Academic journal article Journal of Business Administration

International Business as International Politics

Academic journal article Journal of Business Administration

International Business as International Politics

Article excerpt


Imagine two large firms, both diversified across product lines, organized by strategic business unit, and with vast geographic distances separating corporate headquarters from operating subsidiaries. They are identical save for one respect: the first operates entirely within Canada or the United States and a significant proportion of the second's business is international.

If over two thousand miles separate New York headquarters from the petrochemical operating division why should it matter if the latter is located in Los Angeles or Caracas? What difference does it make in terms of strategy formulation and implementation, organization structure or control? There are marked differences in culture, language and social organization between New York and both Los Angeles and Caracas. (In fact, one might expect greater cultural and linguistic diversity in the work-force in California than in Venezuela.)

At the end of the day, there is only one meaningful distinction between the two firms: national borders intervene in the second case. As John Fayerweather has observed, the essence of international business is that the multinational firm operates simultaneously across a number of different political jurisdictions:

Although one can construct elaborate definitions of international business, it would appear to have only one central distinguishing characteristic--it is business involving two or more nations. Thus concepts unique to international business must stem directly from business processes intersected in some way by national borders (Fayerweather 1982, p. 3)

The only irreducible difference between domestic and international business is that the latter involves cross-border economic transactions. Theories of monopolistic competition, internalization and/or transaction cost economics have provided a rich understanding of the motives for foreign direct investment and the multinational firm. However, they explain integration or internalization, not internationalization. The arguments are equally valid within or across countries. Even John Dunning's eclectic theory which explicitly considers location specific advantages, could well apply within a resource, demographically, and geographically diverse country such as Canada.

I do not mean, by any means, to understate the critically important contributions made by the various theories of the multinational firm. However, as Dunning (1992, p. 3) himself has observed, application of the internalization paradigm has done better explaining the multi-activity firm than the MNC per se. "This is because...its main tenets take some of the more interesting influences on the behavior of MNEs, qua MNEs, as exogenous parameters; the result of which is that many of the aspects of market failure, which are uniquely cross-border, have received less attention than those which are not."

What are national borders? While borders may well represent cultural, linguistic, and social frontiers they are political boundaries dividing one sovereign state from another. Modern international politics entails the dual concept of the nation and the state ideally (in a philosophical sense) combined in a nation-state reflecting the principle of self determination.

The state is a relatively clear political concept which I will deal with in more detail below. The concept of the nation(1) has proved more difficult to define objectively or precisely. However, it involves the idea of a people, of culture in the broad sense: language, history, belief systems and the like. There have been multinational empires in the past (Habsburg, Ottoman and Soviet) and there are certainly multi-"nation" states today (Canada and Belgium are two Western examples). Furthermore, many countries such as the United States are multi-cultural.

I would argue that dealing with cultural diversity in the U.S., more substantial inter-group or even inter-nation differences in Canada or Belgium, or cross-cultural differences across national borders represent changes in degree rather than kind. …

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