, agglomeration advantages (giving rise to cluster-ing) and investment in research, development and entrepreneurship. Host country policies designed to produce improvements in their dynamic com-parative advantage can act as a magnet for economic activity. The attempt to design policies to attract all the stages of the global factory is futile. The issue of control of the governance of global factories is a more subtle issue. There are barriers to entry to markets, to locations, to new functions (R&D, marketing) and to new products (innovation, product improvement). These barriers often are of different natures, for instance the barriers to diversifica-tion (of products) differ from the barriers to internationalisation.

This leads to Porter’s (1998) “globalisation paradox”. Easier movement of goods, people and capital has increased the importance of local advantages and where these are hard to copy this has promoted the geographic concen-tration of economic activity in “clusters”. Global factories are increasingly well informed, because of their information system, about the existence of clusters and increasingly base their investment location decisions on this intelligence (Enright 1998, 2000). This can be reinforced by the argument that many firms—and global factories—are influenced by their home envi-ronment (Sorge 2005). This is also true of emerging country global factories who respond to market imperfections in their home economy. For instance, Chinese outward direct investors have access to capital at favourable rates and this influences their internationalisation strategies (Buckley et al. 2007).

In the network structure embodied in the global factory, it is important not to conflate nodes with country. The importance of cities as nodes is increasingly being recognised with cities competing to attract particularly the high value components of the global factory.

Distance and the Global Factory

Distance still matters Ghemewat (2001) suggests four dimensions of distance—cultural, administrative, geographic and economic (CAGE). Different




industries (and indeed firms) will be affected in different ways by these distance factors.

Distance can be resolved into physical distance—as represented by trans-port costs in conventional economic analysis—and by psychic distance.

The concept of psychic distance as an impediment to trade (and to FDI) was first developed by Beckerman (1956) to explain intra-European trade patterns (Dunning and Lundan (2008, p. 771). See also Linnemann (1966) and Weidersheim-Paul (1972)). It was subsequently developed by Hallén and Weidersheim Paul (1979) to apply to buyer seller relations. Vahlne and Weidersheim-Paul (1977) used it to explain the incremental geographical distribution of the foreign subsidiaries of Swedish firms. Note the contrast between incrementalism in the sequencing of foreign market entry and the parallel incrementalism of deepening involvement in a single foreign market (a typical sequence might be export → foreign agent → sales subsidiary → production subsidiary). ( Johanson and Weidershein-Paul (1975) Johanson and Vahlne (1977)).1

Psychic distance plays a prominent role in the internalisation theory of the multinational enterprise (Buckley and Casson 1976). It is referred to as “social distance” and complements geographical distance as a barrier to internalisation or a component of the costs of internalisation. It increases communication costs in internal markets and has a linguistic component. It is thus fully integrated into the theory and is not an alternative to it, nor is psychic distance a negligible factor in the strategy of the firm, in its internalisation and foreign direct investment decisions, or in its innovation policies. In phenomena that require explanation (Buckley and Casson 1976, p. 31), source country factors are given importance. “MNEs exhibit certain characteristics which are attributable to their nationality e.g. the relatively high multinationality of British, Dutch and Swiss firms, and the low multi-nationality of even the most research-intensive Japanese firms”.

Psychic distance affects (positively) the costs of internalising a market. “It can be argued that the additional communication costs make the inter-nalisation decision dependent on the distances between the regions linked by the market, and on dissimilarities between them in language and social and economic environment” (Buckley and Casson 1976, p. 42). “This cost is greater, the greater the geographical distance between the regions linked by the market, and the greater the ‘social distance’ i.e., the dissimilarities in language and the social and business environment” (Buckley and Casson 1976, p. 44). Region specific influences on the incentive to internalise are therefore the “geographical and “social” distance between the regions involved” (Buckley and Casson 1976, p. 45). “The fact that communications

1 Other accounts of psychic distance include O’Grady and Lane (1996) on the psychic distance paradox and Dow and Karunaratna (2006).



14 Peter J. Buckley

costs increase with geographical and social distance tends to discourage the location of internally co-ordinated activities in very distance countries and regions” (Buckley and Casson 1976, p. 56).

These issues are factors in suggesting that the location strategy of an MNE will differ from that of an equivalent group of independent firms. Ignoring the first reason—international transfer pricing, the remaining reasons “are all situations where the existence of the MNE will restrict the scope of foreign operations: high communications costs attributable to social and linguistic barriers, political costs due to host country attitudes to foreign investment, and administrative costs due to unfamiliarity with internal market opera-tions” (Buckley and Casson 1976, p. 109). The global factory extends the control of multinational firms by extending its influence beyond internal-ised facilities through heavily loaded contracts for outsourced materials and inputs. This enables some aspects of barriers arising from psychic distance to be overcome whilst still retaining control.

The Role of Headquarters

All of the decisions above have a technical, a managerial and a political dimension. Strategies of “fine-slicing” the production chain have combined with technological change, notably the development of the internet and other communications technologies to allow control at a distance (and without ownership) to become more feasible even for elements of the chain requiring fine control. The opening up of China and India creates access to cheap, well disciplined labour and the development of logistics practice reduces costs. Products with standard manufacturing interfaces and services with standard processes are ideal for outsourcing. A lack of interaction of the offshored facility with other functions enables a clean interface to be created and a “fine-slicing” cut to be made. Products which should not be outsourced include those where protection of intellectual property is crucial, those with extreme logistics requirements, with high technology content or performance requirements and those where consumers are highly sensi-tive to the location of production (Boston Consulting Group 2004). Issues of corporate responsibility, compliance and adherence to quality standards (especially in view of the “lead paint in toys” 2007 issue in China) should be added to this list.

Casson (1999, p. 84–85) describes the personal computing (PC) industry as an example of the activities of market-making firms. It can be seen as an early example of the operation of the global factory. “Some of the most successful firms buy in almost all their key components, and do little more themselves than assemble and warehouse the product. In a few cases they merely badge an almost fully assembled product and configure it for its des-tination by adding pre-loaded software and operating manuals in the appro-priate language. An important competitive advantage of the well-established




firms lies in the brand, which assures the customers of component quality and after-sales service. But the relative ease of entry shows that brands alone are not enough. Effective management of the distribution channel is the really crucial factor. Distribution of PCs is an information—intensive activ-ity. Tele-sales departments handle large volumes of credit card sales, which are converted promptly into requisitions of particular specifications of product. Inventories have to be kept low, not only because of high interest charges but also because of the continual risk of technological obsolescence. These firms are simply an unusually pure form of the market making inter-mediator. The fact that they outsource all their major technological require-ments indicates that technology is not the key to their success. Their success resides in the fact that they recognise the logistical imperatives of mass distribution and possess organisational procedures that are well adapted to the information processing needs of the distribution channel.”

Success in the global factory structure depends on coordinating activities across both ownership and non-ownership ties. The totality of exchange ties, both internal and external, need to be managed. One of the key success factors is the cohesiveness of network ties. Ghoshal and Bartlett (1983) refer to both ‘density’ and ‘cohesion’ of networks as being crucial to the perfor-mance of modern networked “interorganisational” MNEs. This suggests four testable hypotheses:

The performance of networked global factories is dependent upon (1) the den-sity and (2) the cohesiveness of (a) the internal networks and (b) the external networks of global factories.

To operationalise these hypotheses, credible measures of density and coher-ence are required.

The position of the MNEs headquarters in the global factory is important to its power. It is a plausible (fifth) hypothesis that power is a function of centrality. The more physical and knowledge links that the headquarters possesses in the global factory the more it might be argued to have power over the global network. However, the nature of the links are also important. Links that are heavily “weighted” with information (see Figure 1.1) are more likely to confer power than simple physical flows of goods and services.

The Embedded Subsidiary

Forsgren et al. (2005) pose the dilemma of how far the top management of network type MNEs can manage foreign subsidiaries that are embedded in external (and internal) networks and that are given substantial autonomy The key issue here is that subsidiaries “each and every one embedded in a unique network of business relationships” (page VI) have to be coordinated in a coherent fashion.



16 Peter J. Buckley

There is no one-size-fits-all solution to this important issue. However, there are principles of operation. As in ‘hub and spoke marketing structures’ (Buckley and Ghauri 2004) centralisation of critical activities with informa-tion bearing and the associated high returns and decentralisation of activities subsuming an important local element lead to a “glocal” solution. This trade-off has an important informational element. Headquarters needs to have a good understanding of the important sources of information and its colla-tion. It also needs to trust its subsidiary managers to take ‘local’ decisions and to pass ‘global’ decisions upwards, to regional HQs or Head Office (Buckley and Carter 1996, 1997, 1999, 2000, 2002, 2003, 2004). The training and acculturation of executives is a vital component in tackling this problem.

Conclusion

The pioneer of the “Uppsala School”, Sune Carlson made the following remark in 1951.

“Before we made the study, I always thought of a chief executive as the conductor of an orchestra, standing aloof on his platform. Now I am in some respects inclined to see him as the puppet in a puppet show with hundreds of people pulling the strings and forcing him to act in one way or another” (Carlson 1951, p. 51 quoted in Forsgren et al. 2005, p. ix).

The organisation of the global factory has made Chief Executive Officers (CEOs) of focal firms conductors again. The metaphor of CEOs as orches-trators has never been more true than in the network (or embedded multi-national) that is the global factory. Interestingly, Carlson never conceived of the CEO as General or Field-Marshall issuing orders. This would have been the analogy seized on in hierarchical firms. Managerial styles in global factories have to be ‘orchestration’ or ‘conducting’ rather than ‘command and control’ because of the severance of the planning and information unit from the legal and financial unit of the firm. Quasi-internalisation through information, technological and managerial links is often as important as ownership. Integration and coordination are now effected by subtle means.

The long run existence of firms, MNEs and global factories depends on their control of factors (assets, advantages) that are non-imitable by outsid-ers. The ultimate non-imitable resource in a global factory is the ability to manage an international distributed network of activates—and to hold it together over a long period. This requires not only a skilled management team but the ability to extend that management team and to retain key skills over a long time period. The global factory needs to overcome “the Penrose effect”—the cost of extending the existing management team to undertake the new tasks brought about by extension, growth and diversifi-cation (Buckley and Casson 2007). This requires learning, costs of training and acculturation to be absorbed. It also requires a multinational outlook and the creation of multinational management teams.




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386

Index

Note: Page numbers followed by “f” and “t” refer to figures and tables, respectively.

Aabsorptive capacity

acquisition, 296assimilation, 296–7concept of, 295, 296defined, 296dimensions, 295, 296–8explanation of, 296–8exploitation, 296, 297potential, 295realised, 295, 297transformation, 296, 297see also international collaborative

formations (ICFs)acclimatisation, uncertainty, 66–8accommodation, risk, 66–8acquisition, 296ACQ_VAL, 184active managerial involvement of

foreign firmknowledge acquisition in ICFs, 300–1

additional datameta-analytic research and, 113–14

advanced countriesFDI from emerging countries to, 137–49

data, 140–3descriptive statistics, 141–3, 141t–142tEMNCs’ acquisition strategies and

impact on target firms performance, 143–9, 144f, 147f, 149f

EMNCs impact on (previous literature), 138–9

overview, 137–8sample, 140variables, 140–1

agglomeration advantagesglobal factories and, 12

agglomeration effectsspatial redistribution of Japanese FDI

in UK (1991–2010), 335–7, 345–50, 346f, 348t, 349t

Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) (2005), 271

Aiwa, 330analysis of variance (ANOVA)

JVs formation motives, 211, 212, 213tasset(s)

quasi-internalised, 6assimilation, 296–7Assisted Area schemes, 337, 340, 341,

345, 351autonomy of preferences

coordination in global factory and, 10

Bbalance-of-payments crisis (India, 1991),

259bargaining problems

vertical integration in global factory and, 10

behavioural theoryof firm, 55

Bombay Stock Exchange (BSE) index, 187born globals, 53, 58, 72

see also international new ventures (INVs)

Brazil, Russia India and China (BRIC) firms, 140

Bush, George W., 267business process services

offshoring, total market for, 79–80Business Support Centre India (BSCI), 270Business Week, 159buyer seller relations, 13, 31–2, 33

Ccaptive offshoring, 79, 90–1“channel leader,” 28–9, 28fChinese firms, home country

institutional effects on internationalization of, 154–72

development and research themes



Index 387

domestic capital market imperfections, 156–7

domestic institutions, 158international investment strategy,

156international networks, 157–8

interview findings and proposition development, 168t–170t


domestic institutions, 165–8international investment strategy,

161–2international networks, 163–5

managerial implications, 170–2methodology and data, 158–61, 160toverview, 154–6

clarificationsinternalisation, 26–7

cluster analysisof JVs formation motives, 211–12,

211t–212tsingle and multiple, 213–14

CNN, 207Coase, Ronald, 22coding procedure

dataset preparation in meta-analytic studies, 111–12

coevolution theoryrisk and uncertainty in

internationalisation process, 54, 68–71, 69f

embeddedness, 69multidirectional causalities, 69multilevelness, 69nonlinearities, 70path dependencies, 70positive feedback, 70

common method bias, ICFs and, 305–6commonwealth, 174, 181, 194communication

inter-partner, 299knowledge acquisition in ICFs, 299

Company House register, 338comparative advantage

firms, 14–15global factories and, 12

comparative advantage theory, 34The Competitive Advantage of Nations,

370

competitiveness, concept of, 370Comprehensive Economic Partnership

Agreement, 270Confederation of Indian Industry, 270confidence intervals

meta-analytic research and, 112confusing experience

risk and uncertainty in internationalisation and international entrepreneurship, 62–3

constant returns to scale (CRS), 233consumption

geographical separation of, 4, 4tcontact making, 33contracts

long-terms, 27control

international integration and coordination in global factory and, 6–7

control variablesglobal knowledge reservoirs effects on

MNEs productivity, 238measurement, ICFs and, 305

coordinationalternative approaches, 24–6, 25f, 26fautonomy of preferences, 10concept of, 24cost structure, 36t, 37defined, 10under duress, 10empty threats/disappointments and,

10externalities and, 10–11within facilities and between

facilities, 24and international integration in

global factorycontrol, 6–7distance and, 12–14dominance effects, 9dynamics, 6embedded subsidiary, 15–16failure, 6focal firm, 7–8goal of, 7historic geographical separations of

activities, 4, 4thorizontal integration, 10–11



388 Index

coordination – continuedintegration vs. responsiveness,

11–12local vs. global factors (place), 12location, 6model of, 5–7, 6foverview, 3–5shocks, 6societal effects, 9system effects, 9time role in, 8vertical integration, 9–10vertically integrated MNE transition

to, 8–9inter-plant, 24intraplant, 24

coping responsesrisk and uncertainty in

internationalisation and international entrepreneurship, 63–4

corporate social responsibility (CSR), 369cost/cost structure

location and ownership of facilities, 35–7, 36t

coordination (information flow), 36t, 37

resource flows, 36–7, 36toffshoring and, 8

country-level advantages, 80country specific advantages (CSAs), 174

see also host–home CSAsCrown Group, 270CRS (constant returns to scale), 233CSAs, see country specific advantages

(CSAs)CSR (corporate social responsibility), 369cultural compatibility

knowledge acquisition in ICFs, 300cultural distance, 37

between home and host country, 180cultural factors

meta-analysis in IB/IM research, 104–5

customerssupply chains and, 23

DDaiichi Sankyô, 270Damen ShipYards Group NV, 207

Damen Vinashin Shipyard, 207data analysis

in meta-analytic studies, 108t, 112–14dataset preparation

in meta-analytic studies, 108t, 111–12decision making

risk and uncertainty in, 57see also risk and uncertainty, in

internationalisation and international entrepreneurship

demand-for-market-transaction functions

firm, 85demand function

firm, 84, 85, 86demand information, 32Denso Corp., 265dependent variable

global knowledge reservoirs effects on MNEs productivity, 233–4

measurement, ICFs and, 304–5disappointments

coordination in global factory and, 10disintegration advantages, 80distance

cultural, 37geographical, 13–14, 37global factory and, 12–14between home and host country,

179–80, 193–4political, 37psychic, 13social, 13–14

distribution facility, 32domestic capital market (SENSEX),

India, 176, 176f, 187, 189domestic capital market imperfections

Chinese MNEs, 156–7, 162–3domestic institutions

Chinese MNEs internationalization and, 158, 165–8

domestic outsourcing (domestic suppliers), 79

dominance effectsglobal factories and, 9

Dunning’s eclectic theory, 21duress, under coordination, 10Dutch East India Company, 258dynamic aspects, vertical integration in

global factory and, 10



Index 389

EEast-China Fair in Shanghai, 159eclectic Paradigm, 173–4e-commerce, rise of, 3economic development, India, 257–60

liberalisation phase (1989–98), 263–5new experimental phase (2002 to

date), 266–70, 268fpolitical cooling phase (1999–2001),

265–6socialist shift and centrally controlled

economy phase (1966–80), 260–1take-off and first opening phase

(1951–65), 260‘targeted’ deregulation phase

(1981–8), 261–3economic theory, of MNE, 20, 21

see also internalisation theoryThe Economist, 159EEIGs, see European Economic Interest

Groupings (EEIGs)effect size metric, selection of

meta-analytic research, 111Egelhoff, William, 7e-mail listservers, 110“embedded multinational,” 6embeddedness

coevolution theory of risk and uncertainty in internationalisation process, 69

embedded subsidiaryinternational integration and

coordination in global factory and, 15–16

emerging countriesFDI from, to advanced countries,

137–49data, 140–3descriptive statistics, 141–3, 141t–142tEMNCs’ acquisition strategies and

impact on target firms performance, 143–9, 144f, 147f, 149f

EMNCs impact on host countries (previous literature), 138–9


emerging multinational companies (EMNCs), 174

impact on host advanced countries target firms

acquisition strategies and, 143–9descriptive statistics, 141–3,

141t–142temployment, 140, 141, 143, 144f,

145, 147f, 148labor productivity, 140, 141, 143,

144f, 145f, 146–8, 147fprevious experience and, 145–9,

147f, 149fprevious literature, 138–9profitability, 140, 141, 143, 144f,

145, 146, 147fsales, 140, 141, 143, 144f, 145, 147f,

148sample, 140variables, 140–1

overview, 137–8empirical analysis

global knowledge reservoirs effects on MNEs productivity

control variables, 238dependent variable, 233–4independent variables, 234–7model, 233sample and data, 230–3, 231t, 232t

employmenttarget firms, 140, 141, 143, 144f, 145,

147f, 148empty threats/disappointments

coordination in global factory and, 10English language, 187, 189

foreign acquisitions by Indian MNEs and, 177–8

entrepreneursuncertainty acclimatisation and risk

accommodation and, 66–8vs. managers, 54

entry deterrencevertical integration in global factory

and, 10entry mode

meta-analysis in IB/IM research, 106‘envelopment strategy,’ 286environment

firm and, interconnection between, 6ERDF (European Regional Development

Fund), 334Ericsson, 206



390 Index

European Economic Interest Groupings (EEIGs), 207–8, 209, 211

European Regional Development Fund (ERDF), 334

expatriate managerstechnology acquisition in ICFs, 301

experienceconfusing, 62–3

exploitation, 296, 297‘export platform,’ 5externalities


externalization advantages, 80supply/demand interaction, 84

external markets, 27

Ffacility(ies)

coordination within and between, 24inter-plant, 24intraplant, 24

distribution, 32global systems view of inter-

dependent, 22–4, 23flocation and ownership of, 34–5operational cost, 36–7, 36tsupply chains, 23–4, 23f

failure, 6FATA (foreign assets to total assets), 237,

244FDI, see foreign direct investment (FDI)‘FDI negative list’ (2000), 266feasible generalized least squares (FGLS)

regression, 239feedback

positive, coevolution theory of risk and uncertainty in internationalisation process, 70

financial incentives, 333Financial Times, 159“fine-slicing” strategies, 14firm(s)

behavioural theory of, 55concept, 11demand-for-market-transaction

functions, 85demand function, 84, 85, 86and environment, interconnection

between, 6

flexible, 86, 86ffocal, 6, 7–8, 204inflexible, 86–8, 86f, 87finterconnected, competitive

advantage of, 6productive capabilities, 90resource-based theory of, 21see also specific types

firm-specific advantages (FSAs), 174home country specific advantages

transformation into, 175first opening phase (1951–65), India,

260see also India, Japanese FDI in

first-order autocorrelation (AR1), 238five-point Likert scale, 305“flagship firms,” 45flexible firm, 86, 86ffocal firm, 6, 7–8, 204‘follow-the-leader’ concept, 350Ford, 368foreign assets to total assets (FATA), 237,

244Foreign Direct Investment, 303, 304foreign direct investment (FDI), 303

clusters of triad members, 366ffrom emerging to advanced countries,

137–49data, 140–3descriptive statistics, 141–3,

141t–142tEMNCs’ acquisition strategies

and impact on target firms performance, 143–9, 144f, 147f, 149f

EMNCs impact on host countries (previous literature), 138–9


intra-triad FDI, 364–5, 365fJapanese

see Japanese FDImarket seeking, 178–9resource-seeking, 179strategic-asset seeking, 179through MNE, 4, 4tWIR 1991, 364–7

see also World Investment Report (WIR)



Index 391

Foreign Exchange Management Act (FEMA, 2000), 266

foreign exchange rate (FOREX), India, 177, 177f, 187, 189

The Foreign Exchange Regulation Act (FERA, in 1973), 261, 261n5

foreign sales to total sales (FSTS), 237, 244

foreign-trade linkages, between host–home country, 182–3, 194

Foxnews, 207Free Trade Agreements (FTAs), 267Friedman, Thomas, 7FSAs, see FIRM-specific advantages (FSAs)FSTS (foreign sales to total sales), 237,

244

GG-15, 181–2G-20, 174, 181, 182, 194Gandhi, Mahatma, 178general service sector, 152tgeographical distance, 13–14, 37

between home and host country, 180geographical separations, of activities,

4, 4tsee also global factory

geographic information system (GIS) analysis techniques, 337, 338

global capitalism, 9global economy, 3

ownership configuration in (marketing-led firms), 38–42, 39f, 41f

systems view, inter-dependent facilities and, 22–4, 23f

global factory, 45international integration and

coordination incontrol, 6–7distance and, 12–14dominance effects, 9dynamics, 6embedded subsidiary, 15–16failure, 6focal firm, 7–8goal of, 7headquarters role, 14–15historic geographical separations of

activities, 4, 4t

horizontal integration, 10–11integration vs. responsiveness,


to, 8–9globalisation, 3–5“globalisation paradox,” 12global knowledge reservoirs, effects on

MNEs productivity, 220–50conceptual framework and hypotheses

development, 224–5exogenously determined factors,

228–30MNE-specific idiosyncrasies, 225–8

empirical implementationcontrol variables, 238dependent variable, 233–4independent variables, 234–7model, 233sample and data, 230–3, 231t, 232t

future research (limitations and directions), 248–50

overview, 220–2research and management

implications, 245–8results and discussion, 239–45

moderating effects, 242–4, 243tproductivity effects, 239–42,

240t–241trobustness checks, 244–5

statistical method, 238–9theoretical foundation, 222–4

global networks, of subsidiaries, 223–4global operations managers, 3GM, 206“Go Global” policy, 158government-led incentive schemes,

333–4government policies

vertical integration in global factory and, 10



392 Index

Gross Grant Equivalent (GGE), 341, 342t–344t

grouping, of JVs formation motives, 211–12, 212t

HHaier, 155Harman’s single-factor test, 305headquarters

internalisation theory and, 35international integration and


Heckscher-Ohlin factor-intensity theory, 34

high research-intensive manufacturing sector, 153t

Hofstede’s framework, meta-analysis, 109Hofstede’s scores, 105“hollow firm,” 22, 28, 45

off-shoring and out-sourcing by, 42–3, 43f

home country institutional effects, on Chinese firms internationalization, 154–72

development and research themesdomestic capital market

imperfections, 156–7domestic institutions, 158international investment strategy,


interview findings and proposition development


domestic institutions, 165–8, 168t–170t

international investment strategy, 161–2

international networks, 163–5managerial implications, 170–2methodology and data, 158–61, 160toverview, 154–6

homogeneity analysismeta-analytic research and, 112–13

horizontal integrationin global factory, analysis, 10–11

host–home country linkages, foreign acquisitions by Indian firms and

methods and data, 183–7, 185t–186toverview, 173–5results and discussion, 187–95,

188t–189t, 190t–192ttheory and hypotheses, 175–83

distance between home and host country, 179–80

domestic capital market, 176, 176fEnglish language, 177–8foreign exchange rate, 177, 177fforeign-trade linkages, 182–3market seeking FDI, 178–9non-trade linkages, 181–2resource-seeking FDI, 179strategic-asset seeking FDI, 179

host–home CSAs, foreign acquisitions by Indian firms and

methods and data, 183–7, 185t–186toverview, 173–5results and discussion, 187–95,


distance between home and host country, 179–80

domestic capital market, 176, 176fEnglish language, 177–8foreign exchange rate, 177, 177fforeign-trade linkages, 182–3market seeking FDI, 178–9non-trade linkages, 181–2resource-seeking FDI, 179strategic-asset seeking FDI, 179

transformation into FSAs, 175HSBC bank, 90human capital theory, 80Hymer’s analysis, 11–12

IIAs, see international acquisitions (IAs)IB/IM research, meta-analysis in, 102–4,

103f–104fcultural factors, 104–5entry mode, 106findings, 114–15, 116t–122t, 126t–134tjournals

names, 102publication of articles in (2004–012),

103–4, 103f–104f, 126t–134tremaining studies, 106–7review of studies, 107, 108t



Index 393

analytic report, 114data analysis, 112–14dataset preparation, 111–12Hofstede’s framework, 109literature retrieval, 109–11research specification, 109

IBR, see International Business Review (IBR)

ICC Plum Information management database, 338

ICFs, see international collaborative formations (ICFs)

ignorance, 61and its dissipation, 61–2

IIAs, see international investment agreements (IIAs)

IJVs, see international joint ventures (IJVs)

independent variablesglobal knowledge reservoirs effects on

MNEs productivity, 234–7measurement, ICFs and, 305, 323

India, Japanese FDI in, 255–88balance-of-payments crisis (1991), 259economic development phases,

257–60liberalisation phase (1989–98),

263–5new experimental phase (2002 to


265–6socialist shift and centrally

controlled economy phase (1966–80), 260–1

take-off and first opening phase (1951–65), 260

‘targeted’ deregulation phase (1981–8), 261–3

indirect cultural and economic exchange, history of, 257–9

interaction, 276, 278–86, 280t–285tinvestment cases, 271t, 272fJapanese firms responses, 270–6, 271t,

272f, 274t, 277toverview, 255–7political and corporate relations,

259–60, 259n2research implications, 286–8

Indian firms, foreign acquisitions by

host–home country linkages and host–home CSAs

methods and data, 183–7, 185t–186t

overview, 173–5results and discussion, 187–95,


Indo-Japanese Comprehensive Economic Partnership Agreement, 287

industrial support policyspatial redistribution of Japanese FDI

in UK (1991–2010), 333–5, 339–45, 340t, 342t–344t, 345t

inflexible firm, 86–8, 86f, 87finformation

collection of, 32–3demand, 32see also knowledge

information flowcost structure, 36t, 37

information systems theory, 80information technology (IT)

offshoring, total market for, 79–80in-house operations (domestic

divisions), 79institutional theory, 80integrated subcontracting

internalisation and, 27–9, 28f, 37integration

international, in global factory, see international integration, and coordination in global factory

vs. responsiveness, 11–12integration–responsiveness trade off, 11intellectual property rights (IPR)

protection, 225ineffectiveness, 237international variations in, 228–9

interconnected firmscompetitive advantage, 6

inter-dependent facilities, 25global systems view of, 22–4, 23f

inter-industry variations, in technological opportunities, 229–30

internalisation theory, of MNEs, 20–49advantage of, 34future research, 45–9integrated subcontracting, 27–9, 28f



394 Index

internalisation theory, of MNEs – continued

knowledge flows, 29–33, 30f, 31f, 34flocation theory and

cost structure, 35–7, 36theadquarters role, 35location and ownership of facilities,

34–5multi-country world, 34ownership configuration in global

economy, marketing-led firms, 38–42, 39f, 41f

profit-maximising supply chain configuration, 37–8

offshoring and outsourcing, 42–5, 43foverview, 20–2principles, 21–2psychic distance and, 13and systems view of international

businessclarifications and qualifications,

26–7coordination, concept of (within

and between facilities), 24of inter-dependent facilities, 22–4,

23finternalisation option, 24–6, 25f,

26fvertical integration, 25, 26f

internal knowledge stock, of MNE, 227–8, 234

internal markets, 27international acquisitions (IAs), 294,

295international breadth, 222

MNE-specific idiosyncrasies, 225–7independent variables, 236–7

international business (IB)meta-analytic research in, see IB/IM

research, meta-analysis ininternational business, systems view of

internalisation theory of MNEs andclarifications and qualifications,

26–7coordination, concept of (within

and between facilities), 24of inter-dependent facilities, 22–4,

23finternalisation option, 24–6, 25f,

26f

International Business Review (IBR), 102, 115

meta-analytic articles published in (2004–012), 103f–104f, 126t–134t

international collaborative formations (ICFs)

absorptive capacity (literature review and theory), 296–8

see also absorptive capacitycharacteristics, 294–6discussion and implications, 311–17findings, 306

performance enhancement, 309–10, 309t

technology acquisition, 306–8, 307t–308t

Western vs. Japanese parents, 310–11, 311t

knowledge acquisition inactive managerial involvement of

foreign firm, 300–1communication for, 299cultural compatibility for, 300foreign expatriate experts

participation, 301trust for, 298–9

overview, 294–6research methods

common method bias, 305–6sample, 303–4variable measurement, 304–5

technology acquisition in, 299–303theoretical framework and

hypotheses, 303factive managerial involvement of

foreign firm, 300–1communication, 299cultural compatibility, 300facilitators to exploit new

knowledge, 300–3facilitators to transform new

knowledge, 298–300participation of foreign expatriate

experts, 301provision of training, 301–3trust, 298–9

international depth, 221MNE-specific idiosyncrasies, 225–7

independent variables, 236–7international entrepreneurship



Index 395

culture, components of, 54described, 53–4working definition, 53–4

international entrepreneurship, risk and uncertainty in, 52–73

accommodation, acclimatisation and opportunity seeking, 66–8

coevolutionary framework, 68–71, 69fconfusing experience, 62–3coping responses, 63–4in decision making, 57ignorance and its dissipation, 61–2internationalisation to entrepreneurs,

59–61literature review, 54management, 53network effects, 64–6overview, 55–7, 58–9research implications, 71–3variables, 53

international integrationand coordination in global factory

control, 6–7distance and, 12–14dominance effects, 9dynamics, 6embedded subsidiary, 15–16failure, 6focal firm, 7–8goal of, 7historic geographical separations of

activities, 4, 4thorizontal integration, 10–11integration vs. responsiveness,


to, 8–9international investment agreements

(IIAs), 375, 376international investment strategy

Chinese MNEs, 156, 161–2

internationalisation, risk and uncertainty in, 52–73


coevolutionary framework, 68–71, 69fconfusing experience, 62–3coping responses, 63–4ignorance and its dissipation, 61–2internationalisation to entrepreneurs,

59–61literature review, 54management, 53network effects, 64–6overview, 55–8research implications, 71–3variables, 53

internationalization of Chinese firms, home country institutional effects on, 154–72

development and research themesdomestic capital market

imperfections, 156–7domestic institutions, 158international investment strategy,


interview findings and proposition development


domestic institutions, 165–8, 168t–170t

international investment strategy, 161–2

international networks, 163–5managerial implications, 170–2methodology and data, 158–61,

160toverview, 154–6

international joint ventures (IJVs), 208, 211, 215, 295

described, 294see also international collaborative

formations (ICFs); joint ventures ( JVs)

international management (IM)meta-analytic research in, see IB/IM

research, meta-analysis ininternational networks

Chinese MNEs, 157–8, 163–5



396 Index

international new ventures (INVs), 53, 58, 72

“interorganisational” MNEs, 15inter-plant coordination, 4

cost, 36t, 37intra-plant coordination, 24

cost, 36t, 37Intra-Triad FDI, 364–5, 365fINVs, see international new ventures

(INVs)Inward FDI Index, 375IPR protection, see intellectual property

rights (IPR) protectionISI Journal Citation Reports, 102ISI Web of Science, 100

JJapan Bank for International

Cooperation ( JBIC), 256, 329Japan Cell, 270Japanese Companies in India Handbook, 270Japanese FDI, in India, 255–88

balance-of-payments crisis (1991), 259India’s evolving institutional regime

and, 257–60liberalisation phase (1989–98),

263–5new experimental phase (2002 to


265–6socialist shift and centrally

controlled economy phase (1966–80), 260–1

take-off and first opening phase (1951–65), 260

‘targeted’ deregulation phase (1981–8), 261–3

indirect cultural and economic exchange, history of, 257–9

interaction, 276, 278–86, 280t–285tinvestment cases, 271t, 272fJapanese firms responses, 270–6, 271t,

272f, 274t, 277toverview, 255–7political and corporate relations,

259–60, 259n2research implications, 286–8

Japanese FDI, spatial redistribution in UK (1991–2010), 326–52

discussion, 350–2findings, 339t

agglomeration, 345–50, 346f, 348t, 349t

industrial support policy, 339–45, 340t, 342t–344t, 345t

long-term orientation, 332overview, 326–7research context, 328–31research method, 337–8research propositions development,

331–3agglomeration effects, 335–7industrial support policy, 333–5

Japanese Multinational Enterprises ( JMNEs), 327, 329, 332, 336, 337, 339, 350

competitive advantages, 328see also Japanese FDI, spatial

redistribution in UK (1991–2010); multinational enterprises (MNEs)

Japanese Overseas Investment Database (2008), 270

Japanese Overseas Investment Directory, 338

Japanese parentsvs. Western ICFs, 310–11, 311tsee also international collaborative

formations (ICFs)Japan–India Economic Partnership

Agreement, 278Japan Small Business Research Institute

( JSBRI), 261JBIC, see Japan Bank for International

Cooperation ( JBIC)Jiangsu-based SOEs, 166JIBS, see Journal of International Business

Studies ( JIBS)JIM. see Journal of International

Management ( JIM)JMNEs, see Japanese Multinational

Enterprises ( JMNEs)joint ventures ( JVs)

discussion, 213–16formation motives, 205

knowledge/technology development, 205–6, 206t

low-cost sourcing, 206t, 207market power, 206t, 207risk and cost reduction, 206–7, 206t



Index 397

level and partner level characteristics, 212–13, 213t

firm specific attributes, 212JV specific attributes, 212

limitations, 216–17managerial implications, 216Maruti Udyog–Suzuki partnership,

263overview, 204–5research methods

grouping of motives, 211–12, 211t, 212t

sample, 207–8scale construction and validation,

209–11, 210tvalidity, 208–9

single and multiple formation motives clustering, 213–14, 214t

symmetries in formation motives by partners, 215

theoretical pluralism, 215–16Journal of International Business Studies

( JIBS), 102, 115meta-analytic articles published in

(2004–012), 103f–104f, 110, 112, 126t–134t

Journal of International Management ( JIM), 102, 115

meta-analytic articles published in (2004–012), 103f–104f, 126t–134t

Journal of World Business ( JWB), 102, 115meta-analytic articles published in

(2004–012), 103f–104f, 126t–134tJournal Quality List, 102JSBRI ( Japan Small Business Research

Institute), 261JVC, 330JVs, see joint ventures ( JVs)JWB, see Journal of World Business

( JWB)

KKaigai Shinshutsu Kigyô Sôran, 270Kerala Chemicals and Proteins Ltd., 261,

261n4K-mean cluster analysis, 211knowledge, 5

internal stock, of MNE, 227–8, 234marketing, 32–3, 43–4MNEs and, 29

role in supply chain, 29–30, 30fsee also information

knowledge acquisition, in ICFsactive managerial involvement of

foreign firm, 300–1communication for, 299cultural compatibility for, 300foreign expatriate experts

participation, 301trust for, 298–9

knowledge-based resources, 21–2knowledge flows

into internalisation theory, 29–33, 30f, 31f, 34f

pattern, 30, 31fsupply chain and, 29–30, 30f

knowledge-intensive firms, 29knowledge-intensive service sector,

152tknowledge reservoirs, global

see global knowledge reservoirsknowledge spillover, 227, 229, 230, 233,

239, 244, 298knowledge/technology development

as JVs formation motive, 205–6, 206tKorean IJVs, 304

see also international collaborative formations (ICFs)

Llabor productivity

target firms, 140, 141, 143, 144f, 145f, 146–8, 147f

labour, division of, 39Lenovo, 155liberalisation phase (1989–98), India,

263–5see also India, Japanese FDI in

Lingua franca, 184, 189linkage

operational cost, 36tliterature retrieval

in meta-analytic studies, 108t, 109–11location

of facilities, 34–5international integration and

coordination in global factory and, 6, 12

location-specific resourcing advantages, 80



398 Index

location theoryinternalisation theory integration and,

35–7, 36theadquarters role, 35location and ownership of facilities,

34–5multi-country world, 34ownership configuration in global

economy, marketing-led firms, 38–42, 39f, 41f

profit-maximising supply chain configuration, 37–8

log–log linear model, 183–4long-terms contracts, 27‘Look East’ doctrine, India, 264, 270low-cost sourcing

as JVs formation motive, 206t, 207low research-intensive manufacturing

sector, 152t

Mmacroevolution, 69Management International Review (MIR),

102, 115meta-analytic articles published in

(2004–012), 103f–104f, 126t–134tmanagement techniques, 7managers

vs. entrepreneurs, 54global operations, 3uncertainty acclimatisation and risk

accommodation and, 66–8“market entry decision,” 34market failures

vertical integration in global factory and, 9, 10

marketingcontact making and, 33knowledge, 32–3, 43–4

marketing-led firms, 21ownership configuration in global

economy, 38–42, 39f, 41fvs. technology-led firms, 22

marketing-led R&D, 33, 34fmarketing theory, of MNE, 20, 21market-making firms, 14market power

as JVs formation motive, 206t, 207market(s)

external, 27internal, 27

market seeking FDIforeign acquisitions by Indian MNEs,

178–9“market servicing strategy,” 34market transactions, for worldwide

market, 78–94conceptualization, 81–4discussion, 91–4offshoring case, 89–91operationalizing, 84–9see also offshoring; outsourcing

Maruti Udyog Ltd., 263Maruti Udyog–Suzuki partnership,

263medium research-intensive

manufacturing sector, 153tMeiji period, 258meta-analysis

cultural factors, 104–5entry mode, 106findings, 114–15, 116t–122t,

126t–134tin IB/IM research, 102–4, 103f–104f

see also IB/IM research, meta-analysis in

multinational performance, 105–6

overview, 100–2remaining studies, 106–7research studies review, 107, 108t

analytic report, 114data analysis, 112–14dataset preparation, 111–12literature retrieval, 109–11research specification, 109

microevolution, 69Microsoft, 90, 207Ministry of Knowledge Economy (MKE),

303MIR, see Management International Review

(MIR)missing data

meta-analytic research and, 113Mitsubishi, 258Mitsui Bussan, 258MNCs, see multinational companies

(MNCs)MNEs, see multinational enterprises

(MNEs)MNE-specific idiosyncrasies, global

knowledge reservoirs effects



Index 399

internal knowledge stock, 227–8international depth and breadth,

225–7MNEs productivity, global knowledge

reservoirs effects on, 220–50conceptual framework and hypotheses


228–30MNE-specific idiosyncrasies,

225–8empirical implementation

control variables, 238dependent variable, 233–4independent variables, 234–7model, 233sample and data, 230–3, 231t, 232t







moderated regression analysisglobal knowledge reservoirs effects on

MNEs productivity, 242–4, 243tmoderator analysis

meta-analytic research and, 113modern world economy, 78

see also worldwide market, for market transactions

The Monopolies and Restrictive Trade Practices Act of 1969, 261, 261n5

MSNBC, 207multi-country model, 34, 38–9, 39fmultidirectional causalities


multilevelnesscoevolution theory of risk and

uncertainty in internationalisation process, 69

multinational companies (MNCs), 101

meta-analysis in IB/IM researchcultural factors, 104–5performance, 105–6

Multinational Corporations in World Development., 363

multinational enterprises (MNEs)economic theory, 20, 21global factory model and, 5–7, 6fgoal of, 7headquarters role, 14–15integration and responsiveness, 5internalisation theory (see internalisa-

tion theory, of MNEs)internal knowledge stock of, 227–8,

234“interorganisational,” 15Japanese, in India (see Japanese FDI,

in India)knowledge and, 29location strategy, 14marketing theory, 20, 21national subsidiary of, 11vertically integrated, transition to

global factory, 8–9see also global factory; Japanese

Multinational Enterprises ( JMNEs)multiple coding method

dataset preparation in meta-analytic studies, 111–12

NNBC, 207Nehru, J. L., Pt., 178network effects

risk and uncertainty in internationalisation and international entrepreneurship, 63–4

networks, 65defined, 157global, of subsidiaries, 223–4international, of Chinese MNEs, 157–8

“new economic geography” theories, 34new experimental phase (2002 to date),

India, 266–70, 268fsee also India, Japanese FDI in

‘new generation of offshoring,’ 81new institutional theory, 256Nippondenso India Ltd., 265Nippon Keidanren, 270Nokia, 206



400 Index

Nomenclature of Territorial Units for Statistics (NUTS), 338

non-ergodic world, 56non-financial incentives, 333nonlinearities


non-trade linkages, between host–home country, 181–2, 194

NUMMI, 206NUTS 1, 338, 339t, 347, 348, 349, 349t,

350NUTS 3, 338, 345, 346f, 347

OODA, see official development assistance

(ODA)OECD Analytical Database., 232OFDI, see outward foreign direct

investment (OFDI)official development assistance (ODA),

259offshore outsourcing (foreign

suppliers), 79offshoring, 4, 4t, 42–5, 43f, 78–9

captive, 79, 90–1cost and, 8disintegration and, 80externalization and, 80growing research on, 80–1by ‘hollow firm,’ 42–3, 43fIT and business processes, total

market for, 79–80location-specific resourcing

advantages and, 80outsourcing and, combination of, 8overview, 79worldwide market for market

transactions, 89–91see also outsourcing

oil price shock (1970s), 42operational cost

of facility, 36tof linkage, 36t

opportunity seeking, 66–8optimism, 60Orbis – Bureau van Dijk databases, 140,

140n1, 141ordinary least squares (OLS) regression,

238

organisational action, 63outsourcing, 42–5, 43f, 78–9

domestic (domestic suppliers), 79growing research on, 80–1growth in, 79–80by ‘hollow firm,’ 42–3, 43foffshore (foreign suppliers), 79offshoring and, combination of, 8overview, 79see also offshoring

outward foreign direct investment (OFDI), 154, 157, 158, 165, 166

overconfidence, 60ownership

configuration, in global economy (marketing-led firms), 38–42, 39f, 41f

of facilities, 34–5ownership, location, internalisation

(OLI) configuration, 174

PPanasonic, 206panel specific AR1 (PSAR1), 238parallel production, 23–4Pareto-improvement, 10, 11partner(s)

characteristics, 212–13symmetries in formation motives by,

in same JV, 214t, 215see also international collaborative

formations (ICFs); joint ventures ( JVs)

path dependenciescoevolution theory of risk and

uncertainty in internationalisation process, 70

PepsiCo Fritolay, 67performance enhancement, in ICFs,

309–10, 309tpersonal computing (PC) industry,

14–15Phased Manufacturing Program (PMP)

policy, 261–2pioneer, 330PMP (Phased Manufacturing Program)

policy, 261–2political cooling phase (1999–2001),

India, 265–6see also India, Japanese FDI in

political distance, 37



Index 401

Porter, Michael, 370positive feedback


potential absorptive capacity, 295preferences, autonomy of

coordination in global factory and, 10pre-WIR surveys, 363principal component analysis

JVs formation motives, 209, 210tproduction

geographical separation of, 4, 4tparallel, 23–4stages, 23subcontracting of, 26f

productive capabilities, of firm, 90productivity, global knowledge

reservoirs effects on, 220–50conceptual framework and hypotheses


228–30MNE-specific idiosyncrasies, 225–8

empirical implementationcontrol variables, 238dependent variable, 233–4independent variables, 234–7model, 233sample and data, 230–3, 231t, 232t







profitabilitytarget firms, 140, 141, 143, 144f, 145,

146, 147fprofit-maximising supply chain

configuration, 37–8psychic distance

concept of, 13in internalisation theory of MNEs,

13

publication availability biasmeta-analytic research and, 113

“putting out system,” 45

Qqualifications

internalisation, 26–7quasi-internalisation, 8quasi-internalised assets, 6

RRanbaxy Laboratories, 270Rao, P.V. Narasimha, 264R&D, marketing-led, 33, 34fRDA (Regional Development Assistance)

scheme, 334, 337, 345, 347realised absorptive capacity, 295, 297Regional Development Assistance (RDA)

scheme, 334, 337, 345, 347Regional Selective Assistance (RSA)

scheme, 334, 337, 340, 345, 347report

in meta-analytic studies, 108t, 114research-intensive manufacturing sector,

152t–153tresearch specification

in meta-analytic studies, 108t, 109re-seller, 31, 33Reserve Bank of India, 183resource-based sector, 152tresource-based theory, of firm, 21resource flows

cost structure, 36–7, 36tresource-seeking FDI

foreign acquisitions by Indian MNEs, 179

responsivenessintegration vs., 11–12

risk accommodation, 66–8risk and cost reduction

as JVs formation motive, 206–7, 206trisk and uncertainty, in



coevolutionary framework, 68–71, 69f

confusing experience, 62–3coping responses, 63–4



402 Index

risk and uncertainty, in internationalisation and international entrepreneurship – continued

in decision making, 57definitions, 56–7ignorance and its dissipation, 61–2internationalisation to entrepreneurs,


risk-seeking, 58, 59“risk-taking propensity,” 54RSA (Regional Selective Assistance)

scheme, 334, 337, 340, 345, 347

Ssales

target firms, 140, 141, 143, 144f, 145, 147f, 148

Samsung, 206sectors classification, by nature and

R&D intensity, 152t–153tseller buyer relations, 13, 31–2, 33SENSEXind t, 184shocks, 6Shri Ram Fibres Ltd., 265Siemens, 206Singh, Manmohan, 264, 267small and medium enterprises (SMEs), 8SMEs, see small and medium enterprises

(SMEs)“snow-balling” technique, 159social distance, 13–14socialist shift and centrally controlled

economy phase (1966–80), India, 260–1

see also India, Japanese FDI insocietal effects

global factories and, 9SOEs, see state-owned enterprises (SOEs)Sony Ericsson, 206spatial redistribution of Japanese FDI in

UK (1991–2010), 326–52discussion, 350–2findings, 339t





see also Japanese FDISpecial Economic Zones (SEZs) Act

(2000), 266standard deviation

meta-analytic research and, 112state-owned enterprises (SOEs), 155, 159

Jiangsu-based, 166strategic-asset seeking FDI

foreign acquisitions by Indian MNEs, 179

subcontractingintegrated, internalisation and, 27–9,

28f, 37of production, 26f

subsidiary(ies)embedded, international integration

and coordination in global factory and, 15–16

global networks of, 223–4superstitious learning, 63supply chain(s)

customers and, 23facilities, 23–4, 23fknowledge role in, 29–30, 30fprofit-maximising configuration,

37–8two-country model, 39

supply/demand interactionexternalization and, 84

Suzuki Motors Corporation, 262–3Symbian, 206system effects

global factories and, 9

Ttake-off and first opening phase

(1951–65), India, 260see also India, Japanese FDI in



Index 403

targeted deregulation phase (1981–8), India, 261–3

see also India, Japanese FDI intarget firms

EMNCs impact on performance ofacquisition strategies, 143–9employment, 140, 141, 143, 144f,

145, 147f, 148labor productivity, 140, 141, 143,

144f, 145f, 146–8, 147fprevious experience, 145–9, 147f,

149fprevious literature, 138–9profitability, 140, 141, 143, 144f,

145, 146, 147fsales, 140, 141, 143, 144f, 145, 147f,

148technology intensity, 148–9, 149f

tasksgeographical separation of, 4, 4t

Technico, 67technological opportunities

independent variables, 237inter-industry variations in,

229–30technology acquisition, in ICFs,

299–303, 306–8, 307t–308tactive managerial involvement of

foreign firm, 300–1foreign expatriate experts

participation, 301training provision, 301–2variable measurement, 304–5

technology-led firms, 21, 22vs. marketing-led firms, 22

textile industries, 45Thomson ONE Banker database, 140,

141, 183, 231time, role in global factory, 8Times of India, 178TNCs, see transnational corporations

(TNCs)“TNCs value chain,” 369tolerance, 59Tôyô Keizai, 270, 338Toyota, 206, 337, 368

automobile operations in four ASEAN countries, 365, 366f

trade, 4, 4ttraining, provision of

technology acquisition in ICFs and, 301–2

transformation, 296, 297transnational corporations (TNCs), 363,

364, 367, 368, 369–70participation in agricultural production

in host countries, 380, 381fTransnational Corporations in World

Development: A re-examination, 363

Transnational Corporations in World Development: The Third Survey, 363–4

The Triad in Foreign Direct Investment, 364

trustknowledge acquisition in ICFs, 298–9

two-country model, 34, 39–40, 40f

Uuncertainty acclimatisation, 66–8uncertainty and risk, in



coevolutionary framework, 68–71, 69fconfusing experience, 62–3coping responses, 63–4in decision making, 57definitions, 56–7ignorance and its dissipation, 61–2internationalisation to entrepreneurs,


UNCTAD, see United Nations Conference on Trade and Development (UNCTAD)

UNCTC, see United Nations Centre on Transnational Corporations (UNCTC)

United Kingdom, Japanese FDI spatial redistribution in (1991–2010), 326–52



404 Index

United Kingdom, Japanese FDI spatial redistribution in (1991–2010) – continued

discussion, 350–2findings, 339t





United Nations Centre on Transnational Corporations (UNCTC), 364

United Nations Conference on Trade and Development (UNCTAD), 138, 256, 363, 364, 375

US–India Civil Nuclear Cooperation agreement, 267

VVajpayee, Atal Bihari, 264validity, of data

JVs formation motives, 208–9Variables

EMNCs impact on target firms performances, 140–1

global knowledge reservoirs effects on MNEs productivity, 233–8

measurement, ICFs and, 304–5risk and uncertainty in

internationalisation and international entrepreneurship, 53

see also specific typesvertical integration

in global factory, analysis, 9–10bargaining problems, 10dynamic aspects and entry

deterrence, 10government policies, 10market failures, 9, 10

internalisation, 25, 26f

vertically integrated MNEstransition to global factory, 8–9

Vietnam Shipbuilding Industry Corp., 207

WWestern ICFs

vs. Japanese parents, 310–11, 311tsee also international collaborative

formations (ICFs)WIR, see World Investment Report (WIR)World Development Report, 364World Investment Report (WIR), 363–84

overview, 363–4pre-WIR surveys, 363–4from 1991 to 2010, 364–82, 384WIR 1991, 364–7WIR 1992, 367–8WIR 1993, 368WIR 1994, 368–9WIR 1995, 369–71WIR 1996, 371–2WIR 1997, 372WIR 1998, 372–3WIR 1999, 373WIR 2000, 373–4WIR 2001, 374–5WIR 2002, 375WIR 2003, 375–6WIR 2004, 376–7WIR 2005, 377WIR 2006, 371, 377–8WIR 2007, 378WIR 2008, 378–9WIR 2009, 379–80WIR 2010, 380, 382WIR 2011, 382

World Trade Organization (WTO), 156, 266

Worldwide market, for market transactions, 78–94

conceptualization, 81–4discussion, 91–4offshoring case, 89–91operationalizing, 84–9see also offshoring; outsourcing

WTO, see World Trade Organization (WTO)



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Copyrighted matrial 978 1 137 40236 3 J. Buckley, Adam R. Cross, and Sierk A. Horn 12 Realised Absorptive Capacity, Technology ... offshoring; the geographical separation of spe-