International Business: Bringing back History into International Business - Essay Example

International business: bringing back history into international business Student’s name: Institution’s name: BRINGING BACK HISTORY INTO INTERNATIONAL BUSSINESS: International Business IB is referred as the process of carrying business transactions such us importing or exporting, goods and services across National borders. In this study we aim to prove that history is very relevant to international business activities. Scholars of IB recognize this fact and have taken their time to study why history matters. Quite a number of articles mention about history but none explicitly devote to explaining its importance to the type of trade that is the international business (Geoffrey & Tarun 2006). The first generation of scholars paid more attention to historical data. Raymond Vernon was one of the pioneers; he came up with his own product cycle model which provided an evolutionary explanation of the wave of U.S manufacturing investment in postwar Europe. Until today his invention remains the largest longitudinal source of data on the evolution of historical firms (Geoffrey & Tarun 2006). Vernon produced a group of intellectual students whose early works contained a strong historical dimension they were John Stopford, Larry Frunko and Lou Wells. He was further familiar with Mira Wilkins the renowned business historian who was the first to come up with historical structures of the multinational enterprise. John Dunning’s first major book examined US multinational investment in Great Britain which traced the evolution of firms back to the 19th century where some of the key concepts of the Ownership Location International OLI paradigm also referred as eclectic paradigm were first developed in that book as a result of empirical research and historical observation. He was the first to publish the historical estimates of the size of world Foreign Direct Investment FDI in 1914 & 1938 which showed its enormous importance in the world economy until to date it is still used (Gaddis, 2002). Other scholars have come later to improve and progress on the early achievements some being like Mark Casson & Jean Francois Hennart who revealed the new transaction costs theory that could be used to explain historical patterns of horizontal and vertical integration in natural resource & manufacturing industries as well the organization forms adopted historically to look for entrepreneurial opportunities across borders (Wilkins 2004). The other “new school” scholar is Kogut who of late engaged in both qualitative & quantitative historical work in a range of studies including the international diffusion of management principles, country competitiveness and the impact of different economic systems on corporate innovation. O’sullavian around the same time brought detailed historical research to bear in her major study of the impact of corporate governance on innovation and economic development. Cantwell earlier than them used patent data to map historical shifts in innovation between countries and industries (Beatty 2003). In spite of all the findings done by the scholars the systematic investigation of historical evidence has disappeared from the research agenda of the most IB scholars today (Geoffrey & Tarun 2006). Professional & methodology have become major hindrances to further interact with historical evidence. It all started with the growing pressure for a standardized social science methodology which did not encourage deeper engagement with the frequent patchy data available historically. History has been grouped among the non- rigorous in the qualitative research but I believe it is not true. Analysis will be given to prove history is indeed rigorous and applies in today’s International Business (Fleet & Wren 2005). There are four categories of reasons that show history can help make things clear about conceptual issues of interest to the present IB scholars (Wilkins 2004). It provides a “base case” where historical variation is at least as good as today’s cross- sectional variation in sharing clearly conceptual issues. Secondly history avoids the false though seemingly genuine labeling of some phenomenon as ‘new’ thus understanding it as not being correct rather based on wrong information. Thirdly it allows us to move beyond the usual recognized importance of issues of path dependence. Fourthly history allows room for expansion of domain of inquiry of IB, meaning some issue might not be seem unaddressable now but only in the long run (Fleet & Wren 2005).. There are arguments supporting the reasons as well as give evidence that history is fundamental in International Business. The first argument is about sources of variation that is history as a source of time-series variation in the study of business groups (Geoffrey & Tarun 2006). It is obvious that business groups when independently enter in the market they diversify with time due to their economic & social inter-connected ties that one sees in all emerging markets. Business groups are important than just estimating by examining contemporary settings. An example of Harrisons & Crosfield, a Liverpool- based partnership engaged in tea trading where they would by it in India & China then sell in Britain (Wilkins 2004). In the 1890s the firm opened branches outside Britain to other parts of the world where the established branches would trade in tea but soon acquired a wider range of import & export business thus began to act as agents for insurance & shipping companies. 1899 onwards the tea trading led to purchasing of tea estates in South Asia while after 1903 the firm further diversified into rubber plantations (Geoffrey & Tarun 2006). Even though there is prosperity in diversification, they have many similarities with the emerging market business groups. Harrisons & Crosfield firm must have faced some systematic influences such as strong internalization incentives arising from asset specificity, uncertainty, frequency of transactions and opportunism. In turn brings information & contracting problems that underlie transaction costs (Gaddis, 2002). It is revealed through certain a study of analysts’ behavior around the world using contemporary data, that it is not easy to acquire access to accurate & unbiased information on corporate activity around the world. Both historical and cross-sectional variation yield similar patterns that is market failures & imperfections in an array of their respective contexts resulting in certain patterns regarding the structure & effects of business groups. The argument’s intention is to present a ‘base case’ as it was showing historical variation is as good as cross- sectional variation. It also suggests that history can allow us to go where contemporary cross-sectional variation sources cannot (Fleet & Wren 2005). Second argument is on how dynamics matter that is things changes. Environments change most of the time radically. Political, social and economical environments affect the shaping of the firm’s strategies and organizations. Due the changes in the environments historical research has been done and resulted to certain types of business enterprises that have disappeared overtime, some have appeared and some have disappeared & reappeared later (Gaddis, 2002). The IB scholar have find it challenging to use the historical evidence mentioned to understand the correlation between the organization of firms & their environment change considering whether & how variables are affecting them. It is assumed that those business firms that start to internationally operate globally whereby it happens rapidly without starting at the local level are considered as ‘new’ ones or ‘born global’ firms (Fleet & Wren 2005). They existed back in 19th century where in 1914 slowed down and around 1930 stopped almost entirely. Today they seem like there emerging but should be noted that this is not a ‘new’ contemporary phenomena but already existed before in history. Some other firms disappeared in the past such as the government –charted corporation example the European East India companies of the 17th & 18th centuries. Another that almost went extinct was the giant international cartel that seem to be everywhere in the early 20th century. After the world war II happened the cartels got very affected that they almost got finished although they saved themselves because of the numerous services they offered that being air traffic and communications also providing diamond, gold and minerals (Geoffrey & Tarun 2006). To the IB researchers it is very important to understand the dynamics & performance of the firm types. ‘Born Global’ firms are yet to be known when their similar forms may reappear. Third argument refers to illuminating path dependence that is the roots of penrosian resources. Penrose is acknowledged as a major contributor of resource based and path-dependent theories of the firm (Fleet & Wren 2005). She says in the theory that growth of a firm is dependent on collection of knowledge in the context of a purposeful firm. The knowledge is collected since the history of the firm started whereby it helps determine the distinctive competence of the firm. In order to understand the origin of Penrosian resources the following examples are considered to elaborate. An example of two firms Swire and Jardine is given whereby both have same backgrounds as British traders in the Far East in the 19th century (Geoffrey & Tarun 2006). Jardine acted as a venture capitalist appearing more entrepreneurial from the late 19th century to the present while Swire avoided financial activity and took the route of moving in an evolutionary fashion from shipping to airlines. They made early powerful choices that conditioned their evolution still as their strategies emerged early in their corporate histories (Wilkins 2004). In short the historical conditions of the firms’ strategy are necessary in understanding fundamental decisions about how to run a firm were made, to identify the reasons why the firm will find it difficult to change these decisions. Surely the past is alive and ‘breathing’ in present today and may shape the emerging future or tomorrow (Gaddis, 2002). The other example is of the Raison d’être of multinationals (Fleet & Wren 2005). It is said that multinationals are more efficient than are cross-border arm’s length transactions when It comes to knowledge transfer. Reasons being multinationals seem to exchange information within the firm regarding patentable know-how more than compared to arm’s length actors. On the other hand, some IB theorist say that multinationals are not that well equipped to contribute to the inter-national diffusion of knowledge transfers rather they have been overestimated (Geoffrey & Tarun 2006). It is clear that firms will not automatically get better at cross border knowledge transfer even after long period of time. The roots of Penrosian resources sometimes stretch back over a time horizon that can only be uncovered by historical analysis. Fourth argument is on expanding the domain of inquiry that is Foreign Development Investment FDI and development in the really long- run. There is a growing inequality in the world incomes today and policy makers are placing heavy emphasis on the role of FDI in stimulating growth (Gaddis, 2002). As a result International Business IB researchers have restricted methodologies and most ranked contributory factor to the problem is the disinclination to engage with multinationals economic and political impact which is accumulated historical evidence (Geoffrey & Tarun 2006). FDI has benefits whereby the historical evidence is incorporated into debates about the long- run effects of countries whereby it opens up for foreign investment. An example of how China and India shed light on how FDI affected development in their regions while the British forcefully initiated them to accept it happened in the mid 1800s. China embraced FDI in exchange of abandoning the indigenous private entrepreneur while India chose the mirror image option. India in this case was smart enough to build their economy using the FDI and gave their very own chances to their very own to nurture indigenous entrepreneurship and embrace private property right (Fleet & Wren 2005). Historical variation sets a foundation which can be used to develop and test theories & ideas. History gives us way to go back in time to find historical examples of modern phenomena that might be mistaken for being ‘new’ and the roots of Penrosian resources are uncovered. On ‘base case’ concept historical variation is a suitable complement of contemporary cross-sectional variation (Geoffrey & Tarun 2006). Through history it allows us to examine long-run effects of phenomena of interest. It has been warned that history evidence should not be underestimated in addressing challenges to inform International Business. International Business scholars should be sensitive and aware of the nature of historical evidence in order to avoid naïve mistakes. Techniques such as Ragin’s Boolean algebra, Abbot’s string analyses and O’Rourke and Williamson’s computational modes est (Fleet & Wren 2005). can allow one to rigorously extract information from historical data. It is unfortunate current IB scholars are not trained to use rigorous methods suited to qualitative and small-sample data. It is recommended that the costs and benefits of historical analysis in International Business should be carefully weighed. Currently costs are overly emphasized while benefits are largely obscured thus calling for scholarly scrutiny (Gaddis, 2002). References Beatty E, (2003) Approaches to technology transfer in History and the Case of Nineteenth Century Mexico, Comparative Technology Transfer and Society, 1, 2, pp. 167-200; Fleet V, and Wren, D. (2005) 'Teaching history in business schools: 1982-2003', Academy of Management Learning and Education 4(1): 44-56. Geoffrey J. and Tarun K. (2006) Bringing history (back) into international business: Journal of international business studies, vol. 37, no. 4, July, pp.453-468, [Online], Available: http://www.jstor.org/page/info/about/policies/terms.jsp.html [July. 2006] Gaddis, J. ( 2002) The Landscapeo f History:H ow HistoriansM ap the Past, Oxford University Press: Oxford. Wilkins, M. (2004) The History of Foreign Investment in the United States 1914-1945, Harvard University Press: Cambridge, MA. Read More