The Competitiveness of Nations in a Global Knowledge-Based Economy
Peter Dicken
Global-Local Tensions: Firms and States in the Global
Space-Economy
page 2
Content
Abstract
Introduction
An Analytical Point of Entry: Production Chains and
Relational Networks
Firm-Firm Competition: The Changing World of the
Transnational Corporation
State-State Interaction: The Emergence of the
“Competition State”
Firm-State Interactions: Dynamic Bargaining
Relationships
Conclusion: The Global-Local, Debate
Revisited
References
State-State
Interaction: The Emergence of the “Competition State”
Having discussed one element of the triangular nexus of
interactions identified earlier - firm-firm competition - I now want to address
the second element: competition between states. Here, I deliberately avoid discussion of
the nature of the state, while accepting that the competitive aspect of state
behavior is itself deeply politically, socially, and culturally embedded. My basic approach is that the state in
the contemporary global economy may be legitimately regarded as a competition
state, whose problem is one of facing “major adjustments to shifts in
competitive advantage in the global market place” (Cerny 1991, 183). In this respect, states take on some of
the characteristics of firms as they strive to develop strategies to create
competitive advantage (Guisinger 1985). Both are, in effect, locked in
competitive struggles to capture global market shares. Specifically, states compete to enhance
their international trading position and to capture as large a share as possible
of the gains from trade. They
compete to attract productive investment to build up their national production
base, which, in turn, enhances their competitive position. In particular, states
strive to create, capture, and maintain the higher value-adding elements of the
production chain.
Attempts to understand the bases of national competitive
advantage have a long history. A
static, factor endowment-based theory of comparative advantage is now recognized
as having little explanatory value. Comparative advantage is dynamic; it can
be, and is, created or constructed. Much of the recent attention in this
regard has focused on Porter’s (1990) conceptualization of national competitive
advantage as a four-pointed “diamond” of: factor endowment; demand conditions;
related and supporting industries; and firm strategy, structure, and rivalry,
which he regards as “a mutually reinforcing system.” Interestingly, Porter devotes little
attention to the role of the state in creating and sustaining national
competitive advantage. He sees the
state as merely an “influence” on his four basic determinants, a contingent,
rather than a central, factor (Henderson and Appelbaum 1992; Henderson 1993;
Stopford and Strange 1991), a contributor to the environment in which, as in the
biological realm, the selective survival of species occurs (Porter 1990, 174).
Porter’s neglect of the role of the
state in the pursuit of national competitiveness is a significant
omission.
All states perform a key role in the ways in which their economies operate, although they differ substantially in the specific measures they employ and in the precise ways in which such measures are combined. Although a high level of contingency may be involved (no two states behave in exactly the same way), certain regularities in basic policy stance can be identified. Here it is useful to draw upon a concept originally introduced by Dahrendorf (1968), developed by Johnson (1982), and recently refined further by Henderson and Appelbaum (1992). Dahrendorf (1968) distinguished between two ideal types of political economy: the market-rational and the plan-rational. He equated the latter with the state socialist command economies. Johnson (1982), in his seminal work on the growth of the Japanese economy, argued that these command economies were better described as plan-ideological systems, and he applied the term plan-rational to the economies of East Asia, notably Japan and the then-leading NIEs, particularly of South Korea, Taiwan, and Singapore. [3]
3. Johnson’s work has been especially influential in the
debate over the extent to which the East Asian growth economies have succeeded
either because of the operation of free market forces or because of the central
[involvement of the state in “governing the
market.” This latter term is used
by Robert Wade (1990) in his detailed analysis of East Asian economic
development. The idea that the East
Asian economies exemplify plan-rationality rather than market-rationality
(although in specifically differentiated ways) is apparent in the work of, for
example, R. Wade (1990) on Taiwan, Amsden (1989) on South Korea, Morishima
(1982) and Okimoto (1989) on Japan, Lim (1983) on Singapore, and Schiffer (1991)
and Castells, Coh, and Kwok (1990) on Hong Kong.]
HHC: [bracketed] displayed
on p.113 of original.
112
Recently, Henderson and Appelbaum (1992) have suggested
that a fourth ideal type can be recognized: the market-ideological, which, they
suggest, was epitomized by the Reagan and Thatcher “new right” administrations.
Figure 2 summarizes the basic
features of each of the four types of system and locates some national economies
within the matrix. As always, such
simplified typologies require a “health warning,” which Henderson and Appelbaum
duly provide: “These four constructs (market rational, plan rational, market
ideological, and plan ideological) should be regarded as ideal types; actual
existing political economies combine them in various historically contingent
ways. Still, for any particular
society, one will typically dominate, facilitating an overall characterization
of its prevailing political economy” (1992, 20).
Allowing for these caveats, it is not unreasonable to
regard many of the current politico-economic tensions in the global economy as
being a reflection of a clash between competition states occupying different
positions within the market-rational/plan-rational space. Certainly, the smouldering - occasionally
incandescent and inflammatory - disputes between Japan and many Western
economies (notably the United States and the European Community) can usefully be
set within this context (for a discussion of some of the details of the United
States-Japan conflicts see Encarnation 1992; Lincoln 1990; Ozawa 1986;
Prestowitz 1988). The various trade disputes between the United States and the
European Community and the broader negotiating differences among nations within
the Uruguay Round of the GAIT can also be interpreted in this
way.
As
Figure 2 indicates, the position of states is not
necessarily fixed. In this respect,
one of the most notable developments of the last few years has been the growing
pressure within the most dominant market-ideological state, the United States,
for a more overtly strategic policy orientation. Rather misleadingly, the term used to
express this orientation is strategic trade policy (STP). But, by definition, STP involves far more
than just trade policy. It
encompasses issues of strategic industry policy and, by extension, FDI policy as
well. In other words, it consists
of some of the elements of a plan-rational system. Comprehensive reviews of the literature
on “strategic trade policy” are provided by Cohen (1990), Ostry (1990),
Richardson (1990), and Stegemann (1989). The intellectual underpinnings of
strategic trade policy are derived from the so-called “new international trade
theory” (Krugman 1990).
The demand in the United States in particular is for a
shift away from “free” trade toward “fair” trade – “fairness” being defined by
the United States itself. An early
sign of this shift in emphasis was apparent in the 1974 U.S. Trade Act; it
became quite explicit in the 1988 Omnibus Trade and Competitiveness Act,
especially in the so-called “super 301” clause, which aimed to achieve
reciprocal access to what the United States defines as unfairly restricted
markets. The difference between the
1974 and 1988 acts is that the clause now applies to entire countries and not,
as before, to specific industries. These shifts toward a more strategic
policy are particularly evident in high-technology sectors, seen to be at the
center of a country’s future competitive position. The basic rationale is that, in
imperfectly competitive markets, governments must intervene in favor of their
domestic firms (Encarnation 1992; Ostry 1990). As Ostry (1990) points out,
the
113
A typology of state economic-political systems.
Source: based
on Henderson and Appelbaum 1992, Fig. 1; Henderson 1993; Johnson
1982.
argument is based upon two issues: “the ‘first mover
advantage’ that a country or firm captures by preempting foreign rivals …
(which) … provides the opportunity for firms and countries to consolidate and
extend their competitive advantage” (p. 60), and the issue of externalities or
spillovers that enhance the competitiveness of other parts of the domestic
economy.
Within market-rational/market-ideological economies like
the United States, the pressures for adoption of a more strategic-oriented
policy emanate from a variety of
114
interest groups (primarily specific industry and labor
union lobbies) that may have a particular geographic dimension. Surprisingly, geographers have shown
little interest in this topic. One
of the few papers to appear in a geographic journal (Political Geography Quarterly) was
written by political scientists, not political geographers. Wade and Gates’s (1990) analysis of the
1987 vote in the House of Representatives on the Gephardt Amendment to the 1988
Omnibus Trade Act revealed a reordering of the historical regional divisions
over trade policy. “Although the
old industrial core in the North Atlantic and Great Lakes remains the most
protectionist area, the once dependably liberal South now contains much stronger
protectionist sentiment than was ever true in the past. And the historically protectionist West,
particularly the Northwest, has displaced the South as the regional nucleus of
liberal trade opinion in Congress” (Wade and Gates 1990,
297).
A rather different perspective on this issue is provided
by Krauss and Reich (1992). Using a
series of industry case studies, they demonstrate a clear but variable pattern
of intervention - what they term “compromise protectionism” - by successive U.S.
presidential incumbents. Their
argument is, “first that the type of industry is crucial in determining the kind
of ideological considerations and role pressures to which the executive will be
subject and second that the consequent intersection of ideological
considerations and role pressures will determine the executive’s response … [a
particular issue is the] … inherent dichotomy between the collective interests
of the state and the particular, parochial interests of the Presidency” (Krauss
and Reich 1992, 860).
One of the diagnostic characteristics of the market-rational (and market-ideological) state is its concern
with the regulatory structures in the economy. In such states, a marked feature of the
past 10 to 15 years has been the drive toward the deregulation of specific
sectors as a competitive weapon. As
Cerny (1991) has perceptively observed, however, the process of deregulation is
extremely complex; what is propounded as deregulation may actually involve
re-regulation in a different form or at a different geographic or political
scale.
Each of these measures - from the piecemeal use of
trade, industry, and foreign direct investment policies in
market-rational/ideological states to their more coherent application in
plan-rational states - reflects the diverse attempts by competition states to
operate in the volatile environment of the global economy. States, like firms, pursue competitive
strategies, although their strategic tool kits are, of course, somewhat
different. Another parallel between
the competitive behavior of firms and states is that just as firms, especially
TNCs, have shown an increasing propensity to enter into collaborative agreements
with other firms, so, too, do many nation-states display the same collaborative
propensity. As in the case of
firms, interstate collaboration can range from the simple bilateral arrangement
over a single issue to the complex collaborative network of a supranational
economic bloc. Although there are
many examples of supranational trading blocs in the global economy, most are
relatively ineffectual and some are little more than paper agreements. Such groupings are essentially
discriminatory and defensive. They
represent an attempt to gain advantages of size in trade and investment by
creating large multinational markets for their domestic producers within a
framework of protection. As such,
they may either create or divert trade, and it is this latter potential that
produces apprehension, and possible counteraction, by
non-members.
One of the major developments in the global economy in
recent years has been the strengthening of supranational economic integration in
two of the three “global triad” regions and at least the hint of a similar
future development in the third. The final years of the 1980s, in
particular, saw the speeding up of the
115
process to complete the Single European Market
(optimistically by 1 January 1993), the signing of the Canada-United States Free
Trade Agreement, and concrete moves to establish a North American Free Trade
Agreement (NAFTA). In Europe, the
extension of agreements between the 12 European Community member states and
other Western European states will create a much-enlarged European Economic Area
(EEA). Possible counter-moves in
the Asia-Pacific region are still unclear. The existing supranational group in
Southeast Asia, ASEAN, is not effective economically. The Malaysian government is anxious to
create a regional economic alliance, but so far its efforts have not met with
success. Attempts to build a
broader Pacific Basin bloc (particularly promoted by Australia) have not
succeeded. The key, of course, is
Japan, which, because of a historical legacy of distrust in the region, is
proceeding cautiously. If the EEA
and NAFTA prove to be as inward-looking as some fear, however, the pressures to
create a counterweight in East and Southeast Asia and/or the Western Pacific
would undoubtedly increase.
The trend toward increased supranational economic
integration, therefore, is a further aspect of the operation of the competition
state. But there are political
counterpressures allegedly at work in which increasing emphasis is being placed
on the local and regional (i.e., subnational) level. Particularly in Europe, as the momentum
toward European integration has increased, the calls for greater degrees of
local/regional political and economic autonomy have also grown. The idea of a “Europe of the regions”
rather than of nation-states - or even a “Europe of local communities” - has
considerable currency in some quarters. The notion of a shift toward the “local
economy,” or even the “local state,” is embedded in the idea of a transition
from Fordism to post-Fordism, the new dynamics of flexible accumulation, and the
alleged emergence of new industrial districts (Moulaert and Swyngedouw 1989;
Moulaert, Swyngedouw, and Wilson 1988; Scott 1988).
Seductive as these ideas are of, on the one hand, a
shift toward supranational integration or, on the other, a move toward greater
local economic autonomy, they do not signify the demise of the nation-state as a
significant global actor. In Hirst
and Thompson’s view:
The mechanisms of national economic regulation have
changed but government policies to sustain national economic performance retain
much of their relevance, even if their nature, level and function have changed …
While national governments may no longer be “sovereign” economic regulators in
the traditional sense, they remain political communities with extensive powers
to influence and sustain economic actors within their territories. Technical macro-economic management is
less important, but the role of government as a facilitator and orchestrator of
private economic actors remains strong. (Hirst and Thompson 1992,
371)
Within the specifically spatial research is a real need,
as Gertler argued, to “reinstate the nation-state”:
Despite the formation of new governing institutions at
both the subnational and supranational scales, the nation-state remains an
important institution of capitalism… Most notably, nation-states have produced
(and continue to produce) rather distinct national systems of innovation which
create particular possibilities for economic change while precluding others…
Despite the common observation that the advent of a strengthened European
Community or North American Free Trade Area will reduce the powers of individual
nation-states to regulate their own economic affairs, it should be pointed out
that, in contrast to the rhetoric of free trade, countries will continue to
retain many powers and markets will not be completely and unequivocally “opened
up.” Although the more subtle
powers to harmonize social and economic policies across nations will be strong,
the intensified competition expected to prevail will, if anything, enhance the
importance of fostering a supportive national system for innovation. Consequently, it is difficult to see how
the rise of supranational blocs will undermine these
116
particular powers of the nation-state. (Gertler 1992,
270-71)
Firm-State
Interactions: Dynamic Bargaining Relationships
The third element in the triangular nexus of
international interactions is that between firms and states. This is not as straightforward as it may
seem, because the actual processes and forms of firm-state interactions at an
international scale are deeply intertwined with firm-firm and, especially,
state-state interactions. For
example, much of the friction between the United States and Japan is actually a
dispute between firms, between states, and between states and firms as perceived
agents of states. Similar to the
situation in the 1960s, when the activities of United States TNCs were seen by
many as being a direct extension of United States foreign policy, so today the
behavior of Japanese firms is perceived (especially in the United States) as
being part of a Japanese strategy of world dominance. Similarly, France viewed the recent
dispute involving the decision by the U.S. manufacturer, Maytag, to shift the
operations of its Hoover subsidiary from Dijon in France to Cambuslang in
Scotland not merely as the spatial rationalization strategy of a U.S. TNC in the
context of changing economic conditions in Europe but also as a piece of “social
dumping” made possible by the U.K. governments attitude toward European social
and labor regulation. The
relationships between international firms and nation-states are a complex
mixture of conflict and collaboration. The TNC seeks to maximize its freedom to
locate its production chain components in the most advantageous locations for
the firm as a whole in its pursuit of global profits or global market share.
At the same time, the individual
state wishes to maximize its share of value-adding activity. As a result, the relationship between
firms and states is inevitably an uneasy one (Gordon 1988; Pitelis 1991;
Stopford and Strange 1991).
Firm-state interactions tend to differ according to
whether the relationship is between a firm and its home country government or a
host country government. This does
not imply that the former relations are necessarily harmonious and the latter
necessarily conflictual. Indeed,
many bitter disputes between firms and states have occurred where a state fears
that its “domestic” firms are shifting operations overseas or, conversely, where
firms allege that their home country government provides inadequate support
against external competition. The
position, therefore, is extremely complex. In this section I deal with three aspects
of firm-state interaction: the connection between a firm and its domestic
environment, the responses of firms to regulatory structures, and the bargaining
relationship between firms and states.
My basic position - contrary to that taken by such
writers as R. Reich (1991) or Ohmae (1990 - is that a TNC’s domestic environment
remains fundamentally important to how it operates, notwithstanding the global
extent of some firms’ operations. [4] TNCs are not placeless; all have an
identifiable home base, a base that ensures that every TNC is essentially
embedded within its domestic environment. Of course, the more extensive a firm’s
international operations, the more likely it will be to take on additional
characteristics. Few, if any, major
TNCs have moved their ultimate decision-making operations out of their country
(often their community) of origin. [5] The
4. Hu (1992) adopts a broadly similar view, although I
would not frame my argument in his rather limited terms, which rely on some
rather simple quantitative indicators for a small number of
cases.
5. This does not imply that no important decision-making
activities have been relocated. Indeed, several major U.S. companies,
including IBM, Hewlett Packard, and Monsanto, for example, have moved major
divisional headquarters out of the United States to Europe. But, in each case, there has been no
question that the firms’ ultimate corporate headquarters remain in the United
States.
argument that, in effect, there is no longer any real
relationship between a firm and its home base is, like many statements in the
popular business literature, a considerable exaggeration. Of course, as organizational structures
have changed, as hierarchies have “flattened,” as network forms have become
increasingly significant, things are no longer as simple as they once were.
Nevertheless, despite many decades
of operation as a TNC, Ford is still essentially a U.S. company, ICI a British
company, Siemens a German company. As Stopford and Strange point
out,
However great the global reach of their operations, the
national firm does, psychologically and sociologically, “belong” to its home
base. In the last resort, its
directors will always heed the wishes and commands of the government which has
issued their passports and those of their families. A recent study of the boards of directors
of the top 1000 US firms, for example, shows that only 12 per cent included a
non-American - rather fewer, in fact, than in 1982 when there were 17 per
cent... The Japanese firm with even one token foreign director would be hard to
find. Even in Europe, with the
exception of bi-national firms like Unilever, you do not find the top management
reflecting by their nationality the geographical distribution of its operations.
(Stopford and Strange 1991, 233)
This is not to argue that TNCs necessarily retain a
“loyalty” to the states in which they originated. The nature of the embeddedness process is
far more complex. Also, the
argument that a TNC’s national origin matters to how it behaves is not to deny
that national economic welfare is no longer necessarily equated with the
performance of national companies (R. Reich 1991; Tyson 1993). This latter claim may be true. But the point I am making is that TNCs
are “produced” through a complex historical process of embedding (Dicken and
Thrift 1992), in which the cognitive, cultural, social, political, and economic
characteristics of the national home base play a dominant part. TNCs, therefore, are “bearers” of such
characteristics, which then interact with the place-specific characteristics of
the countries in which they operate to produce a particular outcome. But the point is that the home-base
characteristics invariably remain dominant.
This is not to claim that TNCs of a particular national
origin are identical - this is self-evidently not the case - but, rather, to
argue that there are greater similarities than differences among such firms.
Insofar as the nation-state acts as
a “container” of distinctive institutions and practices, it remains significant
as an influence on the nature of the TNC. Whitley’s (1992a, 1992b) work on
comparative business systems is especially relevant. Whitley’s concern is to counteract the
views of the “economic rationalists” that “competitive markets select efficient
forms of business organizations and destroy inefficient ones … that underlying
market pressures ensure that the firms which survive by competing successfully
in international markets will converge to the same efficient structure,
practices and strategic decisions which ‘fit’ particular technology and market
imperatives” (Whitley 1992a, 2). In
contrast to this view, Whitley develops the concept of the “business system,”
which he defines as “particular arrangements of hierarchy-market relations which
become institutionalized and relatively successful in particular contexts”
(1992a, 10).
Whitley’s analysis, based upon a detailed
multidimensional comparison of business systems in East Asia and in Europe, is
not without its problems. It does,
however, help to explain international variation in firm structures and
behavior, including, for example, the marked differences between Japanese (and
other East Asian) business structures on the one hand and those found in the
Anglo- Saxon and continental European systems on the other. It adds some depth to the ideal types of
political economic system discussed in the previous section. Taken together, these concepts help to
clarify our understanding of the complex relationships between firms and
their
118
domestic environments, as well as the conflictual
economic relationships between states and states. They illuminate such issues as different
state attitudes toward their home firms, including the issue of the “national
champion” (Amin 1992; R. Reich 1991) and the bases of such distinctive
organizational forms as the Korean chaebol and the Japanese keiretsu. The persistence of distinctive business
systems, organized primarily (although not exclusively) within national
boundaries, is an important underlying cause for the persistence of distinctive
differences between TNCs of different national origins.
The second aspect of firm-state interactions I want to
address is the response of firms to state regulatory structures (Dicken
1992b). For the TNC, the two most
critical aspects of state regulatory policy are, first, access to markets and/or
resources (including human resources) and, second, rules of operation for firms
operating within particular national (or supranational) jurisdictions (S. Reich
1989). An obvious assumption would
be that TNCs will invariably seek the removal of all regulatory barriers that
act as constraints and impede their ability to locate wherever, and to behave
however, they wish. The ultimate
preference for TNCs would seem to be removal of all barriers to entry, whether
to imports or to direct presence; freedom to export capital and profits from
local operations; freedom to import materials, components, and corporate
services; freedom to operate unhindered in local labor markets. Certainly, given the existence of
differential regulatory structures in the global economy, TNCs will seek to
overcome, circumvent, or subvert them. Regulatory mechanisms are, indeed,
constraints on a TNC’s strategic and operational behavior.
Yet it is not quite as simple as this. The very existence of regulatory
structures may be perceived as an opportunity available to TNCs to take
advantage of regulatory differences between states by shifting activities
between locations according to differentials in the regulatory surface - that
is, to engage in regulatory arbitrage (Leyshon 1992). One aspect of this is the propensity of
TNCs to stimulate competitive bidding for their mobile investments by playing
off one state against another as states strive to outbid their rivals to capture
or retain a particular TNC activity (Dicken 1990; Encarnation and Wells 1986;
Guisinger 1985; Glickman and Woodward 1989). More generally, several writers have
pointed out that TNCs have a somewhat ambivalent attitude to state regulatory
policies (Picciotto 1991; Rugman and Verbeke 1992; Yoffie and Milner 1989).
For example, Picciotto (1991) notes
that
TNCs have favoured minimal international coordination
while strongly supporting the national state, since they can take advantage of
regulatory differences and loopholes... While TNCs have pressed for an adequate
coordination of national regulation, they have generally resisted any
strengthening of international state structures… Having secured the minimalist
principles of national treatment for foreign-owned capital, TNCs have been the
staunchest defenders of the national state. It is their ability to exploit national
differences, both politically and economically, that gives them their
competitive advantage. (1991, 43, 46)
More specifically, Yoffie and Milner (1989) argue that
TNCs will increasingly tend to support a strategic trade policy in their home
country, with the expectation that this will open up market access in foreign
countries and enable them to benefit from large-scale economies and learning
curve effects.
One aspect of firm-state regulatory relationships that
has become a matter of some debate concerns the state’s specific stance toward
the participation of nondomestic firms in state-sponsored collaborative
ventures. In both the United States
and Europe, for example, governments have explicitly excluded foreign firms with
operations in those economies from participation in high-technology
collaborations. In the European
Community, the British computer manufacturer, ICL, was expelled from the Joint
European Submi
cron Silicon Initiative (JESSI) after it was acquired by
the Japanese company, Fujitsu. In
the United States, foreign companies are excluded from membership in Sematech,
the consortium of U.S. firms whose objective is to upgrade the global
competitiveness of the indigenous semiconductor equipment industry. It is this kind of stance toward foreign
companies that is one of the targets of R. Reich’s (1991) critique “Who is
‘Us’,”
In a related vein, even states with a generally liberal
policy toward the entry of foreign firms into their jurisdictions may respond
vigorously to prevent the foreign takeover either of an emblematic domestic firm
or as part of a strategic conflict with another state. For example, the Reagan administration
effectively prevented the acquisition of Fairchild Semiconductor Corporation by
Fujitsu, despite the fact that Fairchild was no longer an American company,
having been acquired by the French company Schiumberger some years earlier.
More recently, British Airways was
prevented from taking over USAir at least partly because of the ongoing dispute
between two differentially regulated national airline industries. But times can change. An attempt by Ford to acquire the British
Land Rover operations in the early 1980s was treated as a dire threat to
national survival. A few years
later, Ford was able to acquire an equally emblematic U.K. company, Jaguar, with
hardly a ripple of protest. Similarly, in 1994, the last U.K. volume
car producer, Rover, was acquired by the German company,
BMW.
It is clear that the relationships between firms
(especially TNCs) and states are exceedingly complex. How best can they be summarized? In Gordon’s view, “it is perhaps most
useful … to view the relationship between multinationals and governments as both
cooperative and competing, both supportive and conflictual. They operate in a fully dialectical
relationship, locked into unified but contradictory roles and positions, neither
the one nor the other partner clearly or completely able to dominate” (1988,
61).
Pitelis (1991) proposes that the relationship between
TNCs and nation-states should be analyzed within a rivalry and collusion
framework, arguing that “the degree of rivalry and collusion will depend heavily
on whether the relationship refers to TNCs’ own states or ‘host’ states, as well
as whether the states in question are ‘strong’ or ‘weak,’ DCs or LDCs” (p. 142).
Whether or not a particular
situation is one of rivalry or collusion, the essence of the TNC-state
relationship is one of overt or covert bargaining (Doz 1986; Gabriel 1966;
Kobrin 1987; Poynter 1985; Stopford and Strange 1991). As Nixson points out, “it is this process
that in large part determines the extent, nature, and distribution between the
participating agents of the costs and benefits that arise as a result of direct
foreign investment” (1988, 378). Little progress has been made, however,
in providing either a satisfactory conceptual or empirical basis for
understanding these complex relational processes. Stopford and Strange (1991, 134-36) are
especially critical of the current literature on bargaining processes in the
international relations and international business literature. Part of the problem, of course, is that
such bargaining is itself the complex outcome of a myriad of negotiating and
bargaining processes within both firms and states as different interest groups
and stakeholders themselves attempt to influence the larger-scale bargaining
position.
Virtually all the relevant research into TNC-state
bargaining relationships has focused on only one set of relationships: those
between TNCs and host governments. In such circumstances, the outcome will
be a function of the interaction between three elements: (1) the relative demand
by each party for resources which the other controls; (2) the constraints on
each that affect the translation of potential bargaining power into control over
resources; and (3) the negotiating status of the participants involved. Figure 3 provides a summary of the major
components. It is important to
emphasize that the nature of the bargaining process and
Elements of the Bargaining Relationship between TNCs and
Host Countries
Source: based on Dicken 1992a, Fig. 12.5; Kobrin 1987
of the outcome will probably differ according to which
part of the production chain is involved. The bargaining stakes on both sides will
be much higher for the scarcer, high-value-adding functions than for the more
ubiquitous functions. Ultimately,
however, as Gabriel states so succinctly,
The price which the receiving country will ultimately
pay is a function of (1) the number of foreign firms independently competing for
the investment opportunity; (2) the recognized measure of uniqueness of the
foreign contribution (as against its possible provision by local
entrepreneurship, public or private); (3) the perceived degree of domestic need
for the contribution. The terms the
foreign investor will accept, on the other hand, depend on his [sic] general
need for an investment outlet; (2) the attractiveness of the specific investment
opportunity offered by the host country compared to similar or other
opportunities in other countries; (3) the extent of prior commitment to the
country concerned (e.g. an established market position). (Gabriel 1966,
114)
The problem, of course, is that the whole process is
dynamic; the bargaining relationship changes over time. In most studies of state-TNC bargaining
the conventional wisdom is that of the so-called obsolescing bargain, in which, after the
initial investment, the balance of bargaining power shifts from the TNC to the
host government. This is the
situation found most commonly in natural resource-based investments in
developing countries. It is less
certain, however, that such a relationship will apply in sectors in which
technological change is rapid and/or where global integration of operations is
the norm. As Kobrin observes, in
such circumstances, “the bargain will obsolesce slowly, if at all, and the
relative power of MNCs may even increase over time” (1987, 636). Even in the case of TNC-host country
relationships the current state of research is far from adequate; in the case of
bargaining between TNCs and home countries the literature is even sparser. Clearly, we have yet another major
research lacuna waiting to be filled. The need is for careful empirical study
of specific cases and for conceptualizations that move beyond the restrictive
assumptions of existing bargaining theory.
