International Organization of Production and Variation in Exports from Affiliates
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*Thomas Andersson, previously in charge of the International Research Programme at the Industrial Institute for Economic and Social Research (IUI), is Deputy Director, Directorate for Science, Technology and Industry, OECD. Torbjorn Fredriksson, a former research fellow at IUI, is research manager at the Invest in Sweden Agency (ISA) in Stockholm. Theauthorsaregratefulto ZabrinaLeungandRogerSvensson,IUI, forassistancewithdataprogramming. Twoanonymousrefereesarethankedfor insightfulcommentsand suggestionsfor improvements. Received:May1994;Revised:August1995;Accepted:October1995. 249
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JOURNAL OF INTERNATIONALBUSINESSSTUDIES, SECOND QUARTER1996
TABLE1 Total Exports as a Share of the Affiliates' Net Production, Average for Different Groups of Countries, 1974-1990, Percent Country Groups
1974
1978
1986
1990
EC9 EFTA Other developed countries Less developed countries
36.2 31.3 22.3 7.9
41.3 30.2 15.9 10.4
44.8 29.6 12.2 13.6
48.1 38.2 15.0 10.1
Note:EC9 = Germany,France,the Netherlands,Belgium,Luxembourg,Italy,Denmark,Irelandandthe UK.EFTA= Austria,Finland,Norwayand Switzerland.OtherDCs = remainingOECDcountries. Source: Databaseat the IndustrialInstitutefor Economicand Social Research(IUI)
grows[Hedlund1986;Kogut 1990].Observingan inverseU-shapedrelationship betweenexports from the parentcompanyto affiliatesand the internationalizationof the companygroup,Pearce[1982]arguedthathighlevelsof internationalizationof a firm lead to expanding transactionsamong the affiliatesratherthanbetweenthemandthe parent. The lack of appropriatedata makesit difficultto investigatethe validityof such propositions in detail. One measurableindicator of the interactions betweenforeignunitswouldbe theextentto whichaffiliatesexport.A number of studies of U.S. and Japanesefirms have noted that foreignaffiliatesare accountingforan increasingshareof totalexportsfromMNEs(cf.Blomstrom and Lipsey[1990];Kumeand Totsuka[1991]).In the case of SwedishMNEs, for which particularlygood data are availableat the firm level, Table 1 similarlyshows that foreignunits have becomeincreasinglyexport-oriented over time.The bulk of exportshavegone to thirdcountriesinsteadof back home.2Thereareconsiderabledifferencesbetweenregions,however,withhigh figures in Western Europe, and smaller ones in developing countries. In contrastto U.S. andJapaneseMNEs,forexample,Swedish-basedMNEshave obviouslynot located productionin developingcountriesin orderto cover worldmarkets.3 Thatthe motivesforundertakingdirectinvestmentvaryconsiderablybetween venturescomplicatesgeneralizations.In fact, thefactorsdeterminingaffiliates' propensityto exportshould relateto the organizationof foreignproduction. This was clarifiedby Caves[1971]who explainedthat operationsabroadmay be eitherhorizontallyor verticallyintegrated,with far-reachingimplications for the patternof trade.4In this paper,we makea firstempiricalinvestigation
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