Academic journal article Multinational Business Review

Intermediate Products and the Regionalization of Trade

Academic journal article Multinational Business Review

Intermediate Products and the Regionalization of Trade

Article excerpt

Introduction and literature review

The extent to which the world economy is truly integrated globally is one of the most extensively debated issues of our time. On a political level, theorists have argued both that the nation state has become increasingly powerless as global and regional forces take over ([23] Ohmae, 2005) and that, on the contrary, nation states retain extensive and even increasing, capacity to control their economies ([32] Weiss, 2005). In relation to international business and its activity, there is also wide debate about the extent to which globalization is an extensive and accelerating phenomenon. In particular, there has been considerable discussion on the extent to which "international" business is truly global. Researchers have used a variety of means to empirically analyse the dimensions of enterprise activity at different levels (local, regional, global [...]). In general, they have found that the extent to which business activity is global is rather limited ([28] Rugman and Verbeke, 2004; [11] Dunning et al. , 2007; [17] Ghemawat, 2007).

At the same time, there has been extensive debate on the international division of labor within industry. From the seminal work of [15] Froebel et al. (1980) through to more recent works exploring the extent and nature of the fragmentation of production such as those by [33] Yeats (1998) and [3] Athukorala and Yamashita (2006), researchers have sought to define the extent to which production processes, as opposed to sales and investment, are dispersed across borders and production stages.

The debate on regionalization versus globalization

There has been a lively discussion amongst international business scholars on the extent to which global business is truly "international." Key contributions to this debate include the work of Rugman ([28] Rugman and Verbeke (2004) (henceforth RV) and [27] Rugman and Oh (2010) (henceforth RO)) and [11] Dunning et al. (2007) (henceforth DFY). RV/RO use data from the annual reports of Fortune 500 companies to explore the extent to which the activities of these companies are really spread globally. RV find that the number of truly global companies is rather limited and that 84 percent of the Fortune 500 companies are mainly home-region oriented (HRO). Using a similar database, RO found that, in 2006, 75 percent of sales turnover of the Fortune 500 came from the home region, where 78 percent of assets were concentrated. DFY use data on foreign direct investment (FDI), primarily from UNCTAD, to highlight that, although there is a strong regional element in FDI, it is more global than the figures from RV might imply.

Although these papers debate the same issue, in fact they are measuring quite different activities. RV's data are on the geographic spread of company sales in 2004. Their paper thus measures globalization in terms of the marketing activity of key companies. RO use both this indicator and another based on company assets. The latter is more directly comparable with the FDI data of DFY. They provide a very similar picture of MNE activity to that of sales, i.e. assets are also highly biased towards the home region.

The figures analyzed by DFY are on FDI, i.e. cross-border equity involvement between and within regions by all companies (not just the largest ones in the Fortune 500 dataset). Overall, they found that FDI was somewhat more dispersed than RV's figures indicate. They looked at data over time and found no marked trend towards geographical diversification over the period studied (1990-2002), with several European countries actually showing a tendency to become less globalized.

However, as the authors themselves highlight, companies invest abroad for a number of reasons, including, but by no means limited to, exploiting new markets. Thus, FDI data, by definition, will include a wider variety of company activities than the sales data considered by RV. …

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