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The Globalization of Multinational Enterprise Activity and Economic Development
Edited by
Neil Hood
and
Stephen Young
Palgarvemacmillan
First published in Great Britain 2000 by
MACMILLAN PRESS LTD Houndmills. Basingstoke. Hampshire RG21 6XS and London Companies and representatives throughout the world
A catalogue record for this book is available from the British Library.
First published in the United States of America 2000 by
ST. MARTIN'S PRESS, INC., Scholarly and Reference Division. 175 Fifth Avenue. New York. N.Y. 10010
ISBN 978-0-312-22537-7
Library of Congress Cataloging-in-Publication Data The globalization of multinational enterprise activity and economic development 1 edited by Neil Hood and Stephen Young. p. em. "This book is based on a workshop which was held at the Strathclyde Graduate Business School in the University of Strathclyde. Glasgow. UK. on 15 and 16 May, 1998"-Pref. Includes bibliographical references and index. ISBN 978-0-312-22537-7 (cloth) 1. International business enterprises Congresses. 2. International trade Congresses. 3. Economic development Congresses. I. Hood, Neil. II. Young, Stephen, 1944- . HD2755.5.G556 1999 658'.049-dc21 99-26125
CIP
Selection, editorial matter and Chapters I and 16 © Neil Hood and Stephen Young 2000 Individual chapters (in order) © John H. Dunning; Julian Birkinshaw; Neil Hood and Ewen Peters; Stephen Young, Jonathan Slow and Neil Hood; Stephen J. Kobrin; Peter 1. Buckley and Stephen Young; Daniel Chudnovsky; Hafiz Mirza; Terutomo Ozawa; Thomas L. Brewer and Stephen Young; Lynn K. Mytelka; Michael J. Enright; Ewen Peters; Nick Phelps; Kevin Morgan and Crispian Fuller 2000 Softcover reprint of the hardcover 1 st edition 2000 978-0-333-74881-7 All rights reserved. No reproduction. copy or transmission of this publication may be made without wrinen permission.
No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988. or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency. 90 Tottenham Court Road, London WI P OLP.
Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages.
The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright. Designs and Patents Act 1988.
This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources.
10 9 8 7 6 5 4 3 09 08 07 06 05 04 03 02 01
ISBN 978-1-349-41150-4 ISBN 978-0-230-59916-1 (eBook)DOI 10.1057/9780230599161
Contents
List of Tables
List of Figures
List of Boxes
Preface and Acknowledgements
List of Contributors and Discussants
PART I ISSUES AND THEORY
1 Globalization, Multinational Enterprises and Economic Development Neil Hood and Stephen Young Introduction Globalization: Companies and Countries Globalization and Regional Futures Outline of the Book Concluding Remarks
2 Globalization and the Theory of MNE Activity John H. Dunning Introduction The Three Landmarks in Theorizing about
MNE Activity Some Implications of the Revised Paradigm of
International Production Conclusions
PART II THE CORPORATE PERSPECTIVE
3 Multinational Corporate Strategy and Organization:
x
xu
X1l1
XIV
XV
3
3 4
10 12 19
21
21
23
37 43
An Internal Market Perspective 55 Julian Birkinshaw Introduction 55 Context 55 Issues Facing Large Multinational Corporations 57 Elements of aNew Model 60
V
VI Contents
The Internal Market Model 67 Discussion and Conclusions 74
4 Globalization, Corporate Strategies and Business Services 80 Neil Hood and Ewen Peters Introduction 80 The Globalization of Service Industries 81 Conceptual Considerations 83 Case Examples 91 Conclusions and Policy Implications 99
5 Globalization and the Growth of Small and Non-dominant Firms: Case Evidence from Scotland 106 Stephen Young, Jonathan Slow and Neil Hood Introduction 106 Issues from the Literature 107 Case Illustrations 111 Discussion of Cases 122 Issues for Economic Development and Public Policy 126
PART III THE COUNTRY PERSPECTIVE
6 Development after Industrialization: Poor Countries in an Electronically Integrated Global Economy 133 Stephen J Kobrin Introduction 133 Globalization or Global Baloney? 135 Development and Globalization 137 The Indian Software Industry 140 Development in the Postindustrial Age 149
7 Egypt at a Crossroads: MNEs and Economic Development in a Global Environment 155 Peter J Buckley and Stephen Young Introduction 155 Egypt's Foreign Direct Investment Postion 157 Analysing Egypt's Attractiveness for FDI 159 Policy Analysis and Recommendations 168 Conclusions 177
Contents Vll
8 MNEs, Globalization and Economic Development: The Case of Argentina in the 1990s 180 Daniel Chudnovsky Introduction 180 Destination, Origin, Characteristics and Motivation 184 International Trade by Foreign Firms 191 Technological and Organizational Contributions 193 Concluding Remarks 196
9 The Globalization of Business and East Asian Developing-Country Multinationals 202 Hafiz Mirza Introduction 202 From Global Crisis to Globalization: A Walk through
History 202 The Scale and Scope of Developing Country
Multinationals 211 Ripples and Repercussions: The Characteristics of
East Asian MNEs and the Pattern of FDI 213 Concluding Remarks 219
10 Small- and Medium-sized MNCs, Industrial Clusters and Globalization: The Japanese Experience 225 Terutomo Ozawa Introduction 225 Theoretical Considerations 226 Structural Transformation, Globalization and SMEs
in Japan 229 Overall Assessment 245
PART IV THE POLICY PERSPECTIVE
11 The World Trade Organization: Global Rule-maker? 251 Thomas L. Brewer and Stephen Young Introduction 251 The Architecture of Rules on Investment 253 Dispute Settlement Process and Cases 256 The Negotiating Agenda 264 Conclusions 267 Appendix: WTO Dispute Settlement Cases, 1 Jan
1995-31 Dec 1997 270
Vlll Contents
12 Locational Tournaments for FDI: Inward Investment into Europe in a Global World 278 Lynn K. Mytelka Introduction 278 Turbulent Learning Environments 279 Locational Tournaments in the Automobile and
Electronics Industries 285 Conclusions 293
13 The Globalization of Competition and the Localization of Competitive Advantage: Policies towards Regional Clustering 303 Michael J Enright Introduction 303 Cluster-based Development Policies in the Global-
Local Nexus 308 Sharpening Cluster Analysis and Cluster-Development
Strategies 316 Conclusions 326
14 Plant Subsidiary Upgrading: Some Evidence from the Electronics Industry 332 Ewen Peters Introduction 332 The Study and Findings 337 Conclusions 349 Appendix: Company Cases 354
15 Regions, Governance and FDI: The Case of Wales 366 Nick Phelps, Kevin Morgan and Crispian Fuller Introduction 366 Regions, Governance and FDI 368 Governance and FDI in Wales 371 Governance, strategy and FDI in Wales: problematizing
the role of the Assembly 379 Conclusion 384
PART V CONCLUSIONS
16 Globalization and Economic Development: Overview and Conclusions 393 Stephen Young and Neil Hood Globalization 393
Contents
Global Firms and Global Strategies Economic Development Issues Economic Policy Final Note
Index
IX
397 400 405 407
411
List of Tables
1.1 Globalization: companies and countries 5 1.2 Globalization and regional futures 11 2.1 The changing characteristics of paradigms and theories:
some stylized facts 32 3.1 Types of internal markets and their characteristics 70 4.1 A perspective on globalization 85 7.1 World foreign direct investment inflows in Egypt and
other developing economies, 1990-96 158 7.2 Opportunities for FDI in Egypt 162 7.3 Policy reform for FDI attraction in Egypt 170 7.4 Functions of foreign direct investment agency in Egypt 174 8.1 FDI inflows to Argentina 185 9.1 FDI outward stock by country, 1980-96 211 9.2 The ten largest sources of FDI in the developing
world,1996 212 9.3 The location of the world's 500 largest firms (by market
capitalization), 1997 213 9.4 Analytical summary of EA-DCMs and FDI
characteristics by source country 215 10.1 Structural upgrading, industrial clusters and SME
globalization 230 11.1 Number of GATT and WTO dispute cases by time
periods 259 11.2 Country groups in GATT and WTO dispute
settlement cases 260 11.3 WTO members as respondents or complainants in
dispute cases (1995-97) 261 11.4 WTO disputes, directly involving investment issues
(1995-97) 262 12.1 The share of inward and outward foreign direct
investment in gross fixed capital formation in the EU, North America and Japan 281
12.2 Linkages: gross domestic expenditure on R&D in higher education financed by business 283
13.1 The dimensions of regional clusters 317 14.1 Nature and size of subsidiary plant upgrading 339
x
List of Tables Xl
14.2 Contest ability and public sector support for plant upgrading 342
14.3 Key features of Porter's industrial clusters 347 14.4 Examples of main cluster effects associated with
subsidiary plant development 350
List of Figures
3.1 A model of the MNC subsidiary 65 4.1 Trends in the provision of services to large
corporations 87 4.2 Service types, customer proximity and service nodes 88 4.3 A stylized geography of the trends in proximity of
the provision of business services 90 4.4 Business services and sub-regional economic
development: vicious and virtuous circles 92 4.5 Call centres: potential development trajectories 100 5.1 Indicators of globalization 109 5.2 Globalization of case companies 125 9.1 Incipient globalization circa 1980 204 9.2 From offshore production to global production: a
schematic depiction of the evolution of international production by USA MNEs 205
9.3 Globalization and East Asian 'regionalization' circa 2000 207
10.1 SMEs' overseas FDI and its proportion to total FDI, 1984-96 239
12.1 Innovation: number of resident patent applications, 1985-95 282
14.1 The basis of competitive advantage - country positioning 335
14.2 Consumer electronics example 336 15.1 Percentage share of new jobs associated with
inward investment 374 15.2 Old and new WDA/DBRW areas, and LA areas voting
for Assemby 377
xu
List of Boxes
4.1 EDS 93 4.2 FedEx 94 4.3 Andersen Consulting 95 5.1 'Assynt Group' - mechanical engineering products
and services 112 5.2 'Hope Group' - energy and oil engineering services 114 5.3 'Teallach Group' - banking and financial services 116 5.4 'Wyvis pIc' - biotechnology 118 5.5 'Conival Ltd' - electronic instrumentation 120 7.1 Glaxo Egypt S.A.E. 163 7.2 Accor Hotels S.A.E. 164 7.3 The Ezz Group 165 7.4 RP. Scherer Egypt 166
10.1 Swany and comparative advantage recycling 232 10.2 Kankyo and OEM operations 241 11.1 Summary features of Uruguay Round agreements
relevant to FDI-related issues 254 14.1 'LapCo' - computers and components 354 14.2 'DeskCo' - computers and components 355 14.3 'SemCo' - computers and components 357 14.4 'TestCo' - communications equipment 358 14.5 'TelCo' - communications equipment 359 14.6 'TevCo' - consumer electronics 360 14.7 'ConCo' - consumer electronics 361 14.8 'AudioCo' - consumer electronics 362
Xlll
Preface and Acknowledgements
This book is based on a Workshop which was held at the Strathclyde Graduate Business School in the University of Strathclyde, Glasgow, UK, on 15 and 16 May 1998, on the topic of the Globalization of Multinational Enterprise Activity and Economic Development. Through the generosity of a number of sponsors, several of whom have supported our work over a number of years, we were able to invite a distinguished list of authors and discussants to Scotland for this event. For their generous financial contributions we would therefore like to thank Scottish Enterprise, the country's leading economic development agency, Bank of Scotland, Royal Bank of Scotland, Barclay's Bank, Ernst & Young and the Souter Foundation.
We would like to specially thank Irene Hood for making all the arrangements associated with the Workshop and for the superb contribution to its smooth running. We are also indebted to several of our PhD students in Strathclyde International Business Unit who ably assisted during the Workshop. In this regard, therefore, our thanks go to Karl Alorbi, Jurgen Broch, Jaswinder Hayer, Kevin Ibeh, Jeff Johnson and Prathap Oburai.
The production of this volume would not have been possible without the excellent work of Irene Hood as our editorial assistant and we acknowledge her continued outstanding endeavours for us, her diligent coordination of the manuscripts and extensive liaison with all the contributors.
XIV
NEIL HOOD
STEPHEN YOUNG
List of Contributors and Discussants
CONTRIBUTORS
Julian Birkinshaw, Stockholm School of Economics, Stockholm, Sweden.
Thomas L. Brewer, Georgetown University, Washington DC, USA.
Peter J. Buckley, University of Leeds, Leeds, UK.
Daniel Chudnovsky, CENIT, Buenos Aires, Argentina.
John H. Dunning, Rutgers University, New Jersey, USA.
Michael J. Enright, University of Hong Kong, HongKong.
Crispian Fuller, University of Wales, Cardiff, UK.
Neil Hood, University of Strathclyde, Glasgow, UK.
Stephen J. Kobrin, University of Pennsylvania, Philadelphia, USA.
Hafiz Mirza, University of Bradford, Bradford, UK.
Kevin Morgan, University of Wales, Cardiff, UK.
Lynn K. Mytelka, UNCTAD, Geneva, Switzerland.
Terutomo Ozawa, Colorado State University, USA.
Ewen Peter, Scottish Enterprise, Glasgow, UK.
Nick Phelps, University of Wales, Cardiff, UK.
Jonathan Slow, Scottish Enterprise, Glasgow, UK.
Stephen Young, University of Strathclyde, Glasgow, UK.
xv
XVI List of Contributors and Discussants
DISCUSSANTS
Ash Amin, University of Durham, Durham, UK.
Julian Birkinshaw, Stockholm School of Economics, Stockholm, Sweden.
Peter J. Buckley, University of Leeds, Leeds, UK.
John H. Dunning, Rutgers University, New Jersey, USA.
Michael J. Enright, University of Hong Kong, Hong Kong.
Neil Hood, University of Strathclyde, Glasgow, UK.
Neil Kay, University of Strathclyde, Glasgow, UK.
Stephen J. Kobrin, University of Pennsylvania, Pennsylvania, USA.
Michael McDermott, University of Strathclyde, Glasgow, UK.
Lynn K. Mytelka, UNCTAD, Geneva, Switzerland.
A. Edward Safarian, University of Toronto, Ontario, Canada.
James H. Taggart, University of Strathclyde, Glasgow, UK.
