Transnational Corporations and International Production: Concepts, Theories and Effects

Citation

Roberts, J. (2007), "Transnational Corporations and International Production: Concepts, Theories and Effects", Critical Perspectives on International Business, Vol. 3 No. 2, pp. 186-188. https://doi.org/10.1108/17422040710744971

Professor Grazia Ietto‐Gillies is Emerita Professor of Applied Economics at London South Bank University and Visiting Professor at King's College London and the Open University, UK. Back in 1992, Polity Press published her book International Production: Trends, Theories, Effects, which provided the first thorough review of the economic theories of international production collected together in one volume. It was at the time a unique and valuable resource for research and teaching. Indeed, I used this book as a key text for a module on “The Economics of International Business” that I taught in the 1990s. When I had the pleasure of meeting Professor Ietto‐Gillies in 2001 I was very pleased to learn that she was considering producing an updated version.

Transnational Corporations and International Production: Concepts, Theories and Effects, published by Edward Elgar in 2005, is more than an update on the earlier book. Indeed, as Ietto‐Gillies claims, it differs from the 1992 book in several respects, not merely in the addition of “Transnational Corporations” (TNCs) to the title, but rather it “deals specifically with conceptual issues; the modern theories are dealt with in a more inclusive and exhaustive way; the effects of TNCs' activities are presented within a stronger and explicit framework; the whole book is presented in a more reader‐friendly mode” (p. xii).

Following an introductory chapter providing a brief overview of the book, Part I “Concepts” starts with Chapter 1 “The transnational corporations”, which begins by tracing the historical antecedents of the TNC to the transborder direct business operations of organisations such as the Medici bank in 15th century Europe, and the East India and the Hudson Bay Companies dating back to the 17th and 18th centuries. However, for Ietto‐Gillies what distinguishes TNCs from earlier forms of cross border business activity is direct production and generally direct business activity abroad. To engage is these direct activities the TNC establishes affiliates abroad and acquires the ownership and control of their assets. Issues of control are considered before the nature of foreign affiliates is briefly discusses. Chapter 1 ends with a concise overview of data to examine “Characteristics, patterns and trends” in TNC activity.

Chapter 2, “Foreign direct investment and other international business activities” provides a useful review of the various forms of international business that exist in the contemporary world, from international trade, international investments and related incomes to cross‐border collaborative agreements and the movement of people across frontiers. Ietto‐Gillies then goes on to clearly elaborate the differences between international portfolio and direct investment before discussing foreign direct investment (FDI) and international production which are the distinguishing features of TNCs. However, TNCs are often also involved in other types of business operations such as exports, franchising, licensing, inter‐firm partnerships and subcontracting, a valuable account of these is provided before trends and patterns of FDI are briefly reviewed.

Part II, “Pre‐WWII Approaches to International Investment”, begins with Chapter 3 on “Marxist approaches”. This includes a review of the writings on imperialism by John A. Hobson, Vladimir Ilich Lenin, Nikolai Bukharin and Rosa Luxemburg. Such contributions are rarely included in texts on international business because they were developed in response to 19th and early 20th century colonialism rather than as theories of TNCs and international production. Yet as Ietto‐Gillies notes, such approaches do provide a useful background to later theoretical developments. In Chapter 4, “Foreign investment within the neoclassical paradigm”, the theoretical developments of neo‐classical economists regarding international investment are considered including the work of Bertil Ohlin, Ragnar Nurkse, and Carl Inversen. Ietto‐Gillies argues that neoclassical theory of foreign investment, developed mainly as a by‐product of international trade theory, is unsuited to dealing with the activities of TNCs.

In Part III, “Modern Theories”, which is by far the most substantial section of the book, the chapters provide clear reviews and critical discussions of all the major theories of the TNC and its activities. The first contribution to the modern theory of international production is considered in Chapter 5 on “Hymer's seminal work”. Stephen Hymer's work represents a radical departure from neoclassical theories of international investment. The work of Raymond Vernon is the subject of Chapter 6, “The product life cycle and international production”. This is followed in Chapter 7, “Oligopolistic reaction and the geographical pattern of FDI”, by a focus on the work of Frederick T. Knickerbocker. Robert Z. Aliber's theory of direct investment based on currency areas is the focus of Chapter 8, “Currency areas and internationalization”. Contributions to the internalization theory of international production are reviewed in Chapter 9, “Internalization and the transnational corporation”, including its origins in the work of Ronald Coase and Oliver Williamson's development of transaction cost economics. The extension of this approach to the international firm by McManus and Buckley and Casson, Teece, Rugman, Hennart and Caves are then considered. Chapter 10, “Dunning's eclectic framework”, considers John Dunnings efforts to develop a general approach to understanding international production through the synthesis of three elements: ownership advantages, locational advantages and internalization advantages. Chapter 11, “Stages in the internationalization process: the Scandinavian School” reviews the contribution to the theory of the internationalization of the firm made by scholars associated with the Uppsala School in Sweden, namely Jan Johanson, Finn Wiedersheim‐Paul and Jan‐Erik Vahlne. In Chapter 12, “Technological accumulation and international activities”, John Cantwell's theory of international production based on innovation and technology is considered. “New trade theories and the activities of TNCs” is the subject of Chapter 13. Here the work of economists such as Helpman, Markusen, Krugman and Venables is reviewed, and the contribution of new trade theories to understandings of TNCs considered. Chapter 14 “Transnational monopoly capitalism” focuses on Keith Cowling and Roger Sugden's analysis of TNCs, which provides a view of the firm based on “control” and develops a theory of transnational capitalism based on strategic decisions. Part III ends with Chapter 15 on “Nation‐states and TNCs' strategic behaviour”, here the advantages of multinationality are considered, as well as regulatory regimes, labour strategies and fragmentation strategies as determinants of international production. This chapter draws on a number of contributions including Ietto‐Gillies' own work on fragmentation and integration.

Part IV “Effects” includes Chapter 16 on “Methodological issues” which aims to provide an analytical framework in relation to those general methodological issues encountered in the assessment of the effect of the activities of TNCs. This is followed by four chapters each dealing with the specific effects of TNC activities, namely performance, labour, trade, and finally balance of payments.

The book's audience is mainly final year undergraduate or postgraduate students. But it is also of value to lecturers and new researchers in the field wishing to familiarise themselves with the theoretical developments in the subject. The material is accessible with regular summaries provided. Moreover, each chapter ends with a summary box and a list of indicative further reading.

By extending the range of theoretical contributions considered this book is a welcome development of the earlier work. However, unlike in the 1992 book which included a chapter on trends, only very brief attention is devoted to trends in this new book. However, given the rapidly changing business environment, this type of material would date very quickly. By including the annually published World Investment Report among the list of indicative reading Ietto‐Gillies directs her readers to the latest data on TNCs and FDI.

Through its focus on transnational corporation and foreign direct investment this book takes an economic perspective on international business. Although, this could be seen as a weakness, it is, in fact, a strength of Ietto‐Gillies' book. This is because the book provides a thorough and authoritative review of the main economic and related contributions to understanding the activities and effects of transnational corporations: something that is lacking in texts which seek to incorporate multiple perspectives.