Abstract
If markets were either completely isolated by or integrated across borders, there would be little room for international business strategy to have content distinctive from ‘mainstream’ strategy. But a review of the economic evidence about the international integration of markets indicates that we fall in between these extremes, into a state of incomplete cross-border integration that I refer to as semiglobalization. More specifically, most measures of market integration have scaled new heights in the last few decades, but still fall far short of economic theory's ideal of perfect integration. The diagnosis of semiglobalization does more than just supply a relatively stable frame of reference for thinking about the environment of cross-border operations. It also calls attention to the critical role of location-specificity in the prospects of distinctive content for international business strategy relative to mainstream business and corporate strategy. In addition, it flags factors/products subject to location-specificity as being salient from the perspective of international business. Finally, it highlights the scope for strategies that strive to capitalize on the (large) residual barriers to cross-border integration, as well as those that simply try to cope with them.
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Notes
While location-specificity can also operate at the local or (intranational) regional level, a full treatment of it at all these levels of analyses is beyond the scope of this paper, even though many of the analytical issues that arise are similar.
The disparity is even greater if one recognizes that the denominator of the ratio should really be a measure of gross sales rather than a value-added measure like GDP.
Foreign direct investment currently accounts for roughly one-half of total foreign investment, but its share was significantly smaller at the start of the 20th century. See Bloomfield (1968, 3–4), cited in Bordo et al. (1999).
Note that the spread of domestic safety nets does increase the likelihood that banking crises will turn into currency crises.
For further discussion of currency risk, see Frankel (1992).
Note the caveat that the extent of catch-up by the Asian tigers would look somewhat less remarkable if the data in Figure 5 were updated to take account of the Asian currency crisis.
The other (overlapping) reasons for the localization of international competitiveness identified by Porter (1990) are sophisticated local demand and the local availability of specialized inputs and complements as well as basic factors of production.
This point can be demonstrated formally in the context of standard supply–demand analysis. To start at one extreme, with complete insulation between two country markets, the price and quantity outcomes can be pinned down (under the assumption of atomistic competition) at the intersection of supply and demand curves in each market. At the other extreme, with complete integration – that is, zero extra costs of trading, transporting, transacting and so on across national boundaries – one could still add up the supply curves for the two markets on the one hand and their demand curves on the other and use the point of intersection of the two aggregate curves to determine the (common) prices and the quantities in the unified market. But the continuum of situations between zero and complete economic integration that I refer to as semi-globalization creates additional challenges. Given semi-globalization, the analysis of prices and quantities in the two markets cannot be reduced to supply–demand analysis of an individual market. Instead, attention has to be paid to distinct markets that are neither totally segmented nor totally integrated – an intrinsically more complex, and interesting, setup.
For further discussion along these lines, see Caves (1998).
Such integration would make access to a global pool of capital a ‘given’ for any worthy enterprise and thereby limit the scope for purely financial sources of advantage or disadvantage.
Caves (1996) also identifies a third, residual category of multinational enterprise: international diversifiers whose operations in different countries are neither horizontally nor vertically related to each other. These can be thought of as falling in domain 4 of Table 5 rather than domain 3.
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Acknowledgements
This paper has benefited from research assistance by Jamie Matthews and Raluca Lupu, helpful comments by David Collis, Beulah D'Souza, Vijay Govindarajan, Mauro Guillen, Tarun Khanna, Walter Kuemmerle, Christos Pitelis, Ravi Ramamurti, Louis T. Wells Jr., George S. Yip and, especially, Bernard Y. Yeung, as well as from presentation of material at the AIB Panel Session, in summer 2002, celebrating Buckley and Casson (1976). The Division of Research at the Harvard Business School provided financial support.
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Accepted by Tom Brewer; outgoing Editor, August 2002.
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Ghemawat, P. Semiglobalization and international business strategy. J Int Bus Stud 34, 138–152 (2003). https://doi.org/10.1057/palgrave.jibs.8400013
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DOI: https://doi.org/10.1057/palgrave.jibs.8400013