IBNS – Summary
Week 1: International Business and Nation States
Lecture
Multinational: operate in more than one country and thus always across borders
- Important factor in International Relations during 20 th century
- Are important for relatively small country (not in economic terms) as NL
- Play a role in increasing and decreasing globalization
Foreign Direct Investment (FDI)
Multinationals invest directly in other countries:
Outward FDI: country to another country (Dutch multinationals investing in China)
Inward FDI: what comes to your country from the outside (Chinese multinationals investing
in NL)
FDI is a measure for international activity
FDI is foreign investment with management influence
Otherwise portfolio investment
Why do firms invest internationally?
Companies need advantages over local rivals Eclectic Paradigm (OLI)
Ownership advantages (technology, brands)
Locational advantages (tariffs, geography, market, institutions)
Internalization advantages (transaction costs)
How do multinationals invest?
Multinationals invest directly in other countries in various ways:
1. Greenfield investment
2. Acquisition (take-over)
3. Joint-venture
4. Licensing
5. Cartels
6. Strategic alliances
Tutorial
What is business?
Any activity or enterprise entered for profit
An organization or economic system where goods and services are exchanged or each other
or money
Businesses require a form of investment and enough customers to whom its output can be
sold on a consistent basis to make profit
Street peddler, company, corporation, parentship
What is an international business?
It involves cross-border transactions of goods and services between two or more countries
Economic resources can conclude capital, resources
Nation: unified, stable community body of people united by a common descent, history, culture, or
language, inhabiting particular state or territory
State: an organized political entity rules over (sovereign) territory.
Has monopoly of law giving, taxation and force
To understand relationship:
, - Both are important economic actors
- International relations often revolve around trade
- Relationship between state policy and trade
Een natiestaat is een politieke eenheid waar staat en natie congruent zijn. Het is een nauwkeuriger
concept dan "land", aangezien een land geen overheersende etnische groep hoeft te hebben
How have international businesses shaped the evolution of national states: can have great influence
over power and shaping. (colonization)
How have nation states shaped the evolution of international businesses: specific policies
implemented (mercantilism, protectionism)
How have international businesses responded to the emergence and dominance of nation states:
multinationals exist to exploit different competitive.
creation of uniform national culture through state policy
Why history matters?
Historical variation is at least a worthy complement in illuminating conceptual issues
(Historische variatie is op zijn minst een waardige aanvulling om conceptuele vraagstukken te
verhelderen)
History avoids labeling of some phenomena as ‘new’. Change!
Illuminating path dependence (verlichting van)
Certain issues like FDI are unaddressable except in the long run
FDI (Foreign Direct Investment)
Indicates the willingsness of investors (companies/individuals) to exert a direct influence on the
management and strategies of the companies in which they invest. investeringen waaarbij ene
bedrijf uit het ene land zeggenschap verwerft in een bedrijf in een ander land.
Pros:
- Competition and consumer choice
- Spillovers (knowledge, innovation, capital, employment)
- Modernization
- Multinationals create jobs and wealth and transfer technology in countries that are in need
of such development. They provide largest influx of capital in developing countries.
Cons:
- Exploitation
- Imperialism
- Environmental harms
- Corruption
- Loss of control over strategic knowledge, resources, technology
- Loss of national sovereignty
- Multinationals can have undue political influence over governments, can exploit developing
nations as well as create job losses in their own home countries.
Literature
Kreps:
Democracies long claimed to have several advantages over authoritarian regimes
However, rise of social media is actually undermining democratic regimes and giving authoritarian
regimes the advantages.
,Political polarization is the divergence of political attitudes away from the center, towards
ideological extremes.
Social media is an actor in international relations. Several characteristics make it easier to
manipulate:
1. Open access anyone can post
2. Misinformation spreads faster and further more clever, counterintuitive, or provocative
3. Regulation is difficult
- Machine-generated scales of propaganda can be difficult to counteract
- Internet reinforces strength of nation state
- Social media can be weaponized across borders
- Misuse of social media as a form of information operations
Fitzgerald:
Multinationals have shaped politics and societies of individual countries
- Hastened and transformed economic interdependence of countries liberalization of
markets and cross-border investments from late 20 th century.
- Have been force for change and dynamism
o Emergence of global system: mulinationals played a role in developments
o Transporters and models of economic modernity
Globalization
Can be studied at the level of cross-border transactions, nations, regions, and firms.
Role of multinationals in global economy: Multinational’s international business developed: less
dependent on sales within home nation
Definition by Fitzgerald
Multinational should have economic assets abroad
Firm that has power to coordinate and control operations in more than one country, even if
it does not own them
Firm that owns or controls value-creating assets in more than one country
Role of states in global economy: determines flows of trade, capital, technology and management
prices.
Through law, taxation, subsidies, regulation, and policies state is strong influence
Multinationals are part of complex transnational systems of bilateral and multilateral
economic and political relationships.
The effect of nation states on Foreign Direct Investment
- Dynamic relationship between development stage of a home economy and its outward FDI
o In order to be successful in the long run, multinationals had to operate in host
nations
- Multinationals gained and offered competitive advantages through their ability to connect
economies.
Solutions: globalization
Can be overruled by history. History can offer a corrective. Like for example the term globalization
a historical study of more expected can offer a more historical approach
, Shortcomings academic research on international business:
1. Tend to focus on strategies and internal mechanism of firms (rather than broader issues)
2. Historical perspective, development that has happened before actually
3. Historical background, colonial past needs to be taken into consideration
4. Big businesses had influenced the colonies. How rules of businesses were created today
5. Eurocentric
We found that it ultimately comes down to the same thing that it lacks historical background and
perspective
Interaction relations with outside world, and how they evolve we can only understand a small part
of why it is a business at all.
We need to consider a historical approach and a long-term historical approach
Jones and Khanna
Het belang van geschiedenis
History to clarify conceptual issues:
- Diversification
Path dependency: outcomes that are built upon previous outcomes of economics strategies.
Move beyond path dependency: history as a tool to understand the roots of their different
strategies.
The successful adaption of a country to a serious external shock brings about a break of path
dependence and introduces a new, more efficient path, which, in some historical cases can take the
form of a threat to independence.
along with this path, new institutions and organizations are developed, which represent
substantial new investments both in knowledge and financial means
History to address long-term issues in International Business
- Long term analysis as tool to explain effect of FDI
- Effects will generally fall out of the scope of International Business (can be analysis through
historical lens)
- Historical evidence can shed new light on statements about supposed benefits of
multinationals.
Key concepts week 1:
Foreign Direct Investments (FDI): cross-border investment. Lasting interest of one country into
another country (enterprise)
Home and host countries: home country: where headquarters are located
Mulitnational companies: that has business operations in at least one country other than its home
country
Subsidiaries: company controlled by a holding company
Protectionism: government policies that restrict international trade to help domestic industries.
