Theory in international business
Robert Grosse* and Jack N. Behrman** International business has existed as a distinct field of study for the past three decades, but it does not have a widely accepted explanatory theory on which to base its uniqueness as a discipline. David Ricardo's theory of comparative advantage, Raymond Vernon's product life cycle, John Dunning's eclectic theory and all others are essentially explanations of business between domestic firms or regions, as well as international firms. They explain "multidomestic" investment and intra-national trade. Those theories offer important insights into the functioning of firms in business anywhere, including international firms, but they fail to focus on the distinguishing characteristics of business operating among different nations. Since international business is the study of business activities that cross national borders and, therefore, is fundamentally concerned with the firms that undertake that business and the national Governments that regulate them, a theory that is unique to such business must explain the responses of businesses to government policies and the policy-making of Governments themselves towards international firms. Empirical studies have distinguished international from domestic business strategies and operations, but they have not resulted in an international theory of cross-national business behaviour. The lack of a proper theoretical focus has diverted the discipline from an emphasis on policy and on conflicts and cooperation among corporations and Governments. A framework for constructing such a theory can be built on existing bargaining theory.
*Director, Center for International Business, School of Business Administration, University of Miami, Coral Gables, Florida. **Director, Center for International Trade and Investment Promotion, Kenan-Flagler Business School, University of North Carolina, Chapel Hill, North Carolina. Transnational Corporations, vol. I, no. I (February 1992), pp. 93-126.
International business (IB) has been a subject of academic research since the early twentieth century, principally focusing on trade and inter-company relations. The study of export activities, foreign direct investment, technology transfer and the management of transnational corporations (TNCs) was recognized as an appropriate and valuable goal of academic research only in the past three decades. As with other nascent disciplines, international business has advanced haltingly through several efforts to establish a theoretical base and agreed lines of investigation. The international product cycle described by Raymond Vernon (1966) probably was the first major theory of the movement of production overseas, rather than just to explain international trade; since then, several theories have been put forward and intricately iterated without any of them gaining world-wide acceptance. Each is partial in some significant sense, and none addresses the essential nature of international business. The consolidation of a theoretical base usually requires a number of years as the scope of the discipline is established. Despite the fact that academic and managerial interest in IB have grown rapidly with the expansion of business internationally, theories applied to IB have sought mainly, though not exclusively, to expand the arena of their explanations without incorporating responses of the firms to national policies and actions or the causes of those governmental positions. Yet, government interventions are central to IB practice and analysis. Any theory of international business must be a theory of policies and activities of business and Governments, in conflict and cooperation. Although there have been many studies of IB/ Government relations, there is still disagreement over the definition and scope of the IB discipline, with some basing it on theoretical constructs and others on empirical/ phenomenological evidence. The...
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