1. In his study of foreign enterprise in developing countries, Isaiah Frank concludes that, “… it is fair to state that in much of the developing world, relations between transnational corporations and host countries have been marked by considerable tension.” Frank, , Foreign Enterprise in Developing Countries (Baltimore: Johns Hopkins University Press, 1980), p. 25Google Scholar.

2. Moran, Theodore H., “Multinational Corporations and the Developing Countries: An Analytical Overview” in Moran, Theodore H., ed., Multinational Corporations: The Political Economy of Foreign Direct Investment (Lexington, Mass.: Lexington, 1985), pp. 3–24Google Scholar.

3. Bennett, Douglas C. and Sharpe, Kenneth E., “The World Automobile Industry and Its Implications” in Newfarmer, Richard S., ed., Profits, Progress, and Poverty (Notre Dame: University of Notre Dame Press, 1985), p. 22Google Scholar.

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5. Kindleberger, Charles P., Six Lectures on Direct Investment (New Haven, Conn.: Yale University Press, 1969), p. 145Google Scholar.

6. Kindleberger, , Six Lectures, pp. 149, 150Google Scholar.

7. Bennett, Douglas C. and Sharpe, Kenneth E., “Agenda Setting and Bargaining Power: The Mexican State vs. Transnational Automobile Companies,” World Politics 32 (10 1979), pp. 57–89CrossRefGoogle Scholar; Moran, “Multinational Corporations and the Developing Countries”; Newfarmer, ”International Industrial Organization”; and George Philip, “The Limitations of Bargaining Theory: A Case Study of the International Petroleum Company in Peru, ,“ World Development 4 (03 1976), pp. 231–39Google Scholar.

8. Bergsten, C. Fred, Horst, Thomas, and Moran, Theodore H., American Multinationals and American Interests (Washington, D.C.: Brookings Institution, 1978)Google Scholar and Vernon, Raymond, Sovereignty at Bay: The Multinational Spread of U.S. Enterprise (New York: Basic Books, 1971)Google Scholar.

9. Vernon, Raymond, “The Obsolescing Bargain: A Key Factor in Political Risk,” in Winchester, Mark B., ed., The International Essays for Business Decision Makers, vol. 5 (Houston: Center for International Business, 1980)Google Scholar.

10. For detailed applications of the obsolescing bargain in the petroleum and copper industries, see Kobrin, Stephen J., “Diffusion as an Explanation of Oil Nationalization,” Journal of Conflict Resolution 29 (03 1985), pp. 3–32CrossRefGoogle Scholar and Moran, Theodore H., Multinational Corporations and the Politics of Dependence: Copper in Chile (Princeton, N.J.: Princeton University Press, 1974)Google Scholar.

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12. Vernon, , Sovereignty at Bay, p. 27Google Scholar.

13. In the petroleum industry, for example, the development of offshore production in deep and difficult areas and the need for tertiary recovery have markedly increased the technological intensity of production and, in these circumstances, the MNCs have regained at least some bargaining power. Vernon argues that the proposition is complex, and when the technology of the industry grew more intensive or the optimum scale level expanded, the firms' initial advantages were restored. See Vernon, , Sovereignty at Bay, p. 27Google Scholar.

14. Bergsten, , Horst, , and Moran, , American Multinationals, pp. 143 and 322Google Scholar.

15. The conflict between the parties reflects differences over distribution of the joint gains from the investment (over taxation, pricing of state-supplied inputs, wage levels, and the like) and differences in objectives that render desired individual gains incompatible. The objectives of a private, profit-oriented firm and a more diffuse rfation-state are likely to conflict, which is exacerbated since the former is a global actor concerned with returns to the system as a whole, while the latter is essentially local, concerned (at least ultimately) with impacts within its territory. “The problem is to redirect the global rationality of the multinational when it conflicts with the necessities of local accumulation: the State must continually coerce or cajole the multinationals into undertaking roles that they would otherwise abdicate.” Evans, Peter B., Dependent Development: The Alliance of Multinational, State, and Local Capital in Brazil (Princeton, N.J.: Princeton University Press), p. 44Google Scholar.

16. Both firms and governments see net benefits from the participation of multinationals. See Bennett and Sharpe, “The World Automobile Industry.”

17. The outcome of the bargaining process is determined by a great deal more than relative capabilities. A number of authors have noted that constraints, including the domestic political process, intervene between potential and actual power. See Bennett and Sharpe, “Agenda Setting”; Encarnation, Dennis and Wells, Louis T. Jr, “Competitive Strategies in Global Industries:View From The Host Country,” Paper presented at the Harvard Business School's 75th Anniversary Colloquium on Global Industries, Boston, Mass., 1984Google Scholar; and Phillip, “The Limitations of Bargaining Theory.”

18. Bergsten, Horst, and Moran, “American Multinationals.”

19. Bennett and Sharpe, “The World Automobile Industry,” and Vernon, “The Obsolescing Bargain.”

20. Jacoby, Neil H., Multinational Oil (New York: Macmillan, 1974)Google Scholar.

21. Kobrin, “Diffusion as an Explanation.”

22. Moran, Multinational Corporations and the Politics of Dependence.

23. Bennett and Sharpe, “Agenda Setting.”

24. For automobiles, see Bennett and Sharpe, “Agenda Setting,” and “The World Automobile Industry.” For Pharmaceuticals, see Gereffi, Gary, “Drug Firms and Dependency in Mexico: The Case of the Steroid Hormone Industry,” International Organization 32 (Winter 1978), pp. 237–86CrossRefGoogle Scholar and “The Global Pharmaceutical Industry and Its Impact in Latin America,” in Latin America,” Newfarmer, , Profits, Progress, and Poverty, pp. 259–98Google Scholar.

25. Grieco, Joseph, “Between Dependency and Autonomy: India's Experience with the International Computer Industry,” International Organization 36 (Summer 1982), pps. 609–632CrossRefGoogle Scholar.

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27. Although they argue that an ideal dependent variable would be some measure of the outcome of all HC-MNC negotiations, that data is not available and they use foreign ownership instead. As firm or state preferences may vary, raw ownership may not represent actual bargaining outcomes; they attempt two adjustments to reflect corporate and country objectives. To try to correct for company objectives, they subtracted the average for all a firm's subsidiaries in Europe (where ownership is generally unrestricted), and to adjust for country objectives they used the average ownership for all U.S. subsidiaries in that country. Fagre, N. and Wells, Louis T. Jr, “Bargaining Power of Multinationals and Host Governments,” Journal of International Business Studies 13 (Fall 1982), pp. 19–24CrossRefGoogle Scholar.

28. Poynter, Thomas A, “Government Intervention in Less Developed Countries: The Experience of Multinational Corporations,” Journal of International Business Studies 13 (Spring/Summer 1982), pp. 9–25CrossRefGoogle Scholar.

29. Lecraw uses both raw ownership and an adjustment reflecting MNC and host country objectives. He takes the highest level of ownership for a given MNC in any country as its objective, and the lowest level of ownership for any MNC in a given country as the country's objective, and calculates bargaining success as:

(actual-HC objective)/(MNC objective-actual). Lecraw, Donald J., “Bargaining Power, Ownership, and Profitability of Transnational Corporations in Developing Countries,” Journal of International Business Studies 15 (Spring/Summer 1984), pp. 27–43CrossRefGoogle Scholar.

30. Gomes-Casseres, Benjamin, “Multinational Ownership Strategies,” DBA thesis, Harvard Business School, Boston, 1985, p. 345Google Scholar.

31. Keohane, Robert O. and Nye, Joseph S., Power and Interdependence: World Politics in Transition (Boston: Little, Brown, 1975), p. 225Google Scholar.

32. Knorr, Klaus, The Power of Nations (New York: Basic Books, 1975), p. 8Google Scholar.

33. Dunning, John H., “Explaining Changing Patterns of International Production: In Support of the Eclectic Theory,” Oxford Bulletin of Economic and Statistics 41 (11 1980), pp. 269–95CrossRefGoogle Scholar.

34. See Encarnation, Dennis and Wells, Louis T. Jr, “Sovereignty en Garde: Negotiating With Foreign Investors,” International Organization 39 (Winter 1985), pp. 47–78CrossRefGoogle Scholar; Guisinger, Stephen E., “A Comparative Study of Country Policies,” in Guisinger, Stephen E. and Assocs., Investment Incentives and Performance Requirements (New York: Praeger, 1985), pp. 1–55Google Scholar; Jenkins, Barbara, “Reexamining the Obsolescing Bargain,” International Organization 40 (Winter 1986), pp. 139–65CrossRefGoogle Scholar; and Philip, ”The Limitiations of Bargaining Theory.” Gereffi and Bennett and Sharpe demonstrate the constraints on state power exercised by the web of alliances built by MNCs in the pharmaceutical and automobile industries. See Gereffi, Gary, “The Renegotiation of Dependency the Limits of State Autonomy in Mexico,” in Moran, , Multinational Corporations and the Developing Countries, pp. 83–106Google Scholar, and Bennett and Sharpe, “The World Automobile Industry.”

35. See Pfeffer, Jeffrey, Organizations and Organization Theory (Boston: Pitman, 1982)Google Scholar.

36. While one could view access to a globally integrated production network as a resource possessed by the MNC and demanded by the host for the promise of increased efficiency, it is also a constraint on host country bargaining power.

37. See Einhorn, Jessica Pernitz, Expropriation Politics (Lexington, Mass.: D. C. Heath, 1974)Google Scholar. Knorr specifically refers to Western businesses dealing with authorities and landowners in developing countries. The literature of dependence is based on an assumption of constraints imposed on the autonomy of Third World actors as a result of the penetration of investment from the industrialized countries: “The Power of Nations,” p. 16.

38. See Buckley, Peter and Casson, Mark, The Future of the Multinational Enterprise (New York: Holmes & Meier, 1976)CrossRefGoogle Scholar; Dunning, “Explaining Changing Patterns”; Rugman, Alan, Inside the Multinationals (New York: Columbia University Press, 1981)Google Scholar; and Teece, David J., “The Multinational Enterprise: Market Failure and Market Power Considerations,” Sloan Management Review 23 (Spring 1981), pp. 3–17Google Scholar.

39. Bergsten, Horst, and Moran, American Multinationals; Encarnation and Wells, “Competitive Strategies”; Fagre and Wells, “Bargaining Power”; Lecraw, “Bargaining Power”; Moran, Theodore H., “Multinational Corporations and Dependency: A Dialogue for Dependentistas and Non-dependentistas,” International Organization 32 (Winter 1977), pp. 79–100CrossRefGoogle Scholar; Oman, Charles, New Forms of International Investment in Developing Countries (Paris: OECD, 1984)Google Scholar; Vernon, Sovereignty at Bay; Vernon, Raymond, “Sovereignty at Bay Ten Years After,” International Organization 35 (Summer 1981), pp. 517–30CrossRefGoogle Scholar.

40. Poynter, “Government Intervention,” and Vernon, Sovereignty at Bay.

41. Moran, Multinational Corporations and the Politics of Dependence.

42. Moran, Multinational Corporations and the Politics of Dependence; Oman, New Forms; Vernon, “The Obsolescing Bargain.”

43. Bennett and Sharpe, “The World Automobile”; Gomes-Casseres, “Multinational Ownership Strategies”; Lecraw, “Bargaining Power”; and Poynter, “Government Intervention.”

44. See, Bergsten, Horst, and Moran, “American Multinationals”; Encarnation and Wells, “Competitive Strategies”; Guissenger, “A Comparative Study”; Moran, “Multinational Corporations and Dependency”; and Oman, “New Forms.”

45. Encarnation and Wells, “Sovereignty en Garde”; Newfarmer, “International Industrial Organization”; and Shepherd, Phillip, “Transnational Corporation and the International Cigarette Industry,” in Newfarmer, , Profits, Progress, and Poverty, pp. 63–112Google Scholar.

46. Oman, “New Forms”; Moran, “Multinational Corporations and Dependency”; Newfarmer,” International Industrial Organization.”

47. Encarnation and Wells, “Sovereignty en Garde,” and Evans, “Dependent Development.”

48. Bennett and Sharpe, “Agenda Setting”; Frank, Foreign Enterprise; Guissenger, “A Comparative Study”; Oman, New Forms; and Vernon, Sovereignty at Bay.

49. Evans, Dependent Development.

50. Bennett and Sharpe, “Agenda Setting”; Coronil, Fernando and Skurski, Julie, “Reproducing Dependency: Auto Industry Policy and Petrodollar Circulation in Venezuela,” International Organization 36 (Winter 1982), pp. 61–94CrossRefGoogle Scholar; Evans, Dependent Development; Fagre and Wells, “Bargaining Power”; Lecraw, “Bargaining Power”; and Poynter, “Government Intervention.”

51. Guissenger, “A Comparative Study.” See also Oman, New Forms.

52. Ownership is used as the dependent variable in three of the four existing cross-national studies of bargaining power: Gomes-Casseres, “Multinational Ownership Strategies”; Fagre and Wells, “Bargaining Power”; and Lecraw, “Bargaining Power.” Poynter used a subjective estimate of intervention in “Government Intervention.”

53. See “Ford's Better Idea South of the Border,” Business Week, 9 01 1984, p. 43Google Scholar; and ”IBM Concessions to Mexico,” New York Times, 25 July 1985.

54. United Nations Centre on Transnational Corporations (UNCTC), Transnational Corporations in World Development: Third Survey (London: Graham & Trotman, 1985)Google Scholar.

55. In the LDCs, 57% of respondents indicated that government suasion was a motivation and only 38% said that skill acquisition was important. Beamish found that, in contrast, the dominant reason for entering a joint venture in the developed countries (64% of respondents) was a need for the partner's skills, and only 17% reported government suasion as a determinant. See Beamish, Paul W., “The Characteristics of Joint Ventures in Developed and Developing Countries,” Columbia Journal of World Business 20 (Fall 1985), pp. 13–20Google Scholar. In their study of the auto industry in Mexico, Bennett and Sharpe noted that, despite the conclusions drawn from the economics of industrial organization, government feels that the nationality of the owner does make a difference in the firm's behavior and thus its performance. See “Agenda Setting,” note on p. 66.

56. Gomes-Casseres, “Multinational Ownership Strategies.”

57. Frank, , “Foreign Enterprise,” p. 145Google Scholar.

58. Bergsten, Horst, and Moran, American Multinationals, and Oman, New Forms.

59. See Bennett and Sharpe, “Agenda Setting,” and Peter J. West, “International Expansion and Concentration of the Tire Industry and Implications for Latin America,” in Newfarmer, Profits, Progress, and Poverty.

60. Frank, “Foreign Enterprise.”

61. See, Adelman, Irma and Morris, Cynthia Taft, Society, Politics, and Economic Development (Baltimore: Johns Hopkins University Press, 1967)Google Scholar.

62. For example, in 1975, 180 U.S. manufacturing multinationals accounted for 71% of sales of U.S. direct investors abroad. Curhan, Joan P., Davidson, William H., and Suri, Rajan, Tracing the Multinationals: A Sourcebook on U.S.-Based Enterprises (Cambridge, Mass.: Ballinger, 1977)Google Scholar. Given the very large number of smaller firms, including them would increase the size of a representative sample beyond the capabilities of this article. Limiting the sample of U.S.-based firms controls for national differences in the propensity to share ownership. While this limits generalization, it only introduces bias if one can argue that there are systematic differences in bargaining power attributed to nationality. I cannot.

63. I used the Conference Board's, Key Company Directory (New York 1983)Google Scholar to select 203 firms that are equivalent in size to the Fortune 500 and have at least 20% of their sales generated abroad. Firms in extractive sectors (petroleum or mining), conglomerates that could not be classified by industry, and those in sectors that tend to be heavily export based (e.g., aircraft) were eliminated, leaving 162 firms. The review of public sources identified 139 with manufacturing subsidiaries in developing countries. See International Directory of Corporate Affiliations: Who Owns Whom? 1984/85, (Willmette, Ill.: National Register, 1984)Google Scholar; Moody's Industrial Manual (New York: Moody's Investors Services, 1984)Google Scholar; Stopford, John, Dunning, John H., and Haberlich, Klaus, World Directory of Multinational Enterprises, vols. 1 and 2 (New York: Facts on File, 1980)Google Scholar.

64. Eleven of the firms contacted in the mailed survey indicated that they no longer manufactured in developing countries. They were removed from the relevant population.

65. Forbes Annual Report on American Industry, 1986, included in Forbes, 13 January 1986, p. 4.

66. Raw parent ownership of subsidiary of 60% has very different implications as a measure of bargaining outcome if: 1) the MNC's objective is 100% and the HC's is 50%, or 2) the MNC's is 66% and the HC's 40%.

67. Lecraw estimated MNC objectives from the highest ownership level for the firm in any country and the HC objective from the lowest ownership level for any firm in that country. However, the sample included only six industries in five countries; Lecraw, “Bargaining Power.” In this article, there are a number of firms with too few subsidiaries and countries with too few investors to apply that technique.

68. As noted already, MNCs in industrialized host countries are more likely to rank the prospective partners' skills as an important motivation for entering the joint venture than those in developing host countries. Thus, MNC preferences are likely to vary depending on country characteristics and taking the highest observed ownership level as proxy for true preferences will be misleading.

69. UNCTC, “Transnational Corporations.”

70. Gomes-Casseres, “Multinational Ownership”; Fayerweather, John, International Business Strategy and Administration, 2d ed. (Cambridge, Mass.: Ballinger, 1982)Google Scholar; and Robinson, Richard D., International Business Management, 2d ed. (Hinsdale, III.: Dryden, 1978)Google Scholar.

71. Amemiya, Takeshi, “Tobit Models: A Survey,” Journal of Econometrics 24 (1984), pp. 3–61CrossRefGoogle Scholar; William H. Greene, “LIMDEP,” mimeo, New York University, Graduate School of Business Administration, 1984; Maddala, G. S., Econometrics (New York: McGraw-Hill, 1977)Google Scholar.

72. The specific model used is contained in the LIMDEP package developed by William Greene of New York University. It uses the Davidon/Fletcher/Powell algorithm to obtain maximum likelihood estimates. Green's example of forecasting demand for a sports stadium of fixed capacity that is sold out a significant proportion of the time is directly analogous. Tobit (originally Tobit's probit, but no longer limited to binary dependent variables) is a non-linear regression model that uses the maximum likelihood technique to estimate parameters and explicitly accounts for the limited range of the dependent variable. See Greene, , “LIMDEP,” pp. 136–137Google Scholar and Maddala, Econometrics.

73. While the overall significance of the equation is evaluated through a test of the likelihood ratio and the algorithm provides estimates of coefficients and their significance, it does not produce an estimate of variance explained.

74. While population is significant in a multivariate equation, it is a redundant measure of country size once GDP is included and the latter has the advantage of serving as a control for FDI. FDI/GDP is also significant, but redundant. MNC sales is not significant in the Tobit regression.

75. As FDI distribution is highly skewed upwards, it was transformed logarithmically.

76. See Gereffi, “The Global Pharmaceutical Industry.” As food processing and consumer products firms have been international for quite some time, it is reasonable to assume that, in many instances, their subsidiaries existed prior to the ownership restrictions. Whiting explicitly notes that most food processing firms were in Mexico before the 1973 Foreign Investment Law that restricted foreign ownership in most instances to 49%. Whiting, Van R. Jr, “Transnational Enterprise in the Food Processing Industry,” in Newfarmer, , Profits, Progress, p. 365Google Scholar.

77. Eighty-two of the observations are in Brazil and 107 in Mexico. Thus, the two countries account for one-third of all observations and the question of sample bias must be dealt with. First, it should be noted that the unit of analysis is the country-industry intersection, not the country alone. Second, there is no theoretical reason to assume Mexico or Brazil are outliers. To check for the possibility of bias, dummy variables for Mexico and Brazil were added to the Tobit regression. Although both are significant, with two exceptions the coefficients for the other variables are unchanged. The standardized coefficient of REST is slightly reduced and that of GDP increased. The change in GDP, however, is confounded by the high correlation between each of the dummies and GDP. I conclude that the results and findings are unchanged when the two country dummies are added.

78. Gomes-Casseres found stronger support for market size as a determinant of host country bargaining power. Gomes-Casseres, “Multinational Ownership.”

79. Multivariate analysis on the advertising intensive sub-sample indicates that country size (POP) is the most important HC power resource while the amount of FDI is a significant constraint. Host country capabilities (HM or RELHM) are not significant, nor are other HC resources or constraints. As virtually all of this sort of FDI is market-driven, the relationship with market size is not surprising. A cross-tabulation of ownership (categorized as wholly owned, majority joint venture, and minority joint venture) and a three-way categorization of host country restrictions on ownership reveal significant differences in ownership of existing investments. In contrast to the other two categories, where about 77% of subsidiaries are wholly owned, only a minority of advertising intensive subsidiaries are wholly owned (28%), while 40% are majority joint ventures and 32% minority.

80. Dunning, John H. and Pearce, R., The World's Largest Industrial Enterprises: 1962–1983 (New York: St. Martin's 1985), p. 166Google Scholar.

81. The 1982 Benchmark Study reports R&D expenditures of $260 million by or for subsidiaries in LDCs and $37,590 million by and for parents in the U.S. Bureau of Economic Analysis, U.S. Direct Investment Abroad: the 1982 Benchmark Survey (Washington, D.C.: Department of Commerce, 1985)Google Scholar.

82. PINTEG and R&D are correlated (r = .55), and part of the reason for the relative weakness of the coefficient of the former is the dominance of R&D. That is, the reason industries, such as computers and electronics, are integrated globally is their R&D intensity.

83. Encarnation, and Wells, , “Competitive Strategies,” p. 45Google Scholar.

84. Bennett, and Sharpe, , “The World Automobile Industry,” p. 204Google Scholar.

85. Temporal comparisons of the measure of integration used in this study (the percentage of parent exports going to affiliates) are confounded by trends in total U.S. exports. For the 1977 data, see Bureau of Economic Analysis, U.S. Direct Investment Abroad 1977 (Washington, D.C.: Department of Commerce, 1981)Google Scholar.