A global system view of firm boundaries
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A global system view of firm boundaries Peter J Buckley1 and Niron Hashai2 1 Centre for International Business, Leeds University Business School, Leeds, UK; 2Jerusalem School of Business Administration, The Hebrew University, Jerusalem, Israel
Correspondence: Dr P Buckley, Centre for International Business, Leeds University Business School, Maurice Keyworth Building, UK. Tel: 0113-2334646; Fax: 0113-2334754; E-mail: [email protected]
Received: 13 May 2002 Revised: 21 August 2003 Accepted: 25 August 2003 Online publication date: 20 November 2003
Abstract This paper applies the global system view to the location and control strategies of firms. This approach envisages the world as a grid of potential locations for value-adding activities, connected by flows of information and products. The simplified model provides a basis for testing new hypotheses on the number of firms that will exist in the global system, their locations, and their organisational boundaries. The paper provides a rigorous and formal exposition of the theories of internationalisation and the multinational enterprise. Journal of International Business Studies (2004) 35, 33–45. doi:10.1057/palgrave. jibs.8400059 Keywords: internationalisation; internalisation; firm boundaries
Introduction The vast majority of scholars investigating the global location and control configurations of firms tend to base their analysis upon the point of view of a single firm. This point of view is common to most schools of internationalisation, ranging from the economic school (e.g. Buckley and Casson, 1976; Hirsch, 1976; Dunning, 1977, 1988; Rugman, 1986), to the stages model (Johanson and Wiedersheim-Paul, 1975; Johanson and Vahlne, 1977, 1990; Welch and Luostarinen, 1988), the network approach (Johanson and Mattsson, 1992; Sharma, 1992; McNaughton and Bell, 1999), and the strategy-structure school (e.g. Bartlett and Ghoshal, 1989; Sundaram and Black, 1992; Birkinshaw, 1997). As noted by Casson (2000), few attempts have been employed to incorporate a global system view in the location configuration of firms (i.e. the location of various value-adding activities) and in their control configuration (i.e. the mode of control exerted for each value activity). Applying a global system view to the theory of internationalisation means relating to the world as a grid of locations for various value-adding activities (e.g. R&D, production, marketing) that are interconnected through information and material/product flows. The basic notion of the global system view dates back to Robertson (1923) and to Coase’s (1937) transaction cost theory. Essentially, each value-adding activity can be located in any location and coordinated by a variety of institutional arrangements (within a firm, through the market, by the state, or through institutional/ social networks). The number of firms that would eventually exist, their location and their organisational boundaries (in terms of the value-adding activiti
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