Teerayut Wattanasupachoke

Internationalisation: Motives and Consequences

By

Teerayut Wattanasupachoke*, Ph.D.

* Ph.D. in Strategic Management, Warwick Business School, University o Warwick, U! Mem"er o #ommittee o the M.Sc. in $% in Business Program, #hulalongkorn University. #urrently, &ssociate Director o MB& 'rogram, #hulalongkorn University.

Abstract In recent decades, the global business environment has been growing dramatically. We are living in a morethan-ever-interdependent world. Many firms involve in the process of internationalisation, engaging their operations outside the boundary of their home country. The level of involvement of firms in international process can be specified by different types of foreign market entry modes ranging from import/e port, contractual and investment entry modes. Import and e port entry modes are the traditional form of international activities of firms. International licensing and franchising are the e ample of contractual entry modes.

!irms can undergo international operations by investment entry modes. These entail "oint ventures, consisting of contractual operations, e#uity "ointventure and strategic alliance, and sole ventures or the establishment of a wholly owned subsidiary The advanced technological change, trade liberalisation and intensified international competition are the factors that facilitate and drive such process of economic activities. $et, it is not sufficient to e plain the reason why firms decide to operate their activities abroad. %s the business environment has increased in uncertainty and comple ity, firms must immediately recognise the critical changes and respond to them rapidly to

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survive in the industry. It is generally accepted that the first and the most important motive of the businesses in the capitalism economy is the profit ma imisation by either increasing the revenue or decreasing the cost of production. In the face of an globally increasing competition, firms not only compete with the rivals in home countries but also the international competitors. Therefore, the pursuit of global profit becomes the key motive of the enterprises &'icken( )**+,. -very activity of the firms, including the e pansion of their activities across border, is aimed at increasing or protecting the profits. The sheer variety of competing e planations derived from different theories and motivations have been advanced to e plain the internationalisation of businesses. The transition of social relation also emerges along the processes of internationalisation of business. In an era of globalisation, it is possible to say that the process of internationalisation of the commerce and industry has an implication for political power of nation state. .learly, historical evidences suggest that it substantially affects the world political landscape. /articularly, the proliferation of the worldwide-basis operation of M0.s in the past two decades re#uires us to rethink the traditional thought of the relationship between the governments of the nation states and the firms.

The purpose of this paper is to investigate some e planatory frameworks and motivations to e plain the process of internationalisation of the firms. The second part of the paper is devoted to the e amination of the conse#uence of such development of the political power of the nation states.

The Motives of Internationalisation of Firms %he origins o the internationalisation o the commerce an( in(ustry can "e trace( "y "oth macroeconomics a''roach, regar(e( as a general)system a''roach which is ocuse( on the ca'italist system as a whole, an( microeconomics a''roach, "ase( u'on a irm)s'eci ic level. $n a macroeconomics a''roach, the e*'ansion o irms+ activities "eyon( their home countries can "e e*'laine( "y the circuits o ca'ital an( the theory o new international (ivision o la"our. & microeconomics a''roach entails the Dunning+s eclectic 'ara(igm an( the theory o 'ro(uct li e cycle.

The Macroeconomics Approach 1, %he -ew $nternational Division o .a"our #once't %he new international (ivision o la"our, irst 'ro'ose( "y Ste'hen /ymer, is use( to e*'lain the shi t o

in(ustrial 'ro(uction rom the core, the in(ustrialise( countries, to the 'eri'hery, the (evelo'ing countries. 0irms in (evelo'e( countries acing increasing wage in their home countries are orce( to seek the alternative locations, which are the thir( worl( countries, 'rovi(ing chea' la"our. Dicken 11223, 'oints out that even though this conce't has some vali(ity in e*'lanation o internationalisation 'rocess, it also contains several (raw"acks. 0irstly, it is e*cessively narrow an( one)(imensional. $n other wor(s, it oversim'li ies the variety o strategic o'tions availa"le to irms. Secon(ly, it overstates the e*tent to which in(ustrial 'ro(uction has "een relocate( to the glo"al 'eri'hery. 3, %he #ircuits o #a'ital #once't %he circuits o ca'ital conce't are "ase( on the ca'ital system as a whole. &s 4uote( 5this ca'italist worl( must "e su"6ect as a whole to the laws o motion o ca'italism7international irms must "e un(erstoo( in term o the internationalisation o ca'ital an( the accumulation o ca'ital 18a(ice9 12:;,. %he i(ea "ehin( this conce't is to increase 'ro its an( accumulate ca'ital "y e*tracting sur'lus value rom the 'ro(uction 'rocess as a continuous circuit

The Microeconomics Approach

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0irst articulate( "y >ohn Dunning in 12:6, the eclectic 'ara(igm o international 'ro(uction is (erive( rom various theoretical a''roaches such as theory o irm, tra(e theory, organisation theory an( location theory. $t attem'ts to integrate three general an( interrelate( conce'ts to i(enti y an( evaluate the signi icance o actors in luencing "oth the initial act o cross) "or(er 'ro(uction "y irms an( the growth o such 'ro(uction. Within the increasing com'etitive 'ressure on irms to sustain or increase 'ro its, the eclectic 'ara(igm avers that at any given moment o time, the e*tent an( 'attern o international 'ro(uction can "e (etermine( "y a set o three actors which are ownership-specific advantage, internalisation advantage an( location-specific advantage. <ach actor will "e (iscusse( in turn. Ownership-Specific Advantages %hey arise when a irm o one nationality 'ossesses certain s'eci ic a(vantage over the com'eting irm o other nationalities. %hey are internal assets which are not availa"le to other irms. %hese inclu(e those create( "y the irm itsel , such as knowle(ge, organisational an( human skill, 'urchase( orm other institutions, taken the orm o a legally 'rotecte( right or

o a commercial mono'oly, an( those o si?e, (iversity or technical characteristics o irms 1Dunning9 12@A,. Ste'hen /ymer irst states that out"oun( activities coul( occur only i the irm 'ossesses a 'articular a(vantage over the local irms to com'ensate or the lack o the un(erstan(ing o the local market environment. Internalisation Advantages %hese a(vantages arise when a irm internalises the use o its ownershi') s'eci ic a(vantage. %o this e*tent, the irm 'erceives it to "e in its "est interest to e*'loit its ownershi')s'eci ic a(vantage rather than sell them or the right to use them to oreign irms. &ccor(ing to Dicken 11223,, the key incentives or irm to internalise market are market im'er ection an( uncertainty. %he greater (egree o market im'er ection an( uncertainty, the greater the incentive an( a(vantage or irm to 'er orm the unction o the market itsel "y internalising the market transactions. $nternalisation is es'ecially likely to occur in the case o knowle(ge an( technology "ecause they contain 'u"lic)goo(s characteristics which is easily transmitte( across the country "oun(ary. Because o huge amount o money s'ent on 8BD, irm will have incentive to retain technology an( e*'loit it (irectly on the worl()wi(e "asis rather than sell or lease it to oreign irms.

ocation-Specific Advantages %his actor a ects the (ecision o the location o 'ro(uction. %o this e*tent, irm in(s that it must "e more 'ro ita"le to e*'loit its assets in overseas location rather than (omestic location. Dunning (e ines location) s'eci ic actors as 5those which are availa"le, on the same terms, to all irms whatever their si?e an( nationality, "ut which are s'eci ic in origin to 'articular locations an( have to "e use( in those locations+. &s classi ie( "y Dicken, there are several ma6or ty'es o location)s'eci ic a(vantages which will "e i(enti ie( in turn. 1ariations in 2i3e and 0ature of the MarketC %he glo"al market e*hi"its an enormous variation in income level, an a''ro*imate measure o market si?e, suggesting the (i erence in magnitu(e an( nature o consum'tion 'atterns across countries. The /olitical and .ultural 'imension4 %his inclu(es 'olitical climate, government 'olicies, tra(e 'olicies, national attitu(e, language an( culture. $t has "een acce'te( that the im'ortant source o market im'er ection is the government interventions. 0or this reason, government 'olicies signi icantly a ect the 'attern o international 'ro(uction. %he historical evi(ences also suggest that many overseas investments occur in the countries o similar culture an( language.

 1ariation in /roduction .osts4 %he s'atial variation in 'ro(uction costs, es'ecially in la"our actor, has contri"ute( signi icantly to the sha'e o international 'ro(uction in the worl(wi(e "asis. %o the conte*t o (i erent la"our actor across countries, several as'ects o variation are in 'resence. %hese are geogra'hical variation in wage cost, la"our 'ro(uctivity, (egree o la"our controlla"ility, an( mo"ility o la"our. Dicken 11223, 'oints out that one way to han(le the uncertainty o uture 'ro(uction cost in (i erent locations is to locate similar activities in the various (i erent locations an( a(o't a le*i"le system o 'ro(uction allocations "etween locations. &ccor(ing to the 'ara(igm, irms will involve in international 'ro(uction i an( only i these all three con(itions are satis ie(. %he con iguration o ownershi', location an( internalisation 1D.$, a(vantages an( (isa(vantages (etermine the structure, nature an( strategy o the irm. %he merit o this 'ara(igm is that it incor'orates a ma6or characteristic o the (iversity o transnational investment in the glo"al economy 1Dicken9 1223,. Eet, %aylor an( %hri t 112@6, conten( that this 'ara(igm is merely 5a list o actors likely to "e im'ortant in the e*'lanation o the mo(ern7 1transnational cor'orations,7 rather than the e*'lanation itsel . %heoretical relations "etween the (i erent actors too o ten remain untheorise(+.

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%he 'ro(uct li e cycle theory, irst articulate( "y Pro essor 8aymon( Fernon in 1266, was (evelo'e( to e*'lain the locational ten(encies or each 'hase o the 'ro(uct cycle) 'articular the US M-#s. $n the "eginning o the cycle, the 'ro(uction acilities take 'lace in the home country 1the US, with high income an( la"our costs. %he 'ro(ucts are e*'orte( to overseas markets. %o increase the com'etitiveness an( re(uce the 'ro(uction costs, irms start moving the 'ro(uction activities to the other (evelo'e( markets. $n the last stage, within the intense com'etition in stan(ar(ise( 'ro(ucts, irms are orce( to move their 'ro(uction acilities to e*'loit the relatively chea' la"ours in the (evelo'ing countries. %o this e*tent, the (evelo'e( countries "ecome net im'orters whereas the (evelo'ing countries "ecome net e*'orters. Dicken 11223, 'oints out that this mo(el has its own merit in such a way that it is an i(eal)ty'e mo(el which she(s the light on the (ynamic nature o the 'rocesses. /owever, some authors an( even Fernon himsel "egan to cast some (ou"ts that the mo(el is losing some o its relevance as the e*'lanation o international investment. =i((y 112:@, state( that 5as an e*'lanation o international "usiness "ehaviour, the 'ro(uct cycle mo(el has only limite( e*'lanatory 'ower7..%he multinational

enter'rise, however, has succee(e( in (evelo'ing a num"er o other strategies or surviving in overseas 'ro(uction an( marketing. /ence, the 'ro(uct cycle mo(el must now take its 'lace as only one acet o the more general 'henomenon o large international irms success ully a''lying a (iversity o mono'olistic a(vantages across national "oun(aries in or(er to internalise im'er ectly com'etitive actor markets+. Dicken 11223, also criticises that the mo(el can no longer e*'lain the international investment 'attern "y the M-#s. 0irstly, it e*'lains merely a general se4uence "ut it ails to 'rovi(e the length o each stage an( the timing o the transition rom one stage to another. Secon(ly, as "eing in the more com'le* an( uncertain glo"al environment, it is unwise to assume evolutionary se4uence rom home country to oreign country. 8ather, the initial source o innovation an( 'ro(uction may "e rom any 'oint in glo"al network o the irm. %hir(ly, it ails to e*'lain the act that much o international investment occurs "etween a(vance( in(ustrial countries. &t last, he 'oints out that the a''lication to real) worl( circumstance must "e time) an( 'lace)s'eci ic. /owever, the 'ro(uct)li e)cycle theory still has signi icant 'ower or e*'lanation o internationalisation 'rocess o irms. #arnoy 11226, 'oints out that G%he e4ualisation o la"our costs an( income 'er ca'ita among the (evelo'e( countries has not altere( the 'ower o 'ro(uct)cycle theory to

e*'lain the location o multinational 'ro(uction an( 8BDC the theory 're(icts that new 'ro(uct (evelo'ment will s'rea(, an( it hasH. So ar, the 'rece(ing theories have "een a(vance( to e*'lain the motivation o the internationalisation o the irms. $n general, it can "e sai( that com'anies are attracte( to cross)"or(er activities "ecause o the (ynamic o an( interaction "etween e*ternal an( internal actors. $n act, internationalisation results rom a com"ination o actors rather a single actor. Both kin( o actors not only 'rovi(e the e*'lanation o cross)"or(er activities o irms "ut also she( the light o organisations+ strategic res'onse1<llis an( Williams9122;,. %he e!ternal factors which are in luential in internationalisation 'rocess are (escri"e( "y the actors outsi(e the control o the irms. $n other wor(s, they re'resent the o''ortunities an( threats o the irm. <llis an( Williams 1122;, classi y e*ternal actors into three level9 Meta level, in(ustry level an( irm)s'eci ic level. Meta level actors are concerne( with the changes in the "roa( environment inclu(ing 'olitical, economic, ecological, social, an( technological actors. $n(ustry)level actor is com'etitive orces within the in(ustry. 0irm)s'eci ic actors involve either a mergerItake)over resulting in change in ownershi' or sharehol(er 'ressure.

Internal factors (eal with the change within the organisation an( vision o the irms+ e*ecutives i.e. risk aversion o the (ecision makers o the com'anies. %o 'ut it more sim'ly, they are strengths an( weaknesses o the irm. &ccor(ing to <llis an( Williams 1122;,, they em"race organisational crisis, management succession, "usiness 'er ormance an( internal (issent. %hey also 'oint out that the im'ortance o the internal conte*t is su"stantially a ecte( "y the culture o the com'any. %his 'ro'osition e*'lains why (i erent com'anies res'on( (i erently to the same e*ternal stimulus. &s in(icate( earlier, the international e*'ansion o irms+ activities has to "e seen within the conte*t o the irms+ attem'ts to maintain or increase their 'ro it in an increasingly com'etitive, com'le* an( uncertain glo"al environment. %o this e*tent, the reasons o cross)"or(er e*'ansion may "e regar(e( as either (e ensive or aggressive or a com"ination o "oth. %he defensive or reactive reasons are consi(ere( the 'ush actors that (rive irms to engage crossing national "or(ers when irms 'erceive some (i iculties in their "usiness 'er ormances an( try to maintain their 'ro ita"ility an( com'etitive 'osition in the markets. %hese (i iculties inclu(e (ecreasing 'ro its, market saturation in home or e*isting market, increasing costs o 'ro(uction an( government regulations, an( ierce com'etition.

#onversely, the aggressive or proactive reasons are regar(e( as the 'ull actors that entice irms to move into oreign "oun(aries. %hey arise out o realise( attractiveness an( 'ro ita"ility o cross)"or(er o'erations. %hese inclu(e the attractiveness in 'otential new)o'en markets, chea'er o'erating costs, an( avoura"le incentive o ere( "y host government. &ccor(ing to Dunning 1122J,, the motives o cross)"or(er o'erations o irms can "e (ivi(e( into our grou's. 0irstly, com'anies (eci(e to internationally (is'erse their o'erations "ecause o the resource related actors. $n this res'ect, the availa"ility o chea'er resources an( security o su''ly sources can "e 'ower ul incentives to (rive irms to invest a"roa(. %hese resources inclu(e la"our orce, natural resources an( managerial an( technological skills. %he secon( grou' o actors are mar"et related. %he tra(itional way to attract 0D$ is to im'ose tra(e "arriers on the im'orts. %he more recent instrument is to o er the most avoura"le incentive to attract 0D$. %he market relate( motives can "e aime( at 'rotecting e*isting markets 1(e ensive, or e*'loiting new markets 1aggressive,. 0irms may have to ollow their customers an( su''liers a"roa( to sustain the "usiness. %o 'revent themselves rom "eing le t "ehin(, irms want to set a oothol( in the markets that their com'etitors are alrea(y there or going to enter the markets. M-#s are also attracte( "y country)s'eci ic attractiveness such as large, increasing)

grow markets. %hir(ly, irms are motivate( "y strateg# related actors. %he international o'erations may "e 'art o the glo"al strategy to increase the glo"al awareness o 'ro(ucts an( "uil( u' a glo"al "ran(. Being international entity creates goo( image, 'restige an( 'ower to the com'any an( in turn "oosts sales in home an( host countries. 0urther, com'anies ac4uire the assets o oreign irms to 'ursue their long)term strategic o"6ectives. 0orth are efficienc# related actors. #om'anies involve in "eyon()"or(er activities in or(er to "ene it rom economies o sco'e an( scale an( risk (iversi ication. $nvesting in several countries can hel' (iversi y an( re(uce risks. %he un(amental 'oint to "e a''reciate( is that most M-#s+ motives o going a"roa( are i(enti ie( "y several reasons rather than a single motive. $nternationalisation 'rocess may "e characterise( in term o (e ensive or aggressive an( motivate( "y either internal or e*ternal triggers or a com"ination o "oth. 0or given irm, these actors can change over time or each circumstance an( stage o (evelo'ment o irms. /owever, as mentione( earlier, the 'rinci'al o"6ective o irms is long)term 'ro it ma*imisation. $t a''ears that the 'rocess o internationalisation is a rational (ecision)making activity 1<llis an( Williams9122;,. %here ore, to 6usti y any cross)"or(er activities, the e*'ecte( "ene its must outweigh the costs or risk o such activities.

D'erating the "usiness "eyon( home)country "oun(ary inevita"ly involves costs or risk such as e*change rate e*'osure, country risk, an( any other risks that may arise rom cross) "or(er o'erations. #learly, these risks results rom com'le* an( uncertain environment. %he risks involve( can "e either systematic 1un(iversi ia"le, or unsystematic 1(iversi ia"le, risks. %he (iversi ia"le risk such as e*change rate e*'osure can "e manage( "y the so) calle( he(ging. %he country risk regar(e( as systematic risk can also "e re(uce( via insurance. Consequences of Internationalisation of Firms for $olitical $ower of States %he ra'i( growth o (egree o inter(e'en(ence in international 'olitical economy re4uire us to reassess the lan(sca'e o contem'orary worl(. %he 'rocesses result in a new economic, 'olitical an( cultural transition. %he internationalisation o the commerce an( in(ustry is the starting 'oint o the huge em'ire o the M-#s. $n act, M-#s are one o the vehicles or increasing glo"al inter(e'en(ence. %o (ate, these giant cor'orations e*ert a 'ervasive in luence over the 'articular countries. %heir glo"al o'erations contri"ute a lion share o worl( tra(e an( 'ro(uction. %he (ominant an( e*'an(ing economic an( 'olitical 'ower o these M-#s is a result o their irm) s'eci ic a(vantage which is the ca'acity to 'ool the resources through the inancial resources an( esta"lishe(

worl(wi(e network. %he a(vance( technology an( "etter managerial 'ractices also give the M-#s a worl(wi(e s'eci ic a(vantage. &s their increasing economic 'ower corres'on(s to the growing social an( 'olitical in luence over the other state, the relationshi' "etween the M-#s an( host countries is a 'rimary site o (e"ate in the 'ast two (eca(es. $t is argue( that the national governments loss their 'ower to control an( im'ose any constraint towar( the M-#s (ue to the increasing 'ower o the M-#s. #learly, in the "attle iel( "etween M-#s an( host countries, there is a con lict o interests lea(ing to an uneasy relationshi' "etween them. %his is "ecause they 'ursue (i erent o"6ectives. %he M-#s, like any "usiness enter'rise, want to ma*imise the cor'orate 'ro its regar(less the interests o any 'articular country. $n contrast, nation states want to achieve their national goals o 'romoting economic growth an( wel are or national citi?en. &s the worl( economy is (ominate( "y multinational ca'ital, the challenge has "een 'ose( to the nation states+ a"ility to regulate the M-#s o'erating in their territory. %hanks to their high e iciency o the worl(wi(e o'erations, the M-#s can easily esca'e the regulations im'ose( "y the national governments. =iven the internationalisation o ca'ital through the M-#s+ o'erations, it is argue( that this might "e the en( o the sovereignty o the nation state. Eet, as we will (iscuss later on, it might not "e necessarily the case.

$n the early (ay, the M-#s+ e*'ansion was (ominate( "y &merican M-#s. #onse4uently, the Western <uro'ean an( >a'anese counter'arts ollow the &merican+s ootste'. &s a result, to(ay, most o the lea(ing M-#s are rom the %ria( area. %he 'roli eration o %ria(+s M-#s is e4uivalent to the e*'ansion o the 'olitical 'ower o these nations. %he e*istence o these large cor'orations with international mono'oly 'ower un(ou"te(ly has an e ect on the re(istri"ution o 'ower on the glo"al "asis. %he national governments are com'eting with each other, "y o ering the most avoura"le incentive such as grant, su"si(y, unlimite( re'atriation o 'ro its an( avoura"le ta*ation, to attract 0D$ "ecause they ho'e to use the M-#s+ o'erations as an engine or 'romoting their economic growth. %he 0D$ is e*'ecte( to "ring a host o "ene its to the host countries. %hese inclu(e increasing local 'ro(uction, increasing the (eman( or local in'uts, a wi(er range o goo(s at lower 'rices. 0urther, the M-#s give the contri"ution to ca'ital in lows, e*'orts, su''ly o oreign e*change, im'rovement o "alance o 'ayment, trans er o managerial skills an( technological ca'a"ilities to local 'ro(ucers, an( em'loyment creation. Des'ite the 'ositive roles o the M-#s, the ca'ital in low o 0D$ rom M-#s also in(uce costs to host

countries. %he issues o a lack o commitment, uneven (evelo'ment, (e'en(ency, screw(river 'lants, environmental (egra(ation an( trans er 'ricing have "een "ig concerns or the host countries. %he M-#s s'en( a lot o time an( resources on 8BD to ac4uire new technology an( then rarely willing to trans er the technology an( skill to the local managers an( entre'reneurs. %here ore, not much will "e le t "ehin( when they (eci(e to shut (own the activities in host countries. %he e*istence o M-#s also (iscourages the locals to ac4uire an( "uil( u' their own technology an( ca'acity. %his is nothing "ut economic an( technological (e'en(ency. 0urther, $t is unlikely that the M-#s will 'lace the highest)return an( highest)level activities in oreign country 1#arnoy9 1226,. %he investment in reci'ient countries, 'articularly in the thir( worl( countries, can only "e a assem"ly "ase or so)calle( screw(river 'lant. $n a((ition, the national governments are aware o the e*'loitation o the in(igenous resources resulting in environmental (amage. <ven though 0D$ creates em'loyment, it can also create unem'loyment when M-#s (rive out the small in(igenous "usiness, causing a net loss o em'loyment. %he increasing mono'olistic 'ower may inally lea( to the higher local 'rices. %he inter) irm tra(e, the cross)"or(er transactions "etween su"si(iaries o the same cor'oration, has "een a signi icant growth in contri"ution to worl( tra(e. %his intra) irm tra(e is mani'ulate( an( con(ucte( on the trans er 'rice "asis, rather than an arm+s length "asis. By

create( "y 0D$ may "e o set "y larger oreign e*change out lows through im'orts o com'onents, re'atriate( 'ro its an( licence an( ranchising ee. %he 4uestion is how to (istri"ute the "ene its an( costs o M-# activities "etween two 'arties. 0orm the hosts+ stan('oint, they try to ma*imise the value a((e(, create( "y the o'eration o the M-#s. $n this res'ect, it largely (e'en(s on the relative "argaining 'ower "etween two 'arties. & single national market now seems to "e sel )insu icient to satis y the economic re4uirements o its citi?ens. -ation state+s control over its own economic a airs will give away to these international cor'orations that "etter suite( the economic nee(s o 'eo'le. %he cost o ine iciency o the assertion o national sovereignty in or(er to achieve national goals woul( "e too high. $t is argue( that national economic goal can only "e achieve( through 'artici'ation in the worl( economy. =iven the a(vantages "rought to host countries, no government woul( shut out the M-#s an( there"y orgo "ene its these cor'orations "ring to countries. U' to this 'oint, they seem to "e more 'ower ul than host governments as governments "ecome inca'a"le o legally controlling the activities an( 'olicies o M-#s. %hen, they lose control over internal economic a airs. #an state retain its in(e'en(ence an( sovereignty an( simultaneously meet the e*'an(ing economic nee(s o

its citi?ensK Un ortunately, it seems that the "argaining a(vantages are on the si(e o M-#s. %he attractiveness o host countries to M-#s (e'en(s on the local economic con(itions. %he countries will "e in a "etter "argaining 'ower i they have 'otential large markets, natural resources an( high)skill, low)cost an( traina"le or well)traine( local la"our, an( goo( communication systems an( in rastructures. Similarly, the M-#s with high irm)s'eci ic a(vantages an( high 'otential contri"ution are in a "etter 'osition. Eet, the terms may "e re)negotiate( as the "argaining 'osition is changing over time (e'en(ing on the continue( attractiveness o the host countries an( the M-#s. %he intensi ying com'etitive "i((ing o 'ros'ective host or 0D$ will increase the "argaining 'ower o the M-#s. $t is argue( that once the 'lants are set u' in host country, the national government will gain an u''er han(. %his might not "e the case. &ccor(ing to the ootloose character o the M-#s an( the shorten 'ro(uct li e cycle, they can move to a more avoura"le country once the e*isting host country can no longer 'rovi(e the acce'ta"le con(ition or their "usiness (evelo'ment. %he ree(om o host countries to regulate M-#s is not only restricte( "y the ootloose a"ility o M-#s "ut also "y the 'olicies im'lemente( "y home countries+ governments. %hat is, M-#s can lo""y their home governments to

'ut the 'ressures on the host countries on their "ehal . -othing gives a "etter 'icture than the case o >a'anese government, as 'ointe( out "y Dunning 1122J,. $n earlier times, >a'an 'ursue( a restrictive 'olicy towar(s the 0D$. By (oing so, governments (eci(e( to orgo the short) term "ene its orm 0D$ or long)term "ene its. &s a result o su"stantial investment in training, e(ucation, an( technology, >a'an now can welcome the 0D$ into the country without any ear o losing the autonomy. %he "ene its en6oye( "y M-#s, however, has "een challenge( "y the rise o the economic nationalism. =overnments try to get greater local control through 6oint venture, nationalisation, etc. -ational governments increasingly make M-#s serve local interests an( 'revent themselves not to "e e*'loite( "y the "ig oreign com'any as they use( to "e. %he regulations towar( the 0D$ an( M-#s a''ear in various guises an( can change over time (e'en(ing u'on the relative "argaining 'ower we (iscusse( earlier. /ost governments may 'ose the regulations to increase local e4uity 'artici'ation or s'eci y the sectors or ty'es o activities which are o im'or) tance in economic (evelo'ment. D ten, the M-#s are orce( to locate their activities in high unem'loyment area. %o avoi( "eing screw(river 'lants, governments may im'lement the regulations to increase local value

a((e(. %hese inclu(e im'osing tra(e "arriers on the im'orts o com'onents to encourage irms to "uy locally an( s'eci ying the minimum amount or certain 'ercentage o local value a((e(. /ost governments are increasingly aware o revenue leakage (ue to trans er 'ricing. %hey try to control such 'ractices "y encouraging arm+s) length)"asis transactions. /owever, in an era o 'erceive( 'ower ul M-#s, the national unilateral regulation is no longer a(e4uate. $t a''ears that the multilateral or interna) tional regulatory ramework might "e the more e ective way to control an( regulate the "ehaviour o the M-#s. #ountries realise( that the collective actions "y grou' o countries are ar more e ective than going)alone actions. %he international co(es o con(uct or gui(elines o M-# "ehaviour is one orm o the colla"orative actions. /owever, these gui(elines are not legally orce(. 8ather, countries are encourage( to a"i(e "y such gui(elines. %he regional integration in several 'arts o the worl( is a clear mani estation o the collective actions towar(s M-# "ehaviour. #ountries colla"orate with each other to harmonise the 'olicies against M-#s an( increase their "argaining 'ositions. U-#%# 1Unite( -ations #entre o %ransnational cor'orations, was set u' to a(vise an( assist governments on how to "e in the "etter "argaining 'osition an( gain the most "ene its o the 'resence o 0D$. /owever, the multilateral actions are (i icult to en orce in 'ractice. M-#s

may ignore the international co(es i they are against the interest o the irms. $n the light o regional integration, it may "e har( to uni y an( reconcile the interest o countries. %he more 'ower ul nations may gain at the e*'ense o the small countries 1Dunning9 122J,. $t is acce'te( that "oth cor'orations an( host governments seek to ma*imise their economic interest an( were well aware o the use ul su''ort rom each other. %he M-#s hel' 'romote economic growth o the reci'ient countries. $n return, nation states have a ma6or role in 'rovi(ing well)e(ucate(, high)skill la"our, so'histicate( communication an( in rastructure to ma*imise the o'erational e iciency o the M-#s. $t ollows that nation states still 'lay a ma6or role. $n other wor(s, an e ective 'rivate sector su''orts, an( is su''orte( "y, an e icient 'u"lic sector. $n this res'ect, there is an o'timistic view that the M-#s an( host government will consi(er each other with less con rontation an( more constructive view to ma*imise mutual "ene its or "oth 'arties

Concluding %emar"s $n the ace o glo"alisation, irms learn to o'erate their activities with a num"er o geogra'hically (is'erse( o'erations. %he internationalisation

'rocess o the enter'rises is one o the 'rimary sites o attention. Discoveries in telecommunications an( com'uter acilities lessen the costs o cross)"or(er o'erations an( encourage irms to internationally (is'erse their activities. $n to(ay+s (ynamic worl(, the geogra'hical "oun(ary "etween countries "ecomes irrelevant. Most irms are (riven to internationalise their economic activities "y glo"al orces. %his 'a'er is inten(e( to investigate the (eterminants an( conse4uences o the 'rocesses o internationalisation o "usiness. $t a''ears that internationalisation is an i(enti ia"le evolutionary se4uential 'rocess. &s (iscusse( earlier, irms internalise their economic activities or a host o (i erent motives. %he e*'lanation or that can "e a''roache( in various ways an( levels. Many theories trie( to e*'lain such 'rocesses. $nternationalisation 'rocess may "e characterise( in terms o (e ensiveness or aggressiveness an( motivate( "y either internal or e*ternal triggers or a com"ination o "oth. #learly, there is no universally an( single e*'lanation o such e*'ansion across national "oun(ary. <ach ramework or theory has its own merit an( 'it alls. $t woul( "e illusive to seek or an all)em"racing e*'lanation 1Dicken9 1223,. %here ore, it is unwise to 'ut any e ort to 'ro(uce a single an( clear)cut e*'lanation. $n stea(, the triggers to the internationalisation 'rocess are the (ynamic interact o a variety o actors.

%o this e*tent, Dunning 1122;, suggests that most "ehavioural an( theoretical e*'lanations (o not e*'licitly i(enti y the motives o the irms, "ut merely the varia"les that are likely to in luence irms+ "ehaviour. $n a((ition, most e*'lanations involve articulating what irms actually (o rather than what they shoul( (o. 0urthermore, it is clear that it is no longer the choice or com'anies to involve in cross)"or(er o'eration. $n stea(, irms are orce( to un(ergo internationalisation 'rocess an( com'ete glo"ally. $t "ecome one o the key strategic (ecisions or irms to ma*imise or at least sustain 'ro its to survive in the worl( o uncertainty an( com'le*ity. %he glo"al economic e*'ansion has "een largely acilitate( "y the growth o M-#s. %hey (ominate worl( tra(e an( ca'ital movement. Some large M-#s have turnover e*cee(ing the =-P o some countries. %hese cor'orations continue to grow an( in luence the lan(sca'e o the worl( economy. %he main concern is not only the economic conse4uences "ut also the 'olitical an( social outcomes o M-# activities. $t is argue( that high economic 'ower allows the M-#s to gain an u''er han( over the host governments "y e*erting leverage over 'olicy making. %hey have "een accuse( o e*'loiting reci'ient countries, "eing a cause o uneven (evelo'ment an( erosion o the sovereignty o home countries. %here ore, the relationshi's "etween host countries an( M-#s seem

to "e contra(ictory rather than co) o'erative. /owever, it might not "e totally 6usti ie( to claim that the host government lose the control over the multinationals. %here has "een the rise o economic nationalism an( national i(entity. Being an <conomic 'ower an( a key actor o re)sha'ing new worl( or(er o the M-#s (o not invali(ate the roles o the nation states. %here is still a role or the nation states in 'rovi(ing a goo()4uality in rastructure or the M-#s. #learly, "oth 'arties are likely to work together to 'romote economic wel are or "oth 'arties. %aken all together, the international 'olitical economy has un(ergone a 'ro oun( change. =overnment has to act like a "usiness entity an( the "usiness entity has to move towar( (i'lomacy. %he thrust o the argument is the con licting interest "etween the nation state an( the M-#s. %he challenge acing the reci'ient countries is not whether to work with the M-#s or how to regulate an( control M-#s "ut how to ma*imise the value)a((e( or contri"ution, create( "y such activities, to long)run economic growth. LLLL %&F&%&'C& Ball D. &., W. /. Mc#ulloch, International 5usiness4 Introduc-

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