There are two perspectives on the relationship between states and multinational corporations (MNCs). One, the "state in command" perspective, sees states as dominant, with globalization only worsening the situation. The other-the "MNCs in command" view-sees MNCs as all-powerful as a result of their assets. Globalization from that perspective is not necessarily bad and may actually empower states against multinational firms. China's dealings with Microsoft Corporation from the early 1990s to the present show that neither perspective is accurate. China got some of what it wanted while Microsoft got some of what it wanted. In lieu of these approaches, a third model is offered here-a modified bargaining power perspective that focuses on the balance of needs, alliances, and the institutional environment as important factors shaping the bargaining dynamic between China and multinational enterprises. A case study of the China-Microsoft model demonstrates the usefulness of the model.
Key words: China, globalization, economic development in Asia
Multinational corporations (MNCs) are one of the most visible facets of contemporary globalization. In 1970, there were 7,000 MNCs worldwide. Thirty years later the number had soared to more than 60,000. As of 1999, the 1,000 largest MNCs were responsible for 80 percent of world industrial output while the world's top 100 MNCs accounted for 4.3 percent of world GDP.1 China is no stranger to these trends. Between 2004 and 2006 alone, the number of foreign-funded enterprises in China jumped from almost 470,000 to more than 500,000. Moreover, MNCs have assumed an increasingly prominent role in China's economy. They employ almost 24 million people, represent nearly ninety of China's 200 largest exporters, and dominate numerous market segments such as soft drinks.2
In the view of some, today's MNCs have great power.3 This is because they can use their massive revenues, control over distribution channels, and addictive brands to force countries to open their markets, limit their support for local firms, and embrace international accords they might otherwise reject. According to this school of thought (the "MNCs in command" camp), globalization has only worsened matters by increasing the mobility of MNCs. The "states in command" camp rejects such claims.4 It retorts that states remain quite powerful as a result of their political, military, and economic endowments, their powers as sovereigns, and their influence over international governmental organizations (IGOs). As for globalization, states-in-command adherents argue that it does not prima facie empower MNCs. Indeed, it may actually weaken them, for example by providing governments with alternative sources of capital and technology.
The China-Microsoft case from the early 1990s to the present challenges both of these schools of thought. Contrary to what the MNCs-in-command perspective would lead us to expect, China pushed Microsoft, one of the world's most prestigious and successful software companies, into numerous joint ventures (JVs) with Chinese firms as well as several large-scale purchasing deals with Chinese vendors. Moreover, the Chinese government forced Microsoft to make hundreds of millions of "investments" in education, training, and research. As well, China insufficiently responded to Microsoft's desires for much reduced piracy of its products. In opposition to the states-incommand perspective, however, Microsoft struck deals worth billions of dollars with Chinese personal computer (PC) manufacturers and won numerous contracts from Chinese government entities. Beyond this, Microsoft refused to offer discounted versions of its products in China. And the Chinese government failed in its quest to nurture local firms that could offer meaningful alternatives to Microsoft's dominant programs.
The two dominant camps fail to illuminate the China- Microsoft case because they excessively stress the endowments of China and Microsoft and ignore the actual need that the two parties have for these resources. …