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Technology and Global Industry: Companies and Nations in the World Economy (1987)

Chapter: International Industries: Fragmentation Versus Globalization

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Suggested Citation:"International Industries: Fragmentation Versus Globalization." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"International Industries: Fragmentation Versus Globalization." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"International Industries: Fragmentation Versus Globalization." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"International Industries: Fragmentation Versus Globalization." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"International Industries: Fragmentation Versus Globalization." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"International Industries: Fragmentation Versus Globalization." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"International Industries: Fragmentation Versus Globalization." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"International Industries: Fragmentation Versus Globalization." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"International Industries: Fragmentation Versus Globalization." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"International Industries: Fragmentation Versus Globalization." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"International Industries: Fragmentation Versus Globalization." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"International Industries: Fragmentation Versus Globalization." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"International Industries: Fragmentation Versus Globalization." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"International Industries: Fragmentation Versus Globalization." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"International Industries: Fragmentation Versus Globalization." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"International Industries: Fragmentation Versus Globalization." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"International Industries: Fragmentation Versus Globalization." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"International Industries: Fragmentation Versus Globalization." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"International Industries: Fragmentation Versus Globalization." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"International Industries: Fragmentation Versus Globalization." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"International Industries: Fragmentation Versus Globalization." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"International Industries: Fragmentation Versus Globalization." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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Suggested Citation:"International Industries: Fragmentation Versus Globalization." National Research Council. 1987. Technology and Global Industry: Companies and Nations in the World Economy. Washington, DC: The National Academies Press. doi: 10.17226/1671.
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INTERNATIONAL INDUSTRIES: FRAGMENTATION VERSUS GLOBALIZATION 96 International Industries: Fragmentation Versus Globalization YVES DOZ Since World War II, growth in international trade has exceeded world economic growth by a substantial margin, and national economies have become increasingly dependent on world trade. Up to 50 percent of the gross national product (GNP) of small European countries is traded internationally, whereas only about 25 percent of GNP in larger European countries and 10 to 15 percent of GNP in the comparatively isolated large economies of the United States and Japan is traded internationally. Markets for many industrial goods have become increasingly homogeneous. Simultaneously, foreign investment has grown rapidly, both in developed and in developing countries.1 Not only has the total stock of capital grown rapidly, but, more significantly, there has been growth in the number of subsidiaries of multinational companies (MNCs); growth in the number of countries in which specific firms were active; and increasing diversity in the products manufactured and sold abroad through subsidiaries of MNCs (Vernon and Davidson, 1979). As both international trade and investment grew rapidly, international competition became more intense, and many national industries became global industries. Similarity of markets in different countries and intense global competition drove international competitors to coordinate their market and competitive strategies between countries more actively. The relevant scope of strategy thus shifted from discrete national markets to global markets, and coordinated worldwide competitive actions between the various subsidiaries of MNCs became more important. As national competition shifted to global competition, foreign invest

INTERNATIONAL INDUSTRIES: FRAGMENTATION VERSUS GLOBALIZATION 97 merit also shifted. Protectionism in the 1930s, the trauma of World War II, and national reconstruction policies led the early multinational investors to fragment their operations into discrete market-servicing, self-sufficient investments with little interdependence between operations in separate countries. The developing countries' import substitution policies had similar effects. With freer trade and more intense competition, both the possibility of, and the need for, sourcing investments in manufacturing arose: International corporations started to specialize and rationalize their plants to exploit national comparative advantages. Even where economic and technical conditions prohibited such specialization—for example, for cement, glass, or industrial gases—competitive actions became coordinated across subsidiaries as the companies realized they were competing in a very concentrated global oligopoly. As a result, portfolio foreign investments, where only intangible assets are leveraged, gave way to strategically coordinated integrated operations worldwide, exploiting comparative advantages of different countries for various types of activities. Labor-intensive activities were sited in locations where labor costs were low and from which the world markets were served. Such advantages were most often exploited by owned subsidiaries—through "internalization"—rather than through subcontracting or licensing.2 This, in ram, led to the development of intrafirm international trade. Such trade may be intraindustry (e.g., the processing of semiconductors overseas for reimport into the United States) or intrafirm but interindustry (e.g., General Electric "offsetting" the sale of jet engines to the Canadian Armed Forces with exports of consumer goods from Canada). With some significant exceptions—usually government imposed—the trend toward industry globalization and toward MNC integration has affected most countries and most internationally traded goods. The proportion of internationally traded goods in the GNP of countries also increased substantially, so that by 1980 internationally traded goods with substantial trade levels comprised more than 80 percent of the industrial sectors in Western Europe (Orléan, 1986). This trend was particularly strong between 1968 and 1978. Since the late 1970s, however, three sets of factors have come to limit such globalization. First, the technology no longer always drives toward globalization: New manufacturing techniques may reverse the trend toward "world-scale" plants and allow differentiation and segmentation with smaller cost penalties. Second, protectionism is on the rise and limits the strategic freedom of global competitors. Protectionism applies not only to trade in goods, but also increasingly to trade in knowledge, technology in particular. Third, the organizational and strategic capabilities of global competitors often lag the competitive opportunities available

INTERNATIONAL INDUSTRIES: FRAGMENTATION VERSUS GLOBALIZATION 98 to them, and many firms are less than fully successful in exploiting their opportunities. The impact of the three sets of limiting factors mentioned above deserves more attention. This chapter reflects this interest, beginning with a selective review of the abundant, if still fragmentary, evidence on the trends toward market homogenization, industry globalization and firm integration, and the underlying forces that drive them. These issues are discussed at three complementary levels of aggregation: the international economic relations framework; individual industries and their competitive dynamics; and the logistics, organizational structures, and management processes of individual firms. Finally, the recent evolution of the three sets of moderating factors— technologies, government policies leading to growing protectionism, and the limited organizational capabilities of firms—and what their effect may be on the fragmentation or globalization of international industries are analyzed. GLOBALIZATION OF INDUSTRIES Enabling Conditions Globalization is rooted in several key enabling conditions: the homogenization of markets, the decreasing costs of transport and communication, decreasing trade barriers, and the competitive pressures from new competitors. First, national markets have become increasingly similar in taste as income distributions in industrialized nations have equalized. The result has been the development of relatively homogeneous market segments that cross borders (Levitt, 1983). Though national markets may have been more similar in the past than was generally recognized (Helleiner, 1981), the media (mainly television), international travel, and the action of active multinational marketers have contributed to the homogenization of markets across national boundaries. Furthermore, global market segments appear in industries as different as automobiles (to the advantage of BMW or AMC's "Jeep") and beer (to the advantage of Heineken and a few others). Higher disposable incomes also encouraged the development of a market for fashionable "world products" in a number of countries, be these products such as British raincoats, Italian sweaters, Swiss watches (Rolex or Swatch), French wines, or Japanese consumer electronics. Lower communication and transportation costs—the second enabling condition—also made serving these homogeneous markets from centralized locations economical, even for relatively bulky products such as cars. Real-time low-cost communication also made the coordination of a com

INTERNATIONAL INDUSTRIES: FRAGMENTATION VERSUS GLOBALIZATION 99 plex worldwide logistics system feasible. The globalization of manufacturing in certain industries where products are complex and differentiated might not have happened without the drastic reductions in transportation and telecommunication costs between 1950 and 1980. That wade barriers were removed between the 1950s and the 1980s is well known and needs no detailed analysis here. The removal of these barriers provided a third enabling condition for the globalization of industries. Only in some industries where government-controlled customers predominate, and where national defense considerations are relevant, did wade barriers stay in place (Doz, 1986). Specific trade agreements (e.g., the Lomé convention), as wen as the extension of credit to developing countries, allowed these countries to participate in this move toward free wade, initiated by traditional industrialized countries. The recognition that across-the-board import substitution measures usually fail, and the successful example of the newly industrialized countries (NICs), also provided an incentive for developing countries to participate actively in the world economy. A fourth enabling condition, usually at the level of individual firms, was the existence of the organizational infrastructure for globalization. In the mid-1960s, when trade liberalization was initiated and national markets started to converge visibly, many MNCs were already in place, with their infrastructure of sales subsidiaries and foreign plants. This gave them the capability both to gather data worldwide and to respond quickly—at least in theory—to globalization trends. Global information networks and means of global market reach were already in place, decreasing the cost of transition from national to global competition for the major competitors. Experience in handling foreign manufacture, new product introduction, and technology transfer facilitated a prompt response to industry globalization by MNCs (Vernon, 1979). Where such networks and means did not exist, helping hands could be found. Initially, for example, Japanese exporters relied on Japanese wading companies, importing countries' mass merchandisers (e.g., Sears in the United States), mass buyers (e.g., TV rental companies in the United Kingdom), and original equipment manufacturer (OEM) Customers (e.g., for computer peripherals). This allowed the new competitors to skip both the market intelligence tasks (Sears, for instance, specified the TV sets it wanted) and the initial market access cost and delay[ More complex, more fragmented, less transparent, and less willing distribution structures would have been a formidable barrier to globalization and, where present, remain a source of asymmetry in globalization (witness the painful efforts of many European and American firms to establish a significant market presence in Japan).

INTERNATIONAL INDUSTRIES: FRAGMENTATION VERSUS GLOBALIZATION 100 Driving Forces For Sourcing And Marketing Globalization The enabling conditions summarized above were necessary, though not sufficient, for industry globalization to take place. They had to be exploited by firms trying to gain a permanent competitive advantage. The intense competition created by these firms was in most cases the main driving force for integration and globalization to actually take place. Intense competition itself depended on the opportunity for substantial gains through globalization, the existence or the creation of destabilizing conditions, and the presence of competitors with the strategic intent and capabilities to exploit destabilizing conditions to their advantage. Growing economies of scale in R&D and in production provided the most frequent opportunity for increased profits through globalization. Changes in product and process technology have increased the minimum efficient size of production in a variety of industries, such as cars, chemicals, consumer electronics, semiconductors, and machinery. Combined with the emergence of smaller differentiated global segments, this is a powerful incentive to pool demand from a variety of national markets and · serve such demand from large, optimally sited specialized plants. New product development costs have also risen considerably in a range of industries, the best-known of which are aircraft, telephone switching, cars, and semiconductors. These higher costs have created a strong incentive for industries to serve the world market to spread R&D costs over a larger production. There is a further incentive to serve the world market quickly to minimize the financing cost of the initial investment and the competitive risk of technological obsolescence (Hamel and Prahalad, 1985). In some capital goods industries, such as papermaking machinery, electrical equipment, and railroad equipment, the cyclicality of domestic demand and the uncertainty of future domestic orders have led to chronic overcapacity and to the need for national firms to diversify their customer base by selling abroad. Intense competition, though, is the key driving force. In Europe, following the European Economic Community's (EEC) lowering of trade barriers, little change toward a more efficient industry structure took place unless triggered and stimulated by intense competition (Owen, 1983). The emergence of a period of intense competition was facilitated by technological or market discontinuities that destabilized the existing market and industry structures. Increases in energy costs, for example, destabilized the structure of such industries as automobiles and papermaking machinery, making it possible for new global competitors to emerge. Shifts from electromechanical to electronic technologies in industries ranging from watches to digital switching systems and avionics have similarly allowed

INTERNATIONAL INDUSTRIES: FRAGMENTATION VERSUS GLOBALIZATION 101 new competitors to establish themselves and occasionally to fender a whole industry obsolete (e.g., the mechanical Swiss watch industry). Wide fluctuations in exchange rates have occasionally had significant effects, helping new competitors to penetrate mature industries, even in the absence of new technology or changing economies of scale. In 1983 and 1984, for example, the overvaluation of the U.S. dollar helped Komatsu gain overseas customers at the expense of Caterpillar (Bartlett, 1985). Ambitious competitors, with a vision of how to turn situations to their advantage, were also needed to make competition more intense. These competitors, such as Komatsu, have the long-term strategic intent to dominate their industry, and they are able to exploit opportunities as they arise. While the new competitors have usually been Japanese, they are also occasionally European (e.g., Leroy Somer in small electric motors) or American (e.g., Otis in the small-elevator industry). Confronted with intense competition from new competitors intent on exploiting economies of scale, new product and process technology, and other destabilizing factors such as exchange rate fluctuations, established competitors have typically reacted in two complementary ways: (1) reducing costs through the exploitation of economies of scale or through economies of location; and (2) gaining worldwide market access through their own efforts or through networks of partnerships and coalitions.3 First, many companies attempted to reduce costs by exploiting potential economies of large scale, typically by integrating and rationalizing production in a region (e.g., Philips rationalizing its television tube and receiver plants in Europe and Ford doing the same with cars). Companies also searched for lower factor costs and other locational advantages (e.g., the moves offshore in the U.S. electronics industry in the late 1960s and 1970s, or the relocation of the aluminum smelting industry). Demands for cost competitiveness led to sourcing globalization. This practice was sometimes encouraged by governments, either through factor subsidization (small open countries such as Ireland or Singapore) or by the imposition of export performance requirements in exchange for access to local markets, typically in large ''promising'' countries such as Spain, Brazil, and recently India (Guysinger et al., 1984). Managing costs is not enough, however, as companies have also come to recognize the value of worldwide market access (Hamel and Prahalad, 1985). Such access is becoming critical not only as a response to rising R&D costs but also as a way of providing potential for competitive retaliation. Goodyear responded to Michelin's inroads into the U.S. tire market by competing more actively in Europe, where Michelin was dominant, thus depriving Michelin of the cash flow it needed to continue its investments to gain market share in the United States. A fight confined

INTERNATIONAL INDUSTRIES: FRAGMENTATION VERSUS GLOBALIZATION 102 to the U.S. market would have been more costly for Goodyear than for Michelin. Similarly, IBM fights Japanese computer manufacturers not so much in the United States, where it would hurt itself, as in Japan, where IBM hurts its Japanese competitors most at the least cost to itself (New Scientist, 1985). U.S. makers of consumer electronics had no such option and fell almost defenseless to the Japanese and to Philips.4 Where firms were not yet global enough and could not establish market presence quickly (either because of government restrictions, or because distribution channels are hard to penetrate, or both), strategic partnerships and coalitions developed in industries that were becoming global. The primary motive of most partnerships and coalitions is to shore up market presence and technological competence to establish quickly a defensible position in a global industry. While these do provide a viable option, the sharing of strategic control over competitive actions by several partners usually results in tensions as soon as the external technological and market conditions evolve or the relative strategic importance of the joint activities to the various partners changes. This. is probably the single largest cause of mortality in collaborative agreements. Even when the collaboration endures, conflicting priorities may result in delays that blunt its competitiveness (e.g., the 2-year delay in the launch of the A-320 airplane by Airbus Industries and the continuing tensions between the main partners on future product policy and on acceptable financial performance). Empirical Evidence Although anecdotal evidence of industry globalization and MNC integration abounds, systematic measurable data on their extent remain scarce and fragmentary. Some industries are well documented (e.g., automobiles, textiles, electronic components, aerospace) through numerous industry studies, but most others are much less well analyzed.5 Aggregate statistics using proxies such as intrafirm trade also suggest that integration of operations within MNCs is important, with 20 to 30 percent of the international trade of countries such as the United States, the United Kingdom, and Sweden being intrafirm trade. Intrafirm trade seems to be more prevalent in R&D-intensive industries, with high wages and large plants, which is consistent with the driving forces hypothesized above (Dunning and Pearce, 1985; Lall, 1978; United Nations Center on Transnational Corporations, 1983). Yet, even the most detailed studies are fraught with problems in the availability and interpretation of data (Hood and Young, 1980). There is a convergence between findings from studies that start with trade statistics (e.g., based on the U.S. Department of Commerce Annual Survey of U.S. corporations), those that start with a survey of

INTERNATIONAL INDUSTRIES: FRAGMENTATION VERSUS GLOBALIZATION 103 large samples of fir (e.g., Dunning and Pearce, 1985), and those that start with an analysis of the strategic behavior of firms (e.g., Hood and Young, 1980). The more anecdotal evidence from individual "case" studies and from industry- specific studies also points in the same direction. Industry studies also provide evidence that even in industries that are traditionally nationally fragmented, pressures for integration and globalization are being felt. In the furniture industry, for instance, companies such as IKEA or Habitat-Mothercare are exploiting economies of scale in purchasing, subcontracting, advertising, and brand image, shifting the bottom end of the furniture market away from a fragmented national structure to an integrated multinational one. Similar moves are made at the top end of this market with international designers' brands and with global distributors, such as Roche- Bobois. Even where national prestige, national defense, and strategic independence have traditionally weighed more heavily than competitiveness in industrial choices, original patterns of globalization and integration develop. By and large, European integration in aerospace is making progress under tight supervision from governments. The failure to agree on a single design for a future fighter plane may ultimately be beneficial in offering two complementary products and maintaining spirited competition for export orders: Britain, Italy, Germany, and Spain joined forces and will compete against France and smaller countries. Similarly, the European microelectronics industry is evolving out of a stalemate. We see cooperation between large firms that traditionally were competitors as in the joint development of "megachips" by Philips and Siemens, and we see new ventures occasionally being funded by old firms, as when European Silicon Structures is financed by a group of large European electronic industry firms to make semi-custom chips economically in Europe. Although these collaborative ventures may not operate under the best possible conditions, and their cost of coordination is high, they at least overcome the worst aspects of fragmentation.6 Besides the turnaround in many governments in favor of government- sponsored transnational cooperation, it is also important to note that pressure groups that might have tried to block globalization and integration by and large have failed. Although in the early 1970s it seemed plausible that unions would gain a strong say in MNC management, they have now been ruled out as a severe barrier to globalization and integration. This is the result of a combination of factors, namely, the change of attitude in Europe (both the effect of the unemployment crisis and also of an ideological shift away from statism and socialism), the failure of unions to lock MNCs into transnational bargaining, the lack of support provided by governments (e.g., the inability to get the Vredeling proposal off the ground), and the divisive aspects of MNC integration itself on international

INTERNATIONAL INDUSTRIES: FRAGMENTATION VERSUS GLOBALIZATION 104 labor cooperation. Where unions succeeded in gaining a say, as they did with the German codetermination laws, their representatives quickly aligned their positions on those of management. Economically weak but politically strong national industrial companies could also be barriers to globalization, but by and large they fell to competitive pressures in Europe. Only in a few partly competitive but largely government- controlled sectors, such as electrical equipment for railroads, do the old industry structures survive largely unchanged. Even in some of these industries, there are encouraging signs of possible rationalization, such as the investments by Compagnie Générale d'Electricité into Ateliers de Constructions Electriques de Charleroi. Computer manufacturers are victims of probably the worst stalemate along these lines in Europe. Britain, Germany, and France each have their "national champion," hopelessly small for global competitiveness, and unable to renew its product line without much outside help—usually Japanese. Yet each of these national champions is well enough ensconced in its national political and economic environment to survive, to prevent its merger into a transnational alliance, and to block the development of new, more entrepreneurial national or international competitors. First-class customers desert European suppliers— mainly to IBM—despite the switching costs involved, and the technical capability of European computer companies is withered by their Japanese partners, who provide them with components, critical subsystems, and peripherals. The continuation of this stalemate threatens the European computer industry with extinction. In Europe, though, this is more the exception than the role, and in most industries—aerospace, chemicals and plastics, pharmaceuticals, and even now automobiles—are taking on the challenge of global competition with a fair measure of success. Research And Development Unlike marketing and manufacturing, research and development have not been significantly affected by globalization and have remained principally home-country activities. In a world of sequential market development, where new products and new processes were first developed and put to use on the domestic market or in the home plants, home-country R&D made good sense. As foreign markets developed to resemble the domestic markets, or as foreign plants were built, new products and technologies were transferred abroad once they had been proved domestically. Foreign R&D was mainly devoted to the adaptation of transferred products and processes to local conditions such as taste, product features, norms and standards, and climate (Fischer and Behrman, 1979; Hirschey and

INTERNATIONAL INDUSTRIES: FRAGMENTATION VERSUS GLOBALIZATION 105 Caves, 1981). The role of foreign subsidiaries was not to innovate on their own but to absorb and apply technology developed in the parent company's laboratories. Technology was in fact global from the start, but research was centrally performed and leveraged internationally through product life cycle phenomena or through transfers to foreign subsidiaries. Even a group such as Brown Boveri, which epitomized the nationally responsive—and fragmented— MNC, leveraged its Swiss-developed technology in its foreign operations (Doz, 1978). In a more complex world, where the United States no longer clearly leads in product innovation, nor Europe in process innovation, centralized R&D is less effective. First, the leading users—those who can contribute their experience to the success of an innovation—are no longer necessarily available in the domestic market. Although this is truest for MNCs in small countries (e.g., Holland, Sweden, Switzerland, Korea), it is also applicable to U.S. or Japanese companies. Leading markets for medical electronics, for example, may be in the United States and in Japan and Sweden for factory automation, in France for nuclear engineering, and in Britain for consumer electronics. Second, key scientists, like the leading 'users, are potentially more dispersed geographically than they have ever been. Some European pharmaceuticals or electronics firms find it easier to locate laboratories for new technologies such as genetic engineering or microchips in the United States than in Europe. Conversely, India may offer the potential for a large number of inexpensive software specialists and Italy for creative ones. Several U.S. electronics companies, such as Control Data, Motorola, and Texas Instruments, are setting up software R&D centers in India and Italy. Exploiting a larger pool of talent and avoiding the cost of expatriation are strong motives to locate R&D in various countries. Third, locating R&D in host countries may also help placate their governments' desires for more higher skilled jobs (see Branscomb in this volume).7 It may also make the firm eligible for national R&D subsidies or access to national collaborative projects. Finally, the mobility and transfer of knowledge within MNCs is neither easy nor costless (Teece, 1977). Despite these trends, the forces favoring centralization of R&D remain strong. First, as markets become increasingly homogeneous, the need for specific local product adaptation or for autonomous product development is lessened. Second, the benefits of close proximity of researchers are strong. Although estimates of the distance beyond which easy informal communication between scientists breaks down range from a few yards to a 1-day plane commute, observers agree that the scattering of related research activities is detrimental to their effectiveness (Allen, 1977). Third, there are often economies of scope in R&D, particularly where technologies

INTERNATIONAL INDUSTRIES: FRAGMENTATION VERSUS GLOBALIZATION 106 are interdependent, which make the scattering of R&D laboratories costly since they cannot be made self-contained. Fourth, considerations of political risk seem to have limited the willingness of major firms to be dependent in their home markets on technologies developed abroad. It is thus no great surprise to observe that, with a few notable exceptions, the performance of the R&D function in firms has neither been globalized nor integrated to any extent comparable to that of manufacturing and marketing. The results of R&D are global, not the performance of the R&D tasks. With a few significant exceptions, R&D remained centralized, at least in the technology-intensive sectors. Foreign R&D labs do mostly product development and adaptation to local conditions, or sometimes basic research, but seldom have broad research mandates, except in some of the most mature MNCs (e.g., IBM, Dow Chemical Company, and Ciba Geigy). Further, few firms seem to have developed systematic processes for the coordination of R&D activities across regions of the world, again with a few notable exceptions, such as IBM. Yet, as the home market can no longer be equated with the lead market, centrally performed R&D needs to be responsive to the needs of distant potential users. This may be easy to achieve for engineered commodities, such as consumer durables, photocopiers, and typewriters, but it is more difficult where needs can be defined only in close conjunction with users rather than through market research (von Hippel, 1982). Whereas Japanese successes have been confined mainly to engineered commodities, European exporters and MNCs cover a wider spectrum of products. Large European companies have particularly difficult problems with their U.S. subsidiaries. Their products are often developed with too much of a "technology-push" by central labs whose scientists and managers may have gained a sense for European needs but are insensitive to U.S. needs. In some cases, they seem to be following what they think is the "right" path from a technological rather than market standpoint without considering the lead users' needs. As a result, it is not uncommon for U.S. subsidiaries of European groups to avoid marketing products developed in Europe, thus ensuring that their volumes will be too low to break even. Instead, they develop new products at great cost, take a license from a competitor, or buy the products directly on an OEM basis. The issue is not who is right or wrong between the U.S. subsidiary and headquarters, but the fact that a European group facing such a situation gains little competitive advantage from being in the United States at all. The converse example, of insensitivity by U.S.-based companies to non-U.S. market needs in their product development, is better known and more easily explicable, given the historical dominance—in the operation of most U.S. MNCs—of the U.S. market over smaller fragmented national

INTERNATIONAL INDUSTRIES: FRAGMENTATION VERSUS GLOBALIZATION 107 markets. Faced with the dilemma between economies of centralization and the market access advantages of R&D dispersion, MNCs have occasionally done both; some U.S. MNCs have maintained central laboratories but located the primary labs for a set of products in the lead market away from headquarters. In summary, R&D activities have not changed as dramatically over time as manufacturing and marketing: Their activities have remained largely centralized —most often in the home country—and their output leveraged through transfer to foreign subsidiaries or through embodiment in exported products (Hirschey and Caves, 1981). For most MNCs, the arguments for centralization seem to have outweighed those favoring geographical fragmentation. Summary Observations Although it has to remain impressionistic, since detailed data are lacking, the analysis of the balance between forces of global homogenization and integration and forces of fragmentation clearly shows the balance tilting toward globalization. The removal of trade barriers, and the growing similarity of national markets mated the potential for globalization of markets and competition. The development of MNCs, or of global networks allying independent firms, and the technology of cheap effective transportation and communication provided the practical means necessary for the integration of supply. These conditions were necessary, though not sufficient. Intense competition in most industries was the driving force necessary for integration and globalization. During the same period, actors who might have stalled globalization either did not act or acted ineffectively. Thus, homogenization of markets has increased, industries have globalized, and firms have responded by geographic integration of their activities. Such integration took place (1) for sourcing—usually driven by manufacturing cost-reduction opportunities stemming from growing economies of scale and from economies of location; (2) for marketing—usually driven by a mix of economies of scale in distribution and manufacturing; and (3) by the competitive leverage brought by market scope. Coalitions and partnerships of all kinds provide an attractive low-cost alternative to single-firm manufacturing and market access investments. They do not, however, provide the strategic freedom and control available through a company's own investments. Research and development activities have typically remained in the home country. However, as more and more products are developed for world markets, usually for simultaneous rather than sequential introduction, the

INTERNATIONAL INDUSTRIES: FRAGMENTATION VERSUS GLOBALIZATION 108 need for a better integration of foreign subsidiaries and domestic labs has arisen. Evidence from specific product innovation studies in the United States and in Europe tends to suggest that this need for integration is not well met. Conversely, there is little to suggest that MNCs successfully apply innovations that originate in one subsidiary outside of that subsidiary. The next section discusses three sets of factors that suggest the trends toward homogenization, globalization, and integration may slow down or even reverse themselves in the coming decade. Some of the underlying conditions or driving forces will have run their course, and new limits may appear. LIMITS TO GLOBALIZATION Manufacturing Technology The evolution of manufacturing technology—in particular the increase in economies of scale in manufacture—has been one of the key conditions in favor of market globalization and MNC integration in a number of industries. Several factors may now slow down this trend. First, new technology has been so successful at reducing manufacturing unit costs that these costs now account for only a small proportion of total delivered costs. Further reduction of manufacturing cost will be of lesser impact than in the past, as other elements of cost play a much greater role, namely overheads, R&D recovery, and distribution. Second, economies of scale may no longer increase in the same way as in the past. Some new technologies may abruptly decrease economies of scale. New multipurpose smaller processors in the chemical industry are an example of this type of technology. Even in the absence of genuinely new technology that would reduce economies of scale, the advantage of manufacturing systems —from the well-known materials and resource planning systems to the embryonic "factory-of-the-future" concepts—are based on cost reduction from better managing the manufacturing system rather than from increasing the plant size or the length of the production run. Better manufacturing processes allow more flexibility in production. For instance, multiple car models can be produced in varying proportions on the same assembly line with relatively little cost penalty. This could allow car manufacturers to move back from large single-model factories serving multicountry markets to multimodel factories serving single-country markets. Although there may still be some cost penalty to setting up a flexible factory rather than a narrowly focused one, at least the tradeoff between increasing flexibility and decreasing costs can be explicitly considered.

INTERNATIONAL INDUSTRIES: FRAGMENTATION VERSUS GLOBALIZATION 109 The impact of flexible manufacturing on the trade-off between integration and fragmentation of manufacturing is still unclear, however. Greater flexibility allows producers to cater to shifts in consumer preference—as their discretionary income increases—from cheap standardized goods toward customized products. Flexible manufacturing systems may allow both product customization—at least so long as such customization can be achieved through featurization around a common core—and low cost. These systems may shift the basis for cost advantage from scale to scope and thus make it possible for an integrated manufacturer to serve differentiated worldwide needs. Third, the "just-in-time" manufacturing concept works best with the colocation of various facilities into an integrated system. This polarizes globalization and integration to the extremes: either a series of small "local-for- local" plants, each by and large self-sufficient, or, at the opposite extreme, a single integrated source for everything (e.g., Toyota City, or to a lesser extent, Boeing around Seattle, or Caterpillar around Peoria). A widely dispersed integrated manufacturing network (such as Ford of Europe), where plants are distant and supply each other with components and subassemblies, is least amenable to just-in-time manufacturing management. Buffer inventories must be kept to allow for transportation delays, localized strikes and disruptions, and slowdowns in custom clearance. This would suggest that the initial patterns of integration within MNCs, particularly in Europe, may not endure. Either the advantages of colocation and flexibility will be such that we will witness a return to largely local plants, or the advantages of focus and specialization will continue to exceed those of flexibility, and the advantages of collocation will lead to even further centralization of manufacturing. Fourth, the trends toward vertical deintegration may allow more creative combinations between independent firms at different stages in a value-added strum. This would allow producers to continue to draw benefits from economies of scale for components and to gain flexibility for end products. Large-scale component manufacturing can be delegated to independent suppliers serving multiple smaller-scale assemblers, for instance. This may lead to different balances between integration and fragmentation at various stages of the value- added chain in the same industry. Most industries and firms are not yet affected by all of these trends, but economies of scale in production are unlikely to be the opportunity they were in the 1960s and 1970s. As a result, economies of scale will no longer be a driving force toward globalization and integration. Choices for MNC managers will be more complex than just building up the largest plants with the aim of regaining competitiveness. Most companies are

INTERNATIONAL INDUSTRIES: FRAGMENTATION VERSUS GLOBALIZATION 110 likely to end up with a mix of plants of various sizes and locations, and with various degrees of focus or flexibility. Economies of location are also likely to become less important. With a few exceptions—such as aluminum—economies of location derive mainly from labor cost advantages. Several observations can be made. Not only has manufacturing cost decreased in relation to delivered cost for a whole range of industrial products, but also labor costs will decrease in relation to manufacturing costs with any shift toward more capital-intensive technologies. Stable or increasing real wages in Europe, despite the recent recessions, have accelerated the substitution of capital for labor. Even with relatively low wages, the product quality provided by automation in consumer electronics, for instance, may lead to rapidly decreasing labor content and to the repatriation and automation of plants previously dispersed from developed countries. Locations with low labor costs also tend to catch up with locations with higher costs if only because skilled labor is scarce and the general wage structure moves up. Location advantages based on cheap labor are thus often temporary. Although labor may remain cheap in countries where political risks, government policies, or financial problems deter foreign investors—and thus limit the competition for labor—countries such as Singapore, Korea, and Taiwan, which have been hosts to massive foreign investments, have often seen their real-term wage rates increase significantly. In some industries—such as garment production—firms may shift their manufacturing locations in a search for cheaper labor. Where developed countries' firms subcontract to local producers—a prevalent practice for garments—shopping around for cheaper subcontractors is easy; when the foreign MNC sets up its own sourcing plants, however, closing down and relocating elsewhere is a much more costly and difficult process. Differences in the cost of capital between countries also tend to decrease as the world's capital market becomes more integrated and as MNCs cross-finance themselves on multiple markets and arbitrage between them. Although domestic firms may still benefit from favorable institutional arrangements, e.g., the institutional structure of Japanese capitalism, or from specific government assistance, e.g., European exporters, these advantages are limited, not always accessible to MNC subsidiaries, and not often sufficient to justify location.8 Finally, exploiting economies of location also entails certain risks, for instance, exchange risks. If the mix of manufacturing locations differs significantly from that of selling locations, the firm is exposed to currency risks. Whereas this can play in their favor occasionally (e.g., the hefty margins made by European companies exporting to the United States in 1984-1985), it can also play the other way around as in the plight of U.S.

INTERNATIONAL INDUSTRIES: FRAGMENTATION VERSUS GLOBALIZATION 111 exporters. Various hedging approaches can be adopted,. but they usually either run counter to the search for economies of location, or they result in the creation of abundant ''buffer'' excess capacity. Instability of the exchange rate only increases the difficulties and costs of these approaches. Protectionism Since 1975 protectionist pressures on the U.S. Congress have increased largely as a result of the globalization process. Outright protectionist bills have been avoided only by successive administrations' careful negotiation of selected "voluntary" protection. Examples include the "Orderly Marketing Agreements" for TV sets and the "trigger prices" for steel or other commodities. Proposals such as the Burke-Hartke Act, which would have considerably limited the opportunity for U.S. firms to import goods made by their overseas subsidiaries, have been turned down, but at an increasing political price. The overvaluation of the dollar in 1983-1985, and the huge U.S. trade deficit only made matters worse. In the fall of 1985, only the shift in the U.S. position toward an active intervention policy to devalue the dollar staved off strong protectionist measures. Europe, while making only slow progress toward a true free internal market, has resorted to protectionism toward a variety of industries, particularly those threatened by Japanese imports. Government purchasing policies that favor national suppliers also endure and close whole industries to foreign suppliers. Whether the Japanese market is closed or just hard to enter is an old debate, but it is clear that market access to Japan in critical industries is extremely difficult. What is important here is not so much the exact extent of protectionism, but that recent evolutions do not allow managers to make a safe assumption about freer trade. The risk of a widespread return to protectionism puts a damper on globalization strategies that imply high levels of trade and adds fuel to strategies that return to traditional foreign investment as a way of overcoming trade barriers. Indeed, the purpose of many of the Japanese investments in Western Europe and in the United States is to overcome trade barriers, or at least to serve as "insurance" against new trade barriers, should they be implemented. Among the less-obvious aspects of protectionism that may hamper MNC integration strategies are the issues of data flow across borders. Several countries have argued that data should be likened to raw material and processed locally rather than internationally. The issues are manifold and vary from country to country. Among the most prominent are (1) the importance of local data processing for stimulating the national demand for electronic data processing hardware and services and for telecom

INTERNATIONAL INDUSTRIES: FRAGMENTATION VERSUS GLOBALIZATION 112 munication services; (2) the disadvantage of local firms and governments in relation to MNCs and their access to global market information; and (3) the threat of more centralization of decision making in MNCs, a process directly related to integration strategies. Canada has clearly articulated concerns about transborder data flows. Brazil and France have followed suit, with somewhat different concerns and priorities. Although policies on data flow are often lent moral legitimacy by being amalgamated with a series of regulations to protect the privacy of individuals, economic and political considerations drive the development of such policies. Countries. do compete for the location of data processing centers by MNCs, and they also compete for international data transmission and value-added services. A few countries, including the United States and Britain, have taken an aggressive commercial position by lowering packet-switching charges, for example, and others try to regulate data flows. Although the current impact of data flow regulations is limited, it is a concern for at least some firms.9 In addition, regulation of data flows may also be a way to ensure that critical knowledge exists within the country. One widespread concern, for instance, is that some U.S. suppliers of computers keep debugging software at home, where it can only be accessed by telephone lines from Europe. Should denial measures be taken by the U.S. government, whatever the reasons (as was done in 1982 in the Dresser case), such critical software might no longer be available.10 More broadly, protectionism in technology has become a major issue. In the 1980s the U.S. government, as well as several U.S. firms, became worried about the transfer of technology to Japan and to the USSR. This concern arose as the extent and success of efforts by Japanese firms and the Soviet government to appropriate Western technologies became clear. With regard to Japan, the issue is competition, particularly in industries such as semiconductors. In this industry, in particular, manufacturing equipment is critical to success, and the U.S. industry became concerned that process technology was transferred too easily to Japan. The concern was heightened as Japan came to be seen in the United States as an "unfair" competitor. Similar concerns have been voiced in other industries, such as aerospace and computers, as evidenced by IBM's actions against Mitsubishi and Hitachi. With regard to the USSR, the issue is twofold: first, to deny the USSR access to the core technologies of military systems, a priority widely shared in the West; and second, to limit the USSR's access to technologies that may allow faster economic growth and thus make large military expenditures more affordable to the Soviets. The second point is a matter of debate between U.S. government hard-liners and more liberal circles in the United States and among European governments. The issue gained

INTERNATIONAL INDUSTRIES: FRAGMENTATION VERSUS GLOBALIZATION 113 prominence with the discovery, probably by French counterespionage in early 1982, of the magnitude of the Soviet effort to spy on the West, and of the success of that effort.11 Later updates, based on captured Soviet documents, kept the issue salient. Also giving prominence to the issue were several instances of discreet reexport of classified U.S. equipment via Sweden and Austria and several cases of industrial espionage in major West European and American companies, including MBB, Dassault, and Hughes. Although studies suggest that the Soviets are not able to absorb and finance the use of the new technology they obtain from the West, legally or otherwise, the Reagan administration took it to heart to stem the flow of technology to the Soviet bloc (Bornstein, 1985). The Export Administration Amendment Act of July 1985 extends the list of goods subject to U.S. export licenses to "dual-use" equipment, civilian in principle, but using technologies or components with potential military use. The U.S. policy of reexport control also considerably limits the mobility of components to be incorporated into systems assembled in another country, and sold in yet another. European integrated MNCs, such as Philips, suffer great logistic complications from this new set of laws (Dekker, 1985). This leads them to substitute, where possible, non-U.S. for U.S. components and subsystems. Although such substitution is a boost to some European industries, it leads to an inefficient duplication of effort between the United States and Europe. Protectionism in technology—be it through limiting the transfer of data or through restrictions on exports of goods possibly related to the manufacture of defense-related equipment—makes it difficult for technology-intensive MNCs to adopt integration strategies, since the various pans of the company need to be technologically autonomous. It also makes it difficult for U.S. firms to cooperate with foreign partners on joint R&D and casts doubt on the ability of European firms to use technology they would have acquired through collaborative efforts with the United States or with U.S. government support. Although Japanese firms are more strongly encouraged than their European counterparts to participate in U.S. defense projects, the same issues arise between the United States and Japan as between the United States and Europe. Conversely, IBM's or Texas Instruments' access to the results of joint Japanese research projects is a difficult issue. These concerns have prompted Europe into action, first with the European Strategic Program for Research and Development in Information Technology (ESPRIT) and with specialized projects, such as Research in Advanced Communications in Europe (RACE) and more recently with a program called EUREKA. ESPRIT's relative success was a surprise, but by the end of 1985 about 195 projects shared 1.4 billion European Currency

INTERNATIONAL INDUSTRIES: FRAGMENTATION VERSUS GLOBALIZATION 114 Units, and many of them looked promising. EUREKA, launched as a civilian equivalent to the U.S. Strategic Defense Initiative, is still embryonic and funding is uncertain. Despite widespread skepticism, it may take hold and lead to interesting projects. This direct subsidy approach addresses only one facet of European competitiveness, however, and maybe not the most important: European firms show inferiority not in the development of new technology but in its exploitation. Technology may not be the critical issue. Market structure and management are. Although much attention in Europe is focused on making Europe a true "common" market, remarkably little attention is devoted to managerial limits to the successful exploitation of global technological and competitive opportunities. Organizational Capabilities The various elements discussed above suggest that large international competitors will face a world of neither fragmentation nor global integration, but a mixture of both, with many shades of gray and complex patterns of international operations that are unlikely to fall neatly into any category. Thus, there will be many trade-offs between industry fragmentation and globalization and strategies of integration and subsidiary autonomy, and they will vary by function, country, and business. Differences between industries, between segments within the same industry, and even between stages in the value-added chain are going to be important. This will introduce considerable variety in the situations faced by MNCs. Further, strategies will vary from free and competitive to negotiated and collaborative through complex networks of collaborative agreements, coalitions and joint ventures among firms, and occasionally between them and governments (Doz, 1986). Not all global competitors are able, organizationally, to cope with such diversity. Most started as national companies (e.g., most Japanese competitors) or with fragmented organizational structures loosely "federated" by headquarters. Such fragmented structures, leaving a lot of autonomy to individual subsidiaries in various countries, fit well with the fragmented environment faced by MNCs prior to the 1970s. The initial transition from autonomous subsidiaries to coordinated international strategies and integrated manufacturing and marketing networks has been a traumatic experience for many companies. The process has been slow (typically 3 to 7 years), painful, and not always successful (Doz and Prahalad, 1981; Prahalad and Doz, 1981). For a while in the mid-1970s, matrix organizations were seen as the answer to complex tradeoffs between integration and fragmentation. Though a matrix organization

INTERNATIONAL INDUSTRIES: FRAGMENTATION VERSUS GLOBALIZATION 115 may achieve such trade-offs, it achieves them well only 'if a number of conditions are met. First, a matrix organization is not merely a different form of organization. Rather, it is a different mode of making decisions and ensuring that relevant data and perspectives are brought to bear on the choices, that trade-offs are made explicit, and that well-considered decisions are reached. This requires both a well-developed management system infrastructure, the involvement of top management, and much attention to the quality of the executive process. Observations of many companies suggest that not all are able to meet these conditions. Hence the widespread disillusionment with matrix organizations (Prahalad and Doz, 1987). Although the "ideal" MNC organization is easy to spell out in principle, it is difficult to put in place and make work. Yet, as discussed in the earlier sections, the conflicting demands for flexibility and responsiveness, on the one hand, and for global competitiveness and integration, on the other, call for complex trade-offs. Such conflicting demands thus further limit the capabilities of firms to succeed in global industries. Moreover, in many industries, speed and interdependence in action become increasingly critical. Product cycles are shorter, and the maintenance of competitive advantage requires coordinated policies across product lines and business units, both for technology development and for market access (Hamel and Prahalad, 1985). The growing number and variety of collaborative arrangements also make it more difficult for companies to maintain conventional configurations of strategic control, as can be more easily done with fully owned operations (Doz, 1986). As a result, a gap develops between the demands put on companies by global competition and the capability of their organizations and management to meet them. CONCLUSION The three sets of factors outlined above—manufacturing technology, protectionism, and organizational capabilities—may limit the growth of integrated multinational companies and tilt the balance again toward fragmentation. Collaborative agreements and strategic partnerships may increasingly represent an alternative to direct investment for gaining market access, achieving volume production, or leveraging technology. These may deeply modify the nature of global competition and international industries by creating a series of intermediate positions between national and global competitors.

INTERNATIONAL INDUSTRIES: FRAGMENTATION VERSUS GLOBALIZATION 116 NOTES 1. For summary data, see Dunning and Pearce, 1985; Stopford, 1983; Vernon, 1977; Franko, 1976. See also, for U.S. multinationals, U.S. Bureau of Economic Analysis, 1986. 2. For a summary of the in—on argument, see Casson, 1979; Rugman, 1981; Dunning, 1979. Many authors draw on Hymer, 1976. 3. For a general argument on the dynamics of global competition, illustrated with the example of color television sets, see Hamel and Prahalad, 1985. 4. See Hamel and Prahalad, 1985, for a summary argument. For a more detailed analysis, see Millstein, 1983. 5. For a series of industrial studies, see Zysman and Tyson, 1983; Hochmuth and Davidson, 1985. 6. For an early analysis of these problems in collaborative ventures, see Hochmuth, 1974. 7. The argument cuts both ways, though, as it may be argued that local scientists or technicians employed by MNCs develop knowledge, the economic benefits from which may well accrue to another country where the MNC operates, whereas local firms would have a greater propensity to export innovative goods and processes, thus creating more value for the country. 8. For a more detailed discussion of the limits to the competitive advantage that can be obtained from multinational resource deployment, see Doz and Prahalad, 1986. 9. For a summary analysis, see Kane, 1985, and United Nations Center on Transnational Corporations, 1982. 10. For a detailed discussion of the Dresser case, see Bettis, 1984. 11. Although not publicly available, the various CIA reports to the U.S. Congress did much to increase the political salience of the transfer of technology to the Soviet Union. REFERENCES Allen, T. A. 1977. The Flow of Technology. Cambridge, Mass.: MIT Press. Bartlett, C. 1985. Komatsu Limited. Harvard Business School Case Study. HBSCS 0-385-277. Bettis, R. A. 1984. Dresser Industries and the Pipeline. Southern Methodist University Case Study. Bornstein, M. 1985. East-West Technology Transfer: The Transfer of Western Technology to the USSR. Paris: Organization for Economic Cooperation and Development. Casson, M. 1979. Alternatives to the Multinational Enterprise. London: Macmillan. Dekker, W. 1985. The technology gap: Western countries growing apart. Speech presented at the Atlantic Institute for International Affairs, Paris, December 5, 1985. Doz, Y. 1978. Brown Boveri & Cie. Harvard Business School Case Study, HBSCS 4-378-115. Doz, Y. 1986. Government policies and global competition. In M. E. Porter, ed., Competition in Global Industries. Boston: Havard Business School Press. Doz, Y., and C. K. Prahalad. 1981. Headquarter influence and strategic control in multinational companies. Sloan Management Review 23(1). Doz, Y., and C. K. Prahalad. 1986. Quality of management: An emerging source of global competitive advantage? In N. Hood and J. E. Vahlne, eds., Strategies in Global Competition. London: John Wiley & Sons. Dunning, J. 1979. Explaining changing patterns of international production: In defense of the eclectic theory. Oxford Bulletin of Economics and Statistics 41 (November):269-296.

INTERNATIONAL INDUSTRIES: FRAGMENTATION VERSUS GLOBALIZATION 117 Dunning, J. H., and R. D. Pearce. 1985. The World's Largest Industrial Enterprises, 1962-1983. New York: St. Martin's Press. Fischer, W. A., and J. N. Behrman. 1979. The coordination of foreign R&D activities by transnational corporations. Journal of International Business Studies 10-3(winter):28-35. Franko, L. G. 1976. The European Multinationals. Stamford, Conn.: Greylock. Guysinger, S., et al. 1984. Investment Incentives and Performance Requirements. Washington, D.C.: The World Bank Mimeographed Report. Hamel, G., and C. K. Prahalad. 1985. Do you really have a global strategy? Harvard Business Review (July-August):139-148. Helleiner, G. K. 1981. Intra Firm Trade and the Developing Countries. New York: St. Martin's Press. Hirschey, R. C., and R. E. Caves: 1981. Research and the Transfer of Technology by Multinational Enterprises. Oxford Bulletin of Economics and Statistics 43(2):115-130. Hochmuth, M. S. 1974. Organizing the Transnational: The Experience with Transnational Enterprise in Advanced Technology. Cambridge, Mass.: Harvard University Press. Hochmuth, M. S., and W. Davidson. 1985. Revitalizing American Industry. Cambridge, Mass.: Ballinger. Hood, N., and S. Young. 1980. European Development Strategies of U.S.-Owned Manufacturing Companies Located in Scotland. Edinburgh: Her Majesty's Stationery Office. Hymer, S. 1926. The International Operations of National Firms: A Study of Foreign Investment. Cambridge, Mass.: MIT Press. Kane, M. J. 1985. A Study of the Impact of Transborder Data Flow: Regulation on Large U.S.- Based Corporations Using an Extended Information Systems Interface Model. Ph.D. dissertation. College of Business Administration, University of South Carolina. Lall, S. 1978. The pattern of intra firm exports by U.S. multinationals. Oxford Bulletin of Economics and Statistics 40(3):209-223. Levitt, T. 1983. The Globalization of Markets. Havard Business Review (May-June):92-102. Millstein, J. E. 1983. Decline in an expanding industry: Japanaese competition in color television. In J. Zysman and L. Tyson, eds., American Industry in International Competition. Ithaca, N.Y.: Cornell University Press. New Scientist. 1985. IBM begins its Japanese assault. (17 October):22-23. Orléan, A. 1986. "L'insertion dans les échanges internationaux: comparison de cinq grands pays développés. Economie et Statistiques 184(Janvier):25-39. Owen, N. 1983. Economies of Scale, Competitiveness and Trade Patterns Within the European Community. Oxford: Clarendon Press. Prahalad, C. K., and Y. Doz. 1981. An approach to strategic control in multinational companies. Sloan Management Review 22(4):5-13. Prahalad, C. K., and Y. Doz. 1982 (forthcoming). The Multinationals' Mission. New York: The Free Press. Rugman, A.M. 1981. Inside the Multinationals: The Economies of Internal Markets. London: Croom Helm. Stopford, J. M. 1983. The World Directory of Multinational Enterprises, 1982-83. London: MacMillan. Teece, D. J. 1977. Technology transfer by multinational firms: The resource cost of transferring technological know-how. The Economic Journal 87(June):242-261. United Nations Center on Transnational Corporations. 1982. Transnational Corporations and Transborder Data Flows: A Technical Paper. New York: United Nations. United Nations Center on Transnational Corporations. 1983. Transnational Corporations in World Development: Third Survey. New York: United Nations.

INTERNATIONAL INDUSTRIES: FRAGMENTATION VERSUS GLOBALIZATION 118 U.S. Bureau of Economic Analysis. 1986. U.S. Direct Investment Abroad: 1982 Benchmark & Survey Data. Washington, D.C.: U.S. Government Printing Office. Vernon, R. 1977. Storm Over the Multinationals. Cambridge, Mass.: Harvard University Press. Vernon, R. 1979. The product cycle hypothesis in a new international environment. Oxford Bulletin of Economics and Statistics 41(4). Vernon, R., and W. H. Davidson. 1979. Foreign Production of Technology-Intensive Products by U.S.-based Multinational Enterprises. Harvard Business School Working Paper, HBS 79-5. Von Hippel, E. 1982. Appropriability of innovation benefit as a predictor of the functional locus of innovation. Research Policy 11(2):95-115. Zysman, J., and L. Tyson, eds. 1983. American Industry in International Competition. Ithaca, N.Y.: Cornell University Press.

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