Jeffrey A. Hart and Aseem Prakash
This volume focused on the business and public policy responses to economic globalization-the increasing integration of factor, input and final product markets coupled with the increasing salience of cross-border value-chains of multinational enterprises (MNEs). It examined why and how actors seek to cope with globalization, linking these strategic to constraints internal and external to them and to the strategic choices of policymakers.
Market integration is not a new phenomenon. Based upon the ratios of exports to national income and levels of capital flows, some scholars observe that the wealthier countries were more globalized on the eve of World War I than they are now (Hirst and Thompson, 1996; Rodrik, 1997). Market integration experienced a setback during the inter-war years which lasted until the end of World War II. Between 1950 and the late 1970s, increased trade became the dominant vehicle of global market integration.
After the late 1970s, the relative depth and pervasiveness of cross-border economic linkages increased as MNEs became the main agents of market integration. One indicator of the change in the role on MNEs is the rising level of intra-company trade that now exceeds arm's-length trade ($5.3 trillion versus $4.8 trillion in 1993; UNCTAD, 1996). The value-chains controlled by MNEs now span great distances, thanks to instant and cheap telecommunications technologies and lower bulk transportation costs.
Traditionally, the growth in MNE activity was measured using data on foreign direct investment (FDI). However, FDI incompletely reflects the MNEs' economic clout because MNEs can access foreign markets for procuring inputs and selling final products through a variety of other institutional mechanisms such as alliances, joint ventures and contracting. Still, using FDI data as the key indicator, MNE growth has been impressive. FDI has surged in recent years: from $1 trillion in 1987, FDI stock rose to $3.2 trillion in 1997. International production by MNEs' foreign affiliates out-weighs exports as the dominant mode of servicing foreign markets ($5.2 trillion versus $4.9 trillion in 1992). Further, about one-third of their exports take place on an intra-firm basis, attesting to the importance of intra-firm linkages (UNCTAD, 1995).