The Analysis of Articles By John H. Dunning - Essay Example

John H. Dunning discussed the implications of the advent of alliance capitalism. He argued that due to the increasing porosity of the boundaries of firms, countries and markets, the paradigm of international production needs to consider the competitive advantages arising from the way firms organize their inter-firm transactions, the interdependencies of many product markets, and the widening of the portfolio of the assets of districts, regions and countries to embrace the external economics of inter-dependent activities.

The world economy has entered market-based capitalism. Competitive market forces do not ensure an optimum innovation-led growth path since technology is an endogenous variable. The resources and competencies of wealth-creating institutions are independent of each other; and that individual enterprises are best able to advance their economic objectives. He considered the implications of the changes now taking place in the global marketplace for our understanding of the determinants of multinational enterprise (MNE) activity; and especially the eclectic paradigm of international production.

The essential characteristic of both these systems is that the governance of production and transactions is determined by the relative costs and benefits of using markets and firms as alternative organizational modes. Business entities will buy their inputs at arm's-length prices from independent firms and households, and sell their outputs at arm's-lengthprices to independent purchasers. In practice, such a governance structure has rarely existed. These impurities are of two kinds. The first is structural market failure, which arises from the actions of participants in or outside the market to distort theconditions of demand or supply.

The second is endemic or natural marketfailure, where either, given the conditions of supply and demand, themarket qua market is unable to organize transactors in an optimal way. John Daniels stressed that change or improvement must come out of the research process for the research to be relevant. The timeframe can be open-ended. Dean Thomas P. Gerrity of the Wharton School summarized stated that business schools should be faithful to their intellectual foundations. Basic research must usually come before applied research, which must come before developmental research.

Some backlog must exist at each preceding stage if there is any hope of moving along the spectrum. But if thebacklog becomes too large, the situation is akin to holding excess inventory; if too small, there may be, in effect, an inventory outage. The ideal situation, therefore, is similar to a just-in-time inventorysystem. Japan, for example, traditionally put little effort in basicresearch and a great deal in the applied and developmental ends of theresearch continuum. The demonstration of Japan's position is supportednot only by anecdotal evidence but also by the low proportion ofscientists in relation to engineers who have either graduated fromJapanese institutions.

Third, positive incentive systems are necessary for the diffusionprocess to work successfully.