Beyond Symmetry: State Sovereignty in a Networked Global Economy

Stephen J. Kobrin

The William H. Wurster Professor of Multinational Management Wharton School, University of Pennsylvania 

"Geographical space as a source of explanation affects all historical realities, all spatially defined phenomena; states, societies, cultures and economies"1

 "The world-wide international economy is one in which the principal entities are nation states, and involves the process of the growing interconnection between national economies...[it] is an aggregate of nationally-located functions." 4 Mackinder spoke as what Paul Krugman 5 calls the "first global economy" was approaching its zenith. The period from 1870 to the outbreak of World War I has been called "the high water mark" of an open, integrated international economy and the "golden age" of international economic integration. 6 The levels of international trade and investment achieved before 1914--both relatively and absolutely--were striking and only recently surpassed; in 1995 the Vice-Chairman of the Federal Reserve observed that "...a great deal of what we have been witnessing since 1950 is simply getting the world back to the level of integration that had been achieved in 1914." 7 

 That being said, there is no question that the late twentieth century world economy, the "second global economy" differs significantly from the first. It is broader in terms of the number of national markets included (albeit to varying degrees) as constituent units and deeper in terms of the density of interaction, of flows of trade and investment. Furthermore, the dominant mode of organization of international economic transactions has changed significantly since Mackinder's time from the market (trade and portfolio investment) to hierarchy or the internationalization of production through the MNE. 8 By the early 1990s 37,000 Transnational Corporations with world-wide sales of about $5.5 trillion controlled about one-third of the world's private sector productive assets and the United Nations Programme on Transnationals could conclude that "...international production has become a central structural characteristic of the world economy."9 

 The question remains, however, whether globalization defines a change in degree or kind, an extension of the modern international world economy into somewhat unfamiliar territory or a systemic transformation which defines new structures and new modes of functioning. As Peter Dicken notes, while there is general agreement that major changes in the scope and organization of international economic activities are taking place, there is considerable disagreement over their interpretation. 10 Does globalization (and there is little agreement about its meaning) imply a systemic transformation of the world economy--a qualitative evolution beyond the international system--or does it merely represent a quantitative extension in breath and depth accompanied by an evolution of mode of organization? 

 Economic data alone cannot provide an answer regardless of whether the level or rates of growth of trade and investment or interdependence are greater in 1995 than 1914; as Charles-Albert Michalet notes, quantitative arguments cannot demonstrate a change in quality. 11 Furthermore, while the internationalization of production is clearly a reality, MNEs are still seen by many observers as national firms with a clear center which engage in international operations. 

 In this paper I argue that globalization does have substantive meaning, that we are in the midst of a qualitative transformation of the world economy. I base my argument on three related propositions. First, dramatic increases in the scale of technology in many industries--its cost, risk and complexity--have rendered even the largest national markets too small to be meaningful economic units; markets are fused transnationally rather than linked across borders. National markets are no longer the "principal entities" of the world economy. Second, the explosion of transnational strategic alliances is a manifestation of a basic change in the mode of organization of international economic transactions from markets and/or hierarchies (i.e., trade and MNEs) to a post-modern networked global economy. Given their inherent properties, networks represent a clear break with previous forms of international economic organization. Last, and related to the second point, the emerging global economy is integrated through information systems and information technology rather than hierarchical organizational structures. 

 My primary interest in this paper is the impact of globalization of the world economy--defined in terms of scale, mode of organization and means of integration--on states and the state system. I argue that globalization compromises the basic symmetry of political and economic organization--of nation states and national markets--characteristic of the twentieth century. An asymmetry of scope is emerging between political and economic geography as markets have expanded in space well beyond the extent of national territories. There is also an emerging asymmetry in mode of organization as politics remains grounded in the modern geographically based system of territorial sovereignty while the world economy is increasingly organized in terms of post-modern electronic networks. Geographic space is losing meaning as a mode of organization of markets. 

 In the next section of this paper I will deal with the three components of globalization in some considerable detail: the scale of technology; networks as a mode of economic organization; and information technology as a means of international integration (the last two are difficult to separate analytically). I then turn to a summary of the emerging networked global economy and its implications. Next, I will explore the likely impacts of globalization on states and the state system. I will conclude with some thoughts about likely futures. 

GLOBALIZATION

SCALE OF TECHNOLOGY

 Why should markets spread geographically beyond a local area or region? The simplest explanation, and the oldest, is that the supply of some goods is found in one locale and their demand in another: e.g., precious metals, spices and petroleum. The geographic expansion of markets also allows for a more productive division of labor: gains from specialization, exploitation of differences in resource endowments, and the adaptation of skills. 13 Last, spreading fixed capital costs over a larger market area can reduce unit costs and produce gains from scale. 14 With the exception of resource seeking industries such as petroleum, the geographic expansion of markets from local to national and international has been efficiency driven, exploiting gains from specialization, factor cost differences and scale. 

 My concern in this paper is with transnationally integrated industries where internationalization is driven by scale rather than specialization; where a process that Kenichi Ohmae characterizes as a dramatic shift from a variable to a fixed cost environment has occurred. 15 He notes that in a number of critical industries, the scale of production and/or technology has now increased to the point where fixed costs must be amortized over a larger market base than is available in even the largest national markets and this has led to globalization. 

 Thus, in industries such as automobiles and construction equipment, international expansion is necessary in all but the largest markets to allow production runs which are large enough to fully exploit scale economies. In others such as semiconductors, international markets are required to fully amortize the enormous research and development expenses associated with constantly evolving process and product technology. 

 There are only a very limited number of industries, however, in which the fixed costs of manufacture are the motivation for international market integration. In fact, in a previous study, I found that technological intensity was the primary determinant of the transnational integration of U.S. firms and that proxies for manufacturing scale were not significant. 16 At this point, it is the scale of technology--the cost and risk of technological research and development--rather than the need for larger production runs that is primary motivation for the transnational integration of markets. 

 While the point is difficult to "prove," there are only a very limited number of industries where plant economies of scale require production volumes mandating a national market in a country as large as the United States, much less an international market. In a well known study, F.M. Scherer concluded that in only a very small minority of industries is concentration approaching oligopoly at the national level justified by production scale economies in the U.S. market. 17 Furthermore, new approaches such as computer-aided manufacture and flexible production techniques may actually reduce the scale of efficient production in industries such as automobiles. 

 On the other hand, there is no question that the cost, risk, and pace of technological development have increased significantly over the past four decades. 18 For example, constant dollar research and development expenditures for U.S. industry increased almost five and one-half fold from 1953 to 1990; they increased 150 percent in 1980-1990 alone. Research and development spending as a percentage of sales for U.S. industry doubled in the sixteen years between 1976 and 1992: from 1.9 to 3.8 percent. In pharmaceuticals, R&D spending as a percentage of sales rose by a factor of 2.7 between 1975 and 1993. 19 

 As the extent of a company's research and development effort is mandated by the technology and competition rather than firm size, the rapid growth of spending on technology requires a corresponding expansion of sales--and ultimately, internationalization--if profitability is to be maintained. 20 However, at this point in the mid-1990s, it appears that the global itegration of markets by a single firm is no longer sufficient to offset the costs and risks of technological development in a number of strategic industries. The last decade and one half has seen an exponential increase in the number of collaborative agreements or strategic alliances between leading multinationals from the major industrial countries. 21 

STRATEGIC ALLIANCES

 Although comprehensive data on alliances does not exist, virtually every attempt at data gathering reveals their dramatic growth over the last decade; one study estimated a 31% compound annual growth rate for high technology alliances over the 1980s. 22 The vast majority of alliances are triad based; most studies find that over 90% of all agreements are between firms from North America, Europe and Japan. 23 Alliances tend to be concentrated in a limited number of industries: typically automobiles and high technology sectors such as pharmaceuticals, biotechnology, aerospace, information technology, and new materials.24 

 The motivations for strategic alliances are complex and varied. One is clearly market access: the need to compete in all major markets--or at least in all the legs of the triad simultaneously. A second reflects the continued importance of national boundaries: government preferences for "local" firms in industries such as aerospace where an alliance with a national or regional firm may be a necessary requisite of sales to either the military or a national airline. Third, one can never dismiss an interest in making competition less onerous as a motive for collaboration. 25 

 The most important motivation for alliance formation, however, is the increasing cost, risk and complexity of technology. 26 For example, a recent U.S. Government report concluded that developments encouraging the formation of alliances include: technological leveling, convergence in product markets, slow growth, excess capacity, shorter life cycles, escalating R&D costs, and increasingly complex product and process technologies. Even the world's largest and most international firms can no longer "bet the company" on the next generation of semiconductors or jumbo jets; in many industries the cost of a competitive R&D budget has risen to the point where it is no longer possible to "go it alone." 27 An example is provided by the alliance between IBM, Siemens and Toshiba to develop a 256 megabyte chip; their motivation is to share an estimated $1 billion in development costs and the large associated risks.28 

 Perhaps more important, technologies have become so complicated and rapidly changing that even industry leaders cannot master them internally. An analysis of over four thousand strategic alliances where innovation or an exchange of technology represented at least part of the agreement concluded that "...cooperation has to be understood in the light of attempts made by companies to cope with the complexity and the interrelatedness of different fields of technology and their efforts to gain time and reduce uncertainty in joint undertakings during a period of technological uncertainty. Other motives appear to play a very limited role"29 

 The emergence and rapid growth of transnational collaboration has two important implications. 30 The scale of technology--its cost and risk--have grown to the point where the geographic expansion of markets is not longer sufficient to offset it; alliances among large firms operating globally are required. Furthermore, the motive for transnational collaboration is not scale alone; rather it is a combination of scale (in terms of cost and risk) and specialization. Modern technologies in industries such as aerospace, semiconductors and pharmaceuticals increasingly require both the global extension of markets and the division of labor among two or more large organizations. 

 The minimal size of markets needed to support technological development in many industries at this point is larger than the largest national markets; international integration is a requisite of a competitive level of R&D expenditures. In the emerging global eocnomy, national markets are fused transnationally rather than linked through cross-border transactions. 

 However, single firm globalization does not appear to be sufficient in some cases as even major multinationals must cooperate to deal with the cost, risk and complexity of technology. Alliances represent a transformation of the mode of organization of international economic transactions from hierarchically structured MNEs to networked forms of organization. It is to that subject that I now turn. 

NETWORK FORMS OF ORGANIZATION

 Trade involves production by national firms in national markets which are linked by "arms length" spot exchanges, typically of raw materials or commodities and finished goods or portfolio investment. MNEs internationalize production through internalization: the firm's administrative hierarchy becomes the primary mode of organization of economic transactions. The venue of production is the integrated international firm and the exchange of intermediate goods--as well as intra-industry and intra-firm trade--becomes increasingly important. 

 Strategic alliances entail some degree of disintegration of production and the replacement of transnational hierarchies by global networks--a cooperative and reciprocal organization of economic transactions. The basic unit and venue of production become ambiguous; indeed there is a real question about the appropriateness of these terms. As will be discussed more extensively below, the most important flows across transnational networks are intangible: knowledge and information. 

 Although the periods overlap and are approximate, trade was the primary mode of integration of the international economy from the late nineteenth century through the first two post-World War II decades, the internationalization of production through MNEs from the mid 1960s until the mid 1980s, and alliances or networked integration emerged in the late 1980s. Two caveats are important. First, I am not proposing a "stage theory" of international integration, rather I am concerned with changes in the dominant mode over time. Second, reality is complex and messy and there are large sectors of every economy where production has remained entirely national and "networks" are confined to television and job seekers. 

 Oliver Williamson includes hybrids or networks--"various forms of long-term contracting, reciprocal trading, regulation, franchising and the like"--with markets and hierarchies as generic forms of economic organization. He locates hybrids between markets and hierarchies, the polar modes of economic organization. Similarly, Wayne Baker argues that most real organization forms fall between market and hierarchy and suggests "...an intermediate form of interface, a hybrid' of relationship and transaction strategies."31 

 Although there is general agreement that networks are a basic form of economic organization, a number of authors question whether "markets, hierarchies and networks are discrete organizational alternatives employing distinctive control mechanisms or plural forms on a continuum employing, price, authority and trust simultaneously." 32 In a very influential article, Walter Powell argues against portraying economic exchange as a continuum with markets and hierarchies at the poles and hybrids in between. "Network forms of organization--typified by reciprocal patterns of communication and exchange--represent a viable pattern of economic organization," a distinctive form of coordinating economic activity.33 

 Similarly, a recent OECD report 34 concludes that networks are a distinctive form of economic organization and the "notion of the continuum fails to capture the complex realities of know-how trading and knowledge exchange in innovation. Networks...represent a type of arrangement with its own specific distinctive features which henceforth must be considered in its own right" (emphasis original). The critical point is that networks are different from both markets and hierarchies and not simply an in-between point on a continuum. 

Properties of Networks

 Powell contrasts networks and hierarchies: 

"Networks are lighter on their feet' than hierarchies. In network modes of resource allocation, transactions occur neither through discrete exchanges nor by administrative fiat, but through networks of individuals engaged in reciprocal, preferential, mutually supportive actions...(The) basic assumption of network relationships is that one party is dependent on resources controlled by another, and that there are gains to be had by the pooling of resources."37

 Second, the essence of a network is integration across formal boundaries; vertical, horizontal and spatial. It becomes difficult if not impossible to establish organizational boundaries, to define where one firms stops and another begins. At best borders are blurred and ambiguous; more likely, they become conceptually irrelevant. 41 Third, the concept of a center is alien to networks as amorphous, relational entities. 

 Last, relational considerations are more important than individual attributes in determining organizational power and outcomes. "From a network perspective, variations in the actions of actors (and the success or failure of these actions) can be better explained by knowing the positions of actors relative to others in various networks of relationships, than by knowing how their attributes differ from one another."42 Summing experimental results, Karen Cook et al conclude that "...power is a function of position in the network, even when the position occupants are ignorant of the actual network structure and their own position in it."43 

 Networks have advantages over hierarchies and markets in terms of flexibility, transmission of tacit knowledge, technological innovation, response speed and adaptability to change in uncertain environments. They provide some of the advantages of smaller firms in facilitating innovation while still allowing for the exploitation of economies of scale and cooperation.44 

Disintegration or Post-Fordism

 Organization of economic transactions through networks has entailed the replacement of bureaucratic, vertically integrated, hierarchically structured "modern" or "Fordist" firms with "post-modern," "post-Fordist," flexible systems of accumulation. As John Dunning observes this involves "...the disaggregation of the value chain...and the increasing importance of networks in knowledge sharing and joint development...", the replacement of hierarchical enterprise by alliance enterprise or alliance capitalism. 46 It entails the disintegration of previously vertically integrated organizations and the reintegration of pieces of organizations--research labs, sales organizations, manufacturing plants, suppliers--through intra- and inter-firm networks. 

 Miles and Snow view vertical desegregation as a primary characteristic of "dynamic networks" which entail increased use of joint ventures, subcontracting, licensing and "spinning off" of established companies. They anticipate that "...key business units...will be autonomous building blocks to be assembled, reassembled, and redeployed within and across organizational and national boundaries as product or service life cycles demand."47 

 One important aspect of globalization then, is the emergence of networks as a mode of organization of international economic transactions, coexisting with, but gradually replacing markets and hierarchies. This entails "disintegration" or "vertical disaggregation" of large scale--often vertically--integrated enterprise and reintegration through the development of transnational networks, primarily in the form of strategic alliances. Although outsourcing, deintegration, "hollowing out" and the like are controversial and their extent uncertain, there is no question that the phenomenon is real.48 

 Geographically dispersed networks or alliances are often reintegrated through information systems and information technology. Than topic is material to my argument and I now turn further discussion. 

THE MEANS OF INTEGRATION

 There is widespread agreement that electronic information systems are central to alliances. Albert Bressand, Catherine Distler and Kalypso Nicolaidis, for example, argue that networks are a manifestation of the blurring of the boundary between production and transaction, between the factory and the marketplace. They then note that "As production and transactions merge into more complex, information-intensive integration processes, networks, especially electronic networks--have become central to wealth creation." Clarence Brown makes a similar point; as intra-firm integration increasingly depends on electronic information technologies, modern manufacturing enterprise has more in common with information service firms than traditional manufacturing enterprise. He notes that this applies to inter-firm links--to subcontractors and customers--as well and that these linkages are rapidly becoming global in scope.51 

 It is directly relevant that in 1995 Fortune combined the Industrial and Service "500," arguing that the new economy has virtually obliterated the distinction between industrial and service business. They note the "dematerialization" of manufacturing as a result of the digital revolution, citing one source arguing that three-fourths of the value added in manufacturing is now information.52 

 Networks, and especially transnational networks, are creatures of the information age; postmodern organizations held together by information technology. "The threads of the global webb are computers, facsimile machines, high-resolution monitors, and modems..."53 

A NETWORKED GLOBAL ECONOMY

 I argue that the emerging global economy differs in kind from the international economy which preceded it in two critical and inter-related respects. First, in many industries the scale of technology--its cost, risk and complexity--has driven the limits of markets well beyond national borders. The national economic space is now too small to allow for competitive technological development. Second, in many of these same industries networks are replacing hierarchies--alliances are replacing MNEs--as the most important mode of organization of international economic transactions. Furthermore, these alliances increasingly tend to be integrated through information systems and electronic networks rather than ownership and organizational hierarchies. I believe that the net effect of these two related changes is a structural transformation of the world economy. 

 In the nineteenth century, all production took place in discrete national markets which were linked through cross-border trade and portfolio investment. Although levels of interdependence were quite high and policy autonomy could be severely constrained, there was no question that the national market was the basic unit in the international system. As noted above, the very use of the term international implies the existence of meaningful national political and economic units. 

 In contrast, in the late twentieth century the scale of technology is fusing national markets into a larger whole; their meaning as discrete units in a larger world economy is disappearing. Thus Dicken contrasts the international or cross-boundary economy with a globalization which implies "a degree of purpositive functional integration among geographically dispersed activities." Hirst and Thompson define a global system in terms of national economies being subsumed and rearticulated into the system, of the international system becoming "autonimized, as markets and production become truly global."54 

 National borders are not irrelevant to the emerging global system. Nation states have differing interests and objectives and attempt to enforce their will on firms and other governments; national boundaries still "create significant differentials on the global economic surface." 55 Rather, as Manuel Castells observes, the national economy is no longer the unit of economic accounting or the frame of reference for economic strategies.56 

 In a sense, the fusion of national markets represents a return to an earlier stage in the evolution of the capitalist world economy. E. J. Hobsbawm argues that in contrast to the past three hundred years when production was local and the world economy was based on territorially defined national economies, the current phase of development is marked by the reemergence of transnational elements. "The national economy is no longer the building block of the world economy, but has a rival in the immediately global market which can be supplied directly by firms capable of organizing their production and distribution in principle without reference to state boundaries..."57 

 As will be discussed in detail below, the emergence of alliances, a networked form of organization of international economic transactions, may be of more profound importance poltiically than the scale of technology. It is important to conceive of a networked world economy in terms of a complex web of relationships rather than a series of dyadic or triadic cooperative arrangements between firms. A large multinational firm may well be involved in tens if not hundreds of alliances linking various parts of its organization with others. Dicken characterizes these webs as multilateral rather than bilateral and polygamous rather than monogamous.58 

 The modern international economic system of cross-border transactions between discrete national markets is being replaced by a global, post-modern mode of organization where national markets are increasingly less meaningful, networks or alliances are replacing integrated hierarchies or MNEs and the very concept of geographically based economic activity may not even be relevant. It is to that topic that I now turn. 

IMPACT ON STATES AND THE STATE SYSTEM

 Formal sovereignty has internal and external dimensions. The former entails legitimation for the state vis-a-vis competing domestic claimants, the latter for the modern interstate system itself. 60 Internal sovereignty entails the state in the Weberian sense as having an effective monopoly of force over a territory and population 61, the "...undisputed right to determine the framework of rules, regulations and policies within a given territory and to govern accordingly."62 

 External sovereignty involves the basic principles of bounded territoriality and mutual respect or recognition on which the modern interstate order is based. External sovereignty entails both mutually exclusive territoriality, the division of "...its subject collectivity into territorially defined, fixed, and mutually exclusive enclaves of legitimate dominion," 63 and mutual recognition that each state represents a specific society within an exclusive domain.64 

 Claims that globalization results in the erosion of sovereignty typically refer to constraints on autonomy, effectiveness or capacity rather than formal sovereignty, either internal or external. In examining the impact of globalization on states and the state system I ask two sets of questions. First, are the constraints that globalization imposes on state autonomy qualitatively different from those resulting from the interdependence associated with an international or cross-border world economy? If so, at what point do constraints on state autonomy compromise formal internal sovereignty? Second, will the emergence of an electronically networked global economy compromise external sovereignty; the idea of territoriality itself as a mode of economic, and possibly political organization? 

GLOBALIZATION AND AUTONOMY

 Neither international transactions such as trade or investment nor interdependence are new. Furthermore, state autonomy has never been absolute and decision making power in the economic sphere, both domestically and internationally, has always been constrained by cross-border economic transactions. Mercantilism, for example, can be seen as an attempt to increase state power--i.e., reduce the autonomy of others--by manipulating international economic transactions. 

 What is new this time around? Even if one grants that flows of trade and investment are greater in both absolute and relative terms in 1995 than in 1895 and there is "more" interdependence--however measured--that is still only a quantitative difference. Why should globalization have a qualitatively different impact on state autonomy? 

 The answer is that the nature of interdependence is qualitatively different in the world economy of 1995. First, the scale of technology in many strategic industries presents states with a discrete decision rather than a marginal trade off: participate in the global economy or forego technological development. In strategic industries where markets are fused transnationally autonomy or independence is not a option. Second, properties of networks such as the fact that they are inherently relational, lack a center and are border violating result in a transformation of the nature of international economic integration and interdependence. Both impose limits on state autonomy. 

 Participation in the world economy presents states with a trade-off between efficiency and a loss of autonomy, and in many instances governments have chosen to preserve the latter. Even in an extreme case such as an asymmetrical dependence on imported petroleum, the question often involves the cost of substitutes and conservation. Similarly, import substitution policies such as forcing local production of automobiles presented states with a clear tradeoff between efficiency and autonomy in the sense of a more developed industrial capability. Policy makers were willing to tradeoff higher local costs for automobiles (reduced efficiency) for the promise of industrial development and increased future autonomy. 

 That choice is not available in industries such as telecommunications, pharmaceuticals, semiconductors, and aerospace where transnational markets are an absolute requisite of continued technological development. Given the cost, risk and complexity of technology in these strategic industries governments face a discrete zero-one decision rather than a continuous, marginal trade-off. They must remain a part of the global network or forego the technology--the next generation of microprocessors or telecommunications systems--entirely. Accepting higher costs (e.g., lower efficiency) for some degree of autonomy is not an option; mutual dependence is inevitable and breaking the bonds implies a degree of withdrawal that few states could tolerate. 

 At a minimum states must allow their firms to participate in global markets. At this point in many high technology industries that implies participating through alliances and cooperative efforts. The question remains whether governments have the option of participating in the global economy while closing their borders to participation by others. As the pressures on Japan in the mid-1990s indicate, that option may not be viable in the long run. 

 The emergence of networks as an increasingly important mode of organization of international economic transactions also impacts state autonomy directly. As Zacher notes, "[states] are becoming increasingly enmeshed in a network of interdependencies and regulatory and/or collaborative arrangement from which exit is generally not a feasible option" (emphasis original). 67 

 Although there may be some choice in terms of which nodes of the network one connects to, there are no alternatives to some form of interconnectedness or integration. As noted above, networks are inherently cooperative or relational organizational forms. In a very real sense the concept of independence or autonomy loses meaning in the context of networked relationships; as noted above power is positional or relational. Autonomy is definitionally compromised and states must learn to compete through cooperation. 

 Most MNEs are national firms with international operations; they have a clear center and through that center are responsive to the home country government. The concept of a center, however, is alien to a relational network. When development and production take place in transnational alliances, for example, questions of the nationality of a product, a technology, or even the "firm" itself become increasingly irrelevant. If the I.B.M.-Toshiba-Siemens alliance successfully develops and produces the next generation of semiconductors will they be American, Japanese or German products? Which government gets to control diffusion of the technology? Although one could look to see if development is taking place in one of the countries at he expense of the other two or if one of the partners dominates, at the end of the day the concept simply does not apply.68 

 Thus, a report of the Office of Technology Assessment of the U.S. Congress concludes "International strategic alliances are also blurring the national identity of U.S.-based MNEs, further weakening the link between their activities and the competitiveness of the U.S. economy as a whole. Similarly, Reich argues that as a result of the emergence of the "Global Web" there "is coming to be no such organization as an American' (or British or French or Japanese or West German) corporation..."69 

 In an emerging, electronically networked global economy the borders of national markets, and thus the distinction between the domestic and international economy or domestic and international policy becomes very problematic. In Being Digital, Nicholas Negroponte 70 makes a nice distinction between trade in atoms and trade in bits. Atoms take the form of tangible material which must cross borders physically and can be controlled by political authorities. Bits, on the other hand, are transmitted electronically, typically by satellite, and the borders of national markets become virtually meaningless. If software, for example, is imported in the form of disks and manuals, it is subject to border controls, tariffs and the like. However, if it is transmitted digitally--downloaded from the Internet, for example--any sort of control becomes problematic. 

 Last, network forms of organization can compromise a states ability to implement policy, to enforce its will, externally. The United States, for example, has a long history of using its multinational firms to implement policy extraterritorially. The best example is enforcement of export sanctions, such as the Trading with the Enemy Act which barred commercial relations with declared "enemies," through subsidiaries of American multinationals. 71 The U.S. Government enforced sanctions on the MNEs headquarters located within American territorial jurisdiction and depended on the hierarchical structure of the firm, headquarters' control over subsidiaries, for its extraterritorial reach. The ability to implement policy externally is clearly compromised if hierarchically structured MNEs are replaced by networked alliances which lack clear centers and clear borders. 

 State autonomy, independent decision making power, is clearly compromised severely by the fusion of markets and the emergence of an electronically networked global economy. Indeed, in the strategic industries of concern here, national markets have lost meaning as economic constructs. The question remains, however, at what point do constraints on state autonomy constrain formal sovereignty? As Geoffrey Goodwin puts it, "...whether the capacity of states to order their own internal affairs and to conduct their own external policies has been so undermined or eroded as to make the concept of state sovereignty increasingly irrelevant in practice despite its persistence in legal and diplomatic convention." 72 Although this question is not immediately answerable, it is none the less, critically important. 

EXTERNAL SOVEREIGNTY

"Modern states...are all territorial in that they explicitly claim, and are based on, particular geographic territories, as distinct from merely occupying geographic space which is true of all social organizations...territory is typically continuous and totally enclosed by a clearly demarcated and defended boundary..."75

 The modern construction of economics is also inherently territorial; both the idea of a market and the international economy are geographic constructs. In his Principles Marshall quotes Cournot to define a market spatially as "not any particular market place in which things are bought and sold, but the whole of any region in which buyers and sellers are in such free intercourse with one another that the prices of the same goods tend to equality easily and quickly."(Emphasis added.)77 

 Economic integration is the extension of a market in geographic space; Richard Cooper, 78 explicitly following Marshall, defines integration in terms of a single product over space. That space may be contiguous geography as in an expanding national market or regional integration (e.g., the European Community) or it may involve relatively isolated national spaces. Globalization can be seen as a geographic process, the closer integration of the world economy across national, regional and global spaces.79 

 National markets were created by political authorities to territorialize economic activity. As Fernand Braudel notes, their development was far from spontaneous: 

"The national market was a form of coherence imposed by both political ambitions ...and by the capitalist tensions created by trade...a political space transformed by the state into a coherent and unified economic space...a large scale economy, territorialized so to speak, and sufficiently coherent for governments to be able to shape and maneuver it to some extent..."80

 The geographic definition of markets is created rather than inherent; to some extent it is a result of the path of development of the modern political-economic system. There is nothing in the nature of markets that demands that they be defined in terms of geographic space. In fact, many of the emerging global networks construct markets in electronic rather than geographic space. 

 The international financial system provides both the best current example of a global market constructed in electronic space and a metaphor for the future. The world financial market is not comprised of linked national markets; in fact it is not comprised of geographic locations at all. It is a network integrated throught electronic information systems that entails "... more than two hundred thousand electronic monitors in trading rooms all over the world that are linked together." 82 It is a system which is no longer nationally centered "...in which national markets, physically separate, function as if they were all in the same place." 83 Global financial integration has been described as "the end of geography."84 

 If a trader in New York presses a key on her computer and buys German Marks in London, where did the transaction take place? Chase Manhattan Corporation has built a center to process transactions worth trillions of dollars each year in Bournemouth England linked by satellite to its offices in New York, Hong Kong, Luxembourg and Tokyo. Would any one argue that all of these "transactions" can be located in Bournemouth?85 

 Another example of a post-modern global network is provided by the Indian software industry which has evolved from "body-shopping," sending Indian programmers abroad to work at a client's site, to satellite linkages through which programmers physically situated in India work directly on the client's host computer, wherever in the world it is located. 86 

 If an Indian programmer located in New Delhi edits a program on a computer in New York, there is no question that economic value has been created. Did the transaction take place in India or the U.S.? Which jurisdiction gets to tax it? 

 The real question is whether the concepts of geographic space apply to cyber space. What do jurisdictions and boundaries mean when markets take the form of information systems? One can question whether all economic activity takes place within national boundaries or even whether economic activity can occur in more than one place at the same time. At the end of the day, the real question is whether the spatial concepts of borders, territory and jurisdiction apply to electronically organized global networks. 

 The information revolution--the linkage between telecommunications and computers--may make the very idea of a market as a geographic construct obsolete. Nye expresses it well, "The information revolution is changing the notion of markets; no longer geographic places they have become global networks." 87 Strategic alliances and electronic networks represent the extension of markets in a new dimension beyond geography; the global economy is increasingly non-territorial as production and trade are integrated through electronic information systems. Ruggie suggests that a nonterritorial region is emerging in the world economy, "...a decentered yet integrated space-of-flows...which exists along side the spaces-of-places that we call national economies." He goes on to note that in this nonterritorial region the distinctions between internal and external become problematic.88 Both Gianfranco Poggi and Friedrich Kratochwil note a "crisis of territoriality, the latter observing that the fact that political systems are territorial and boundary maintaining and economic systems are not affects the very core of the state as a political entity. 89 Sovereignty and modernity cannot be separated. Both entail the unambiguous and mutually exclusive ordering of space; both are profoundly geographic. In fact, Joseph Camilleri and Jim Falk go so far as to claim that "Sovereignty, both as an idea and an institution, lies at the heart of the modern and therefore Western experience of space and time." 90 Similarly, Ruggie argues that the concept of sovereignty is no more than the "doctrinal counterpart of the application of single-point perspectival forms to the spatial organization of politics."91 

 A primary characteristic of a post-Fordist or post-modern world economy is the fragmentation of hierarchical, vertically integrated structures into "diverse networks held together with information technology." 92 The scale of technology has fused national markets transnationally; they lose meaning as constituent units of a world economy. The net result of both aspects of globalization is to strip markets, and thus the organization of the world economy, of both geographic and political meaning. At least in the economic sphere, neither territoriality nor mutually exclusive geographic organization retain relevance. 

 This raises questions about the meaning of sovereignty in its external sense of a system based on mutually exclusive territoriality. To again quote Ruggie "The terrain of unbundled territoriality, therefore, is the place wherein a rearticulation of international political space would be occurring today." 94 in the eighteenth and nineteenth centuries. 

 Nation states and national markets are but one of a number of historical modes of organizing political and economic authority and, in historical terms, relatively short lived ones at that.95 It is not unreasonable to argue that the symmetry between states and markets in both geographic scope and mode of organization--which we tend to take as the natural order of things--is characteristic only of a very brief window of time: perhaps the hundred years spanning the late nineteenth to late twentieth centuries. 

 Parker makes a nice distinction between post-modern as a historical period and postmodern as a theoretical perspective (he uses the hyphen to distinguish between the two). 96 Thus, one can meaningfully talk about a modern or post-Westphalian political-economic system structured in terms of unambiguous territorial jurisdiction with discrete and meaningful borders or the transition from modern to post-modern organizations in terms of the disintegration of vertically integrated hierarchical firms and their reintegration through information technologies, without assuming a postmodern epistemology. 

 Transnational strategic alliances are a manifestation of the emerging asymmetry which results from a post-modern global economy situated in a modern political system. There are two primary dimensions to that asymmetry: the scope or extent of markets and the mode of organization. As noted above, in many of the industries now regarded as strategic, the minimal market needed to support a competitive research and development effort is larger than even the largest national markets. Perhaps of more fundamental importance, politics is still organized in terms of geography--territory and borders--while economic activity is increasingly organized in terms of electronic networks where geography and territory are irrelevant. 

 The result is a developing asymmetry between a modern, territorially based and geographically organized international political system comprised of nation states and an emerging post-modern world economy where national markets, and indeed, the very concept of territoriality and geography are becoming less relevant. That being said, one caveat is necessary. Neither the international nor the global world economy are all encompassing. Many sectors of economic activity are still very much domestic in the sense that they are little affected by cross-border transactions. Similarly, many industries remain grounded in a cross-border or international economy; the emerging global economy of networked alliances is far from universal. While my interest is in post-modern as an historical period rather than an epistemology, the simultaneous existence of domestic, international and global economies would not be inconsistent with the latter.97 

BACK TO THE FUTURE?

 Neither de Joinville nor the international financial market represent modern, geographically based forms of political or economic organization. Political control in one case and economic transactions in the other are organized aterritorially. The idea of exclusive geography or meaningful borders is not relevant to either pre- and post-modern forms of organization. 

 Almost twenty years ago Hedley Bull argued that the emergence of a modern and secular counterpart of Western Christendom, with its characteristic overlapping authority and multiple loyalties, was within the realm of possibility. 99 

 Although medieval "states" occupied geographic space, politics was not organized in terms of unambiguous geography. Political authority took the form of hierarchical, personal relationships, of often overlapping and intertwined mutual obligations and rights. Borders were diffuse, representing a momentary projection of power rather than a limit of sovereignty. 

While the medieval analogy has very obvious limits, the past may well contain applicable lessons for the future. A neat, unambiguous ordering of economic and political authority along geographic lines may no longer be the norm. Borders are diffuse and permeable, compromised by transnational integration and global telecommunications. Relationships are increasingly networked rather than hierarchical with both individuals and organizations enmeshed in complex, polygamous world-wide webs. Multiple and competing loyalties result. 

 James Rosenau foresees the emergence of a dual system of sovereignty bound and sovereignty free actors--or state centric and multicentric worlds--coexisting together. "The result is a paradigm that neither circumvents nor negates the state-centric model but posits sovereignty-bound and sovereignty-free actors as inhabitants of separate worlds that interact in such a way as to make their coexistence possible."100 

 One of the primary characteristics of modernity is a lack of ambiguity. The international political system is structured in terms of discrete and mutually exclusive geography; nation states and national markets. Disputed border areas aside, every point in geographic space belongs unambiguously to a single nation state and market. With very few exceptions every individual under the law, including corporations, is a citizen of a single state. Similarly, the essence of the modern integrated economic organization is a clear hierarchy and a single chain of command: one boss, one company. Every individual, and every transaction, can be located in organizational space. 

 We may well be at a point of transition comparable to what Ruggie describes as the "most important contextual change in international politics in this millennium: the shift from the medieval to the modern international system." (Emphasis original.) 101 The emergence of an electronically networked global economy may herald a transition to a post-modern political-economic system. 

 There is, however, a danger in trying to project modern assumptions into a post-modern era. Linearity is basic to the modernity; we assume that time's arrow is unidirectional and that progress is irreversible. "Modernity connoted a sense of unrepeatable time."102 We tend to assume that there is of an historic progression from classical to medieval to modern to, perhaps, post-modern. That assumption may be wrong. 

 The modern system of political and economic organization may well have been an exception to the norm. There is no reason to assume that a lack of geographic ambiguity, or even territoriality itself, is inherent in the human condition. 103 The post modern era may well resemble the medieval in terms of ambiguity, multiple loyalties, multiple levels of authority and the coexistance of multiple types of political and economic actors. As Camilleri and Falk note, it is certainly consistent with a postmodern world view to reject the "modernist narrative of progress" and "embrace many simultaneously different and even contradictory accounts of reality."104 

 A medieval lord dealt with allegiances to multiple sovereigns, perhaps an emperor, and the coexistence of secular and sacred authority as the norm. Is there any reason a post modern could not deal with sub-national, national, regional and international authorities simultaneously? Or with multiple and ill defined allegiances? With a system ordered on some basis other than geography? 

I have argued that globalization entails the expansion of markets well beyond the limits of even the largest national territories due to the scale and complexity of technology and the replacement of markets and hierarchies by networks as the mode of organization of international economic transactions. I believe that both signify the emergence of a post modern world economy that is not consistent with a modern, territorially defined, international political system. While the emerging asymmetry could be resolved by some sort of "world order," I do not think that is likely in the foreseeable future. What is likely is considerable ambiguity and uncertainty for some time to come. 

Notes

 2. The Oxford English Dictionary attributes its first use to Bentham in 1780 in a discussion of international jurisprudence in which he explicitly states that the word is a new one. 

 3. Paul Hirst and Graham Thompson, "The Problem of Globalization: International Economic Relations, National Economic Management adn the Fromation of Trading Blocks," Economy and Society 21, 4 (November 1992), pp. 358-360. 

 4. H.J. Mackinder, "The Geographical Pivot of History," The Geographical Journal XXIII 4 (April 1904), pp. 421-444. 

 5. Paul R. Krugman, "A Global Economy is Not The Wave of the Future," Financial Executive (March-April 1992), pp. 10-13. 

 6. United Nations Conference on Trade and Development, World Investment Report: 1994. United Nations: Geneva, 1994, p. 120. Krugman argues that by nineteenth century standards present levels of economic integraiton are not exception. Paul R. Krugman, "A Global Economy is Not hte Wave of the Future." Financial Executive (March April 1992) pps. 10-13. John Dunninc concludes that although compete economic interdependence has never existed in practice, "...it came near to it in the second and third quarters of the nineteenth century." Multinational Enterprises and the Global Economy (Reading: Addison-Wesley, 1993), p. 476. Also see Paul Streeten, "Interdependence and Integration of the World Economy: The Role of States and Firms," Transnational Corporations 1, 3 (December 1992), pp. 125-136. 

 7. The quote is from a speech given by Alan Binder in March 1995; The New York Times March 12, 1995, p. E5. Krugman argues that the ration of trade to output achieved by the industrial countries in 1913 was not achieved again until the early 1970s. "A Global Economy is Not The Wave of the Future" pp. 10-13. Rates of growth of trade and investment are certainly comparable, at least in terms of orders of magnitude, for the forty years prior to the first and following the second World Wars. From the 1820s through 1913 world trade grew at 46 percent per decade; from 1874 to 1913 captial invested between 25 and 40 percent of its gross domestic savings overseas. Bo Soderstein, International Economics, Second Edition (New York: St. Martin's Press, 1980) Rosecrace et al., argue that prior to World War I, international trade was a higher proportion of national income and direct and indirect investment a larger fraction of FNP than at present (the mid 1970s). R. Rosecrance, A. Alexandroff, W. Koehler, J. Kroll, S. Laquer and J. Stocker, "Whither Interdependence," International Orgnanization 31 (Summer 1977), pp. 385-424. Milton Friedman, writing in 1989, went so far as to claim that "The world is less internationalized in any immediate, relevant, pertient sense today than it was in 1913 or 1929." Milton Freedman, "Internationalization of the U.S. Economy," Fraser Forum (February 1989), p.10. Quoted in John Gerard Ruggie, "At Home Abroad, Abroad at Home: International Liberalization and Domestic Stability in the New World Economy." Jean Monnet Chair Papers, the Robert Schuman Centre, the European University, 1995." 

 8. A significant proportion of what appears to be trade is actually cross-border intra-firm transfers, and sales of subsidiaries of MNEs located outside of the home country now substantially exceed the value of goods 'traded' internationally. At this point, UNCTAD estimates that intra-firm trade accoutns for about 35% of all international transactions and for the U.S., sales of affiliates exceeds cross-border sales of goods and services by a factor of 2.5 to 1. "Trends in Foreign Direct Investment" UNCTAD: Geneva, 1995 (TD/B/ITNC/2). 

 9. United Nations Conference on Trade and Development, World Investment Report: 1993 (United Nations: New York, 1994), p. 101. For a dissenting view on the tendency towards the internationalization of production see, David M. Gordon, "The Global Economy: New Edefice or Crumbling Foundations?" New Left Review (March-April 1988), pp. 24-65. 

 10. Peter Dicken, "The Roepke Lecture in Economic Geography. Global-Local tensions: Firms and States in the Global Space-Economy." Economic Geography (70) (April 1994), pp. 101-102. 

 11. Charles-Albert Michalet, "Transnational Corporations and the Changing International Economic System," Transnational Corporations (3,1) (February 1994), pp. 6-22. 

 12. United Nations Conference on Trade and Development, World Investment Report: 1994. (United Nations: Geneva, 1994), p. 118. 

 13. Smithian growth results from "the creation of commerce and voluntary exchange between two previously disjoint units -- be they individuals, villages, regions, countries, or continents." William N. Parker, characterizes European economic history in terms of "stylized" relationships. Europe, America and the Wider World: Essays on the Economic History of Western Capitalism, Volume 1 (Cambridge: Cambride University Press, 1984), p. 1. Also see Joel Mokyr, The Lever of Riches: Technological Creativity and Economic Progress (new York: Oxford University Press, 1990), pp. 4-6. 

 14. Historically, fixed captial was confined to buildings and vehicles such as warehouses, harbors, docks and ships. Parker, Europe, America and the Wider World and John Hicks, A Theory of Economic History (Oxford: Clarendom Press, 1969). As Douglas C. North and Robert Paul Thomas note, transaction costs -- search, negotiation, and enforcement -- are subject to scale economies and an expanding market can increase income in the absence of technological change. The Rise of the Western World: A New Economic History (Cambridge: Cambridge University Press, 1973). 

 15. Kenichi Ohmae, The Borderless World (New York: Harper Business, 1990), p. 7. 

 16. Using U.S. Department of Commerce data, the ratio of intra-firm international sales to all international sales was used as an index of integration (on an industry basis). R&D intensity as well as a number of control variables were significant determinants of the index. Although ap roxy for manufacturing scale economies was not, the considerable conceptual and measurement problems associated with this concept limit generalization. Stephen J. Kobrin, "An Emprical Analysis of the Determinants of Global Integration," Strategic Management Journal 12 (1991), pp. 17-32. 

 17. Scale economies and notions such as minimally efficient plant size are notoriously difficult to measure in practice, especially across a range of industries. F.M. Scherer. "Economies of Scale and Industrial Concentration," in Harvey Goldschmitt, H. Michael Mann and J. Fred Weston, eds., Industrial Concentration: The New Learning (Boston: Little Brown and Company, 1974), pp. 16-54. Similarly, Bain cloncluded that in the U.S. only two industries -- automobiles and typewriters -- had "very important" scale economies; where the minimal optimal plant scale exceeded ten percent of the national market. (Five industries -- cement, farm machinery, tractors, rayon, and steel -- had "moderately important" plant scale economies.) A study of the smaller U.K. market reported similar results. In only eleven industries did minimum efficient plant scale exceed ten percent of the national market. Reported in Peter Dicken and Peter E. Lloyd, Location in Space: Theoretical Perspectives in the Economic Geography (New York: Harper collins, 1990). Furthermore, while minimum efficient plant size does appear to have incrased over the past few decades, recent developments may well reverse that trend. The introduction of computer aided manufacturing and the general application of electronic technology to production allows for efficient manufacture at lower volumes; in the automobile industry for example, minimum efficnet plant size may have declined significantly. 

 18. Industrial research and development laboratories were first established in the mid- to late- nineteenth century for tasks such as testing and grading of materials, quality control and writing speciffications. General Electric established a laboratory for materials Testing in the early 1870s, the Pennsylvania Railroad established a chemical laboratory in 1874, Kodak's experimental and testing facility was founded in 1890 and Du Pont's in 1900. "What Our Organization Can Learn from the Historians," Anonymous Research Management XXIX (1986), pp. 6-8 and David C. Mowery and Nathan Rosenberg, Technology and the Pursuit of Economic Growth (Cambridge: Cambridge University Press, 1989). Richard Nelson notes that during the first industrial revolution, invention was largely a result of individuals working alone. R&D laboratories tied to particular business firms first appeared at the end of the nineteenth century, first in chemcial firms and later in thos producing electrical products. "The Role of Firms in Technical Advance: A Perspective from Evolutionary Theory," in Giovanni Dosi Renato Giannetti and Pier Angelo Toninelli, Technology and Enterprise in Historial Perspective (Oxford: Clarendon Press, 1992), pp. 164-184. After the first World War industrial research turned to product and process development and the fixed costs associated with technology grew rapidly. For exaple, the number of research laboratories in the American manufacturing sector grew twenty-fold from 1899 to 1945; correspondingly, the number of scientific personnel employed grew tenfold from 1921 to 1940. Mowery and Rosenberg, Technology and the Pursuit of Economic Growth, Tables 4.1, 4.2, 4.3, 4.4 and 4.5. 

 19. J.E. Janowski, Jr., National Patterns of R&D Resource NSF 92-330 (Washington, National Science Foundation, 1992). "R&D Scoreboard," Business Week, various issues. 

 20. The point can be illustrated anecdotally. For example, in 1993, Merrck spent 11.2% of its sales on R&D and 43.7% of its sales were outisde the U.S. If it has been forced to support the costs of technological development, which are exogenously determined, on its U.S. volume alone (64.3% of the total) it would ahve had to spend 21% of its sales on R&D, a proportion not tenable over any but the shortest time period. Corresponding figures for some other firms, that is R&D spending as a proportion of U.S. sales only, are: Intel, 22, Pfizer, 24%, Motorola, 17%, and Lilly, 24%. Data obtained from "R&D Scoreboard," Business Week June 27, 1994, pp. 8-103 and "The International 500," Forbes June 18, 1994. 

 21. Strategic alliances are very different from traditional inter-firm cooperative agreements or joint ventures: they involve major multinationals from the advanced, industrialized countries, often the largest firms from the largest markets; their form varies widely and may not involve equity; and they are strategic in the sense that they are motivated by the requisites of global competition. Examples of strategic alliances are found almost daily in the business media. In early 1993 Boeing and the Airbus partners agreed on a study of feasibility of joint development of a super jumbo jet aircraft capable of carrying 550 to 800 passengers; research and development costs for the airframe alone are estimated to exceed ten billion dollars. The semiconductor and electronics industries appear as a web of transnational alliances: Toshiba, IBM and Siemens; Texas Instruments and Hitachi; AMD and Fujitsu; and Intel and Sharp all have enetered into joint research and development agreements, as have many others. In automobiles, one thinks of Renault and Volvo, Ford and Mazda, G.M. and Toyota. In airlines, British Air and U.S. Air or KLM and Northwest. Telecommunications companies are joining together to develop global voice and data linkages; perhaps the most notable recent example being British Telecom and MCI. 

 22. See, Benjamin Gomes-Casseres, "Computers: Alliances and Industry Evolution," in David B. Yoffee, ed., Beyond Free Trade: Firms, Governments and Global Competition (Boston: Harvard Business School Press, 1993); Lynn Krieger Mytelka, Strategic Parterships: States, Firms and International Competition (Rutherford, N.J.: Fairleigh Dickinson University Press, 1991); Richard N. Osborn and C. Christopher Baughn, "Forms of Interorganizational Governance for Multinational Alliances," Academy of Management Journal 33 (1990), pp. 503-519; and Vern Terpstra and Bernard L. Simonin, "Strategic Alliances in the Triad: An Exploratory Study," Journal of International Marketing 1 (1993), pp. 4-25 among many others. The LARA/CEREM data base, for example, of 1086 agreements invvolving at least one European partner shows an average of 67 a year in 1980-82, 133 in 1983-85 and 243 in 1986-87 (Mytelka, Strategic Partnerships..., pp. 10-11). In a study of alliances in the computer industry alone, Gomes-Casseres reports over a six-fold increase fromm under 4 a year in 1975-80 to 26 per year in 1985-89. The compound growth rate was contained in a Predicast study (cited by Lewis E. Platt, President and CEO of Hewlett Packard at the Wharton School on September 12), 1993 estimated a thirty-one percent compound annual growth rate of high technology strategic alliances over the 1980s. 

 23. U.S. Congress, Office of Technology Assessment, Multinationals and the National Interest: Playing by Different Rules, OTA-ITE-569 Washington: U.S. Government Printing Office, 1993 p. 119. 

 24. U.S. Congress, Office of Technology Assessment Multinationals and the National Interest: Playing by Different Rules, p. 119-121. World Investment Report: 1994, p. 140. 

 25. Raymond Vernon argues that this is the primary motivation for the current wave of strategic alliances. Letter to the author, November 1993. 

 26. Again, while generalization is difficult, existing data do appear to support technology as the dominant driver of inter-firm cooperative agreements. An OECD report, for example, suns evidence form "one of the best data banks" to conclude that R&D cooperation represents the single most important objective of inter-firm agreements. Technology and the Economy: The Key Relationship (OECD: Paris, 1992), p. 76. Technologically intensive industries appear to dominate. For example, Terpstra and Simonin ("Strategic Alliances in the Triad") Found that 60% of the agreements they studied were in industries that are technologically intensive (an additional 16% were in the automotive sector). Similarly, in reviewing a number of empirical studies Mytelka (Strategic Partnerships...,p. 9) concludes that knowledge production and sharing is an increasingly important component of strategic partnerships. Similarly, in her study of the commercial aircraft industry, Vicki Golick found reducing R&D costs, scale economies and the increased market size to be important motivations for cross-border collaboration. "From Competition to Collaboration: The Challenge of Commercial-Class Aircraft Manufacturing" International Organization 46, 4 (Autumn 1992) pp. 899-934. A recent U.S. Government report concluded that developments encouraging the formation of alliances include: technological leveling, convergence in product markets, slow growth, excess capacity, shorter life cycles, esclating R&D costs, and increasingly complex product and process technologies. Multinationals and the National Interest: Playing by Different Rules, p. 121. 

 27. Herbert I. Fusfield and Carmela S. Haklish note that the days when even the largest technologically based companies could rely on internally generated R&D are long gone. "Cooperative R&D for Competitors" Harvard Business Review (November-December 1985, pp. 60-76. 

 28. World Investment Rpoert: 1993 p. 143. 

 29. John Hagedoorn, "Understanding the Role of Strategic Technology Partnering: Interorganizational Modes of Cooperation and Sectoral Differences," Strategic Management Journal 14, 5 (July 1993), pp. 371-385. 

 30. A caveat is necessary. Although the growth of alliances has been dramatic over the last decade, their presence is not universal. While the data are still fragmentary, alliances appear to concentrate in industries characterized by technological or capital intensity. It should be noted, however, that these industries (e.g. aerospace, semiconductors, telecommunications and automobiles) are the most important strategically in terms of national economic competitiveness and security. 

 31. Williamson argues that the "...hybid mode is located between market and hierarchy with respect to incentives, adaptability and bureaucratic costs." Oliver E. Williamson, "Comparative Economic Organization: The Analysis of Discrete Structural Alternatives," Administrative Science Quarterly 36 (1991), pp. 280, 283. Williamson clearly includes networks in hybrids. Wayne E. Barker, "Market Networks and Corporate Behavior," American Journal of Sociology 96 (November 1990), pp. 589-625. 

 32. Candace Jones and William S. Hesterly, "A Network Organization: Alternative Governance Form or a Glorified Market?" Presented at the Academy of Management Meeting, Atlanta, August 1993. The literature on netowrks is large and growing. For an introduction and references see: Sumantra Ghoshal and Christopher A. Bartlett, "The Multinational Corporation as a Strategic Network," The Academy of Management Review 15 (October 1990), pp. 603-625; Rayomd Miles and Charles C. Snow, "Organizations: New Concepts for New Forms," California Management Review XXVII 3 (Spring 1986), pp. 62-73; Nitin Nohria and Robert C. Eccles, Networks and Organizations: Structure Form and Action (Boston: Harvard Business School Press, 1992); and Barry Wellman and S.D. Berkowitz, Social Structures: A Network Approach (Cambridge: Cambridge University Press, 1988). 

 33. Powell characterizes the continuum view as quiescent and mechanical and argues that by "sticking to the twin pillars of markets and hierarchies, our attention is deflected from a diversity off organizational designs that are neither fish nor fowl, nor some mongrel hybrid, but a distinctly different form." Walter W. Powell, "Neither Market Nor Hierarchy: Network Forms of Organization" Research in Organization Behavior 12 (1990), pp. 295, 298, 299. Also see J. Carlos Jarilo, "On Strategic Networks," Strategic Management Journal 9 (1988), pp. 31-41 and Hans B. Thorelli, "Networks: between Markets and Hierarchies" Strategic Management Journal 7 (1986), pp. 37-51. 

 34. OECD, Technology and the Economy: The Key Relationship, p. 78. 

 35. Noel M. Tichy, Michael L. Tushman and Charles Fombrun, "Social Network Analysis for Organizations," Anatomy of Management Review 4 (1979), p. 509 and Karen S. Cook, Richard M. Emerson, Mary R. gilmore and toshio Yamagishi, "The Distribution of Power in Exchange Networks: Theory and Experimental Results," American Journal of Sociology 89 (1983), p. 277. 

 36. Powell, "Neither Market Nor Hierarchy..." pp. 300-301. 

 37. Powell, "Neither Market Nor Hierarchy..." p. 303. Arguments about the relative advantages of markets and hierarchies as forms of economic organization are well known at this point. Williamson's basic contention involves uncertainty about the outcome of transactions over time due to opportunism and bounded rationality and the resulting difficulty of making transaction-specific investments in a market-based organization. Under such conditions, firms will internalize transactions, bring them within their administrative hierarchy. Olliver E. WIlliamson, Markets and Hierarchies: A Study in the Analysis of Internal Orgaization (New York: The Free Press, 1975). Transaction cost economics has found fertile ground in the theory of the MNE and provided rich explanations of the choice between markets and hierarchies or exports and foreign direct investment. (See John H. Dunning, Multinational Enterprises and the Global Economy (Readin, MA: Addison-Wesley, 1993) for a thorough summary.) 

 38. Powell, "Neitherr Market Nor Hierarchy..." 

 39. Jarilo, "On Strategic Networks; Miles and Snow, "Organizations: New Concepts, New Forms,"; and Thorelli, "Networks: Between Markets and Hierarchies." 

 40. Miles and Snow, "Organizations: New Concepts, New Forms." 

 41. Wayne E. Baker, "The Network Organization in Theory and Practice," in Nohria and Eccles, eds., Networks and Organizations, pp. 397-429; Xavier Martin Wil Mitchell and Anand Swaminathan, "Recreating and Extending Buyer-Supplier Links," Manuscript, School of Business Administration, University of Michigan May, 1993; Powell, "Neither Market Nor Hierarchy..."; and Barry Wellman, "Structural Analysis: From Method and Metaphor to Theory and Substance," Ch. 2 in Wellman and Berkowitz, eds, Social Structures: A Network Approach, pp. 19-61. 

 42. Nitin Nohria, "Is a Network Perspective a Useful Way of Studying Organizations?" Ch. 1 in Nohria and Eccles, Eds, Networks and Organizations, p. 1-22; Charles J. Fombrum, "Attributions of Power Across a Social Network," Human Relations 36 (1983), pp. 493-508; David Knoke, Political Networks: A Structural Perspective (Cambridge: Cambridge University Press, 1990); and Wellman, "Structural Analysis..." 

 43. Cook, et al, "The Distribution of Power in Exchange Networks...," p. 281. 

 44. Baker, "The Network Organization..."; Jarillo, "On Strategic Networks"; Miles and Snow, "Organizations: New Concepts, New Forms" and Powell, "Neither Market Nor Hierarchy." 

 45. United Nations Economic and Social Council, Transational Corporations in Word Development: A Reexamination (New York: United Nations, 1993), p.5 and Manuel Castells, "The Information Economy and the New International Division of Labor," Ch. 2 in Martin Carnoy, Manuel Castells, Stephen S Cohen and Fernando Henrique Cardoso, The New Global Economy in the Information Age (University Park, PA: The Pennsylvania State University Press, 1993), p. 19. Also see Charles-Allbert Michalet, "Strategic partnerships and the Changing Internationalization Process" in Lynn K. Mytelka ed., Strategic Partnerships and the World Economy (Rutherford, N.J.: Farleigh Dickenson Press, 1991) pp. 35-50. and "The Global Firm: RIP." The Economist February 6, 1993, p. 69. 

 46. John H. Dunning, "Globalization, Economic Restructuring and Development" The Sixth Raul Prebish Lecture, (Geneva: UNCTAD, Aprikl 29, 1994), p, 14. Also see David harvey, The Condition of Postmodernity (Cabridege: Blackwell Publishers, 1990) and Martin Piker, "Post-Modern Organizations or Postmodern Theory?" Organization Studies 13,1 (1992), pp. 1-17 for references to the large and growing literature on this topic. 

 47. Raymond Miles and Charles C. Snow, "Causes of Failure in Network Organizations, California Management Review 34,4 (Summer 1992), pp. 53-72 and Miles and Snow, "Organizations..." p. 73. Commentators argue that outsourcing is necessary to compete globally; "to pursue ccontinuous improvement in methods, products or processes." Michael H. Best, The New Competition (Cambridge: Harvard University Press, 1990), p.2. or that firms must focus on core competencies and leverage outside centers of excellence given that "[t]he scale, specialized capabilities, and efficiency of outside service entities have changed industry boundaries and supplier capabilities that they have substantially diminished the desirability of much vertical integration," James Brian Quinn, The Intelligent Enterprise (New York: The Free Press, 1992), p. 32. Similarly, Powell ("Neither Market Nor Hierarchy...") argues taht disintegration and networks are one response to the disadvantages of vertical integration in the face of more rapid technological change, shorter product life cycles and specialized markets. 

 48. Miles and Snow relate this trend to international competition and technological change during the 1980s, observing that established firms downsized while new firms "eschewed growth through vertical inttegration' seeking alliances in its stead, "Causes of Failure...," p. 55. In an interesting paper mark Casson and Howard Cox argue that international networks are not a new phenomenon and were an important mode of economic organization before the first World War. Examples include Victorian family business networks and ethnic communities. they hypothesize that the economic and political upheavals of the interware period damaged existing networks and provided an advantage to "Chandlerian" integrated and self-contained enterprise, an advantage that might be a product of specific -- and transient -- historical circumstances. "Firms, Networks and International Business Enterprise," Discussion Papers in Internaitonal Investment and Business Studies, Number 173. (University of Reading, January 1993). 

 49. Thowas W. Malone and John F. Rockart, "How Will Information Technology Reshape Organizaitons? Computers as Coordination Technology," in Stephen Bradley, Jerry A. Hausman and Richard L. Nolan, eds,. Globalization, Technology, and Competition: The Fusion of Technology and Computers in the 1990s (Boston: Harvard Business School Press, 1993), pp. 37-56. 

 50. Dicken, "The Roepke Lecture..." p. 106. 

 51. Albert Bressand, Catherine Distler and Kalypso Nicolaidis, "Networks at the Heart of the Service Economy," Ch. 1 in Albert Bressand and Kalypso Nicilaidis, eds,. Strategic Trends in Services (New York: Ballinger, 1989), pp.17-32 and Clarence J. Brown, "New Concepts for A Changing International Economy" The Washington Quarterly 11, 1 (Winter, 1988). 

 52. Thomas A. Stewart, "A new 50 for the New Economy," Fortune May 15, 1995, pp. 168-178. 

 53. Stewart R. Clegg, Modern Organizations (London: Sage 1990). The quote is from, Robert B. Reich The Work of Nations (New York: Alfred A. Knopf, 1991). 

 54. Dicken, "The Ropke Lectur...," p. 106, fn 1 and Hirst and Thompson, "The Problem of Globalization..." pp. 360-361. 

 55. Peter Dicken, Global Shift, Second Edition (New York: The Guilford Press, 1992) p. 149. 

 56. Castells, "The Information Economy..." p. 19. As markets become fused and truly integrated, is becoming increasingly difficult to distinguish one nation's products, technologies and firms, from another's. W. Michael Blumental, "The World Economy and Technological Change," Foreign Affairs 66 (1988), pp. 529-550; Thomas H. Lee and Proctor P. Reed, eds, National Interests in an Age of Global Technology (Washington: National Academy Press, 1991); and Robert B. Reich, The Work off Nations (New York: Alfred A. Knopf, 1991). 

 57. E.J. Hobshawn, "The Development of the World Economy," Cambridge Journal of Ecnomics 3 (1979), pp. 312-315, 305-318. 

 58. Dicken, "The Roepke Lecture..." 

 59.Robert O. Keohane, "Sovereignty, Interdependence, and International Institutions," Ch. 7 in Linda B. Miller and Michael Joseph Smith, eds., Ideals and Ideals: Essays on Politics in Honor of Stanley Hoffman, (Boulder: Westview Press, 1993), pp. 91-107. 

 60. John Gerard Ruggie, "Continuity and Transformation in the World Polity: Towards a Neorealist Synthesis," World Politics (1983), pp. 271-285. 

 61. Keohane, "Sovreignty, Interdependence..." 

 62. David Held and Anthony Mcgrew, "Globalization and the Liberal Democratic State." Government and Opposition 28,3 (Summer 1993), p. 265. 

 63. John Gerard Ruggie "Territoriality and Beyond: Problematizing Modernity in International Relations," International Organization 28,3 (Summer 1993), p. 265. 

 64. Barkin and Cronin IO (1994) p. 110. External sovreignty includes the concept of "juristical statehood," that states are organizations recognized by established states as sovereign. Keohane, (1993) p. 96. 

 65. Robert O. Keohane and Joseph S. Nye, Power and Interdependence (Glenview, Ill. : Scott Foresman and Company, 1989) p. 248. 

 66. Edmund Dell, the Politics of Economic Interdependence (New York: St. Martin's Press, 1986). 

 67. Mark Zacher, "The Decayingg Pillars of the Westphalian Temple: Implications for International Order and Governance," in James N. Rosenau and Ernst-Otto Czempiel eds., Governance Without Government: Order and Change in World Politics (Cambridge: Cambridge Univeristy Press, 1992). P. 60. 

 68. A recent report of the National Academy of Engineering concludes that it is increasingly difficult to distinguish one firm's or one nation's technology base from another and that firm level technological self-sufficiency is a prohibitive. They go on to note that to "...compete effectively in a global economy, corporations must be able to draw on the broadest possible range of technical capabilities, worldwide, exploiting the special competencies and demands of different national markets thorough foreign direct investment, transnational corporate alliances and trade" Lee and Reed, National Interests...p. 73. Also see Blumental, "The World Economy and Technical Change." 

 69. U.S. Congress, Office of Technology Assessment, Multinationals and the National Interest: Playing by Different Rules. Washington, U.S. Government Printing Office, 1993, p. 115 and Robert B. Reich, The Work of Nations (New York: Alfred P. Knopf, 1991), p. 110. 

 70. Nicholas Negroponte, Being Digital, 1st ed. (New York: Knopf, 1995). 

 71. See Stephen J. Kobrin, "Enforcing Export Embargoes Through Multinational Corporations: Why It Doesn't Work anymore," Business in the Contemporary World, (Winter 1989), pp. 31-42, and Kenneth A. Rodman, "Sanctions at Bay: Hegemonic Decline, Multinational Corporations and United States' Economic Sanctions Since the Pipeline Case," International Organization 49,1 (Winter 1995), p. 105-137. 

 72. Geoffrey L. Goodwin, "The Erosion of External Sovereignty?" In Ghita Ionescu, ed., Between Sovereignty and Integration (New York: John Wiley and Sons, 1974, p. 101. 

 73.The mode of organization of the modern state is territoriality, it exerts control over its population and over economic actors (and the economy) through its exclusive control over territory. Robert D. Sack, "Territorial Bases of Power," in A.D. Burnett and P.J. Taylor, eds, Political Studies from Spatial Perspectives (London: John Wiley: 1981), pp. 53-71. 

 74.Jospeh Camilleri and Jim Falk, The end of Sovereignty? (Hants, England: Edward Elgar, 1992), p. 238. Krasner argues that the 'central characteristic' of the sovereignty regime is exclusive control over a given territory. Stephen D. Krasner, "Westphalia and All That" in Judith Goldstein and Robert O. Keohand, eds. Ideas and Foreign Policy (Ithaca: Cornell University Press, 1993). P. 259. 

 75. James Anderson, "The Modernity of States" in James Anderson, ed., The Rise of the Modern State (Atlantic Highlands, N.J.: Humanities Press International Inc:., 1986). p. 117. Sovereignty is an inherently territorial concept, "The condition of Sovereignty for a State is Control of its Own Real-Estate." John Lucas, The End of the Twentieth Century and the End of the Modern Age (New YOrk: Ticknor and Fields, 1993) p. 263. Also see Hedley Bull, The Anarchical Society: A Study of Order in World Politics (New YOrk: Columbia University Press, 1977); Alan James, Sovereign Statehood: The Basis of International Society (London: Allen and Unwin, 1986) and Gianfranco Poggi, The State: Its Nature, Development and Prospects (Standford: Stanford University Press, 1990) among a large number of aother authors discussing this subject. 

 76. John Gerard Ruggie, "Territoriality and Beyond: Problematizing Modernity in International Relations," International Organization 47 (WInter 1993), p. 151. 

 77. Alfred Marshall, Principles of Economics Eigth Edition (Luondon, MacMillian and Co., 1961), pp. 270, 274. Marshall's examples of world markets (his last edition is dated 1920) includes precious metals and well known securities such as the Suez Canal Company where "The telegraph keeps prices at almost exactly the same level in all the stock exchanges of the world." 

 78. Richard N. Cooper, Economic Policy in an Interdependent World (Cambridge: The MIT Press 1986), p. 125. 

 79. World Investment Report 1994, P. 118. 

 80. Ferdinand Braudel, Afterthoughts on Material Civilization and Capitalism (Baltimore: The Johsn Hopkins University Press, 1977), p. 99 and Braudel, Perspective of the World, pp. 277, 294. 

 81. World Investment Report: 1994, p. 119. 

 82. Walter B.Wriston, The Twilight of Sovereignty (New York: Charles Scribener's and Sons, 1992), p. 61. 

 83. John M. Stopford and Susan Strange, Rivals States, Rival Firms: Competition for World Market Shares (Cambridge: Cambridge University Press, 1991), p. 40. 

 84. Richard O'Brien, Global Financial Integration: The End of Geography (London: Pinter Publishers, 1992). 

 85. "Technobanking Takes Off." Business Week. November 18, 1994. pp. 52 and 53. 

 86. S.K. Pandit, "Wired to the Rest of the World" Financial Times January 10, 1995, p. 12 

 87. Joseph S. Nye, Jr., Bound to Lead: The Changing Nature of American Power (New York: Basic Books, 1990). 

 88. John Gerard Ruggie, "Territoriality and Beyond..., pp. 139-174. Also see Manuel Castells and Jeffrey Henderson, "Techno-economic Restructuring, Socio-Political Processes and Spatial Transformation: A Global Perspective," in Jeffrey Henderson and Manuel Castells, eds., Global Restructuring and Territorial Development (Bevery HIlls, Sage Publishers, 1987), pp. 1-17. 

 89. Poggi, The State... p. 177. Friedrich Kractochwil, "Of Systems, Boundaries, and Territoriality: An Inquiry into the Formation of the State System," World Politics XXXIX 1 (October 1986), pp. 27-52. 

 90. Cammilleri and Falk, The End of Sovereignty, p. 11. 

 91. Ruggie, "Territoriality and Beyond...", p. 159. 

 92. Parker, "Post-Modern Organizations...," p. 9 

 93. Ruggie, "Territoriality and Beyond...," p. 171. 

 94. Victoria Curazon Price, "1992: Europe's Last Chance?" Occasional Paper 81 (london: The Institute of International Affairs, 1988). Stephen Krasner has argued recently that it is an error to mark the Treaty of Westphalia as a sharp turning point; that "sovereign" states existed before 1648 and universal institutions continued long after. "Westphalia and All That." 

 95. Paul Kennedy, Perparing for the Twenty-First Century (New York: Random House, 1993) and Ruggie, "Territoriality and Beyond..." 

 96. Parker, "Post-modern Organizations..." 

 97. Parker makes a nice distinction between post-modern as a historical period and postmodern as a theoretical perspective (he uses the hypen to distinguish between the two). Parker, "Post-Modern Organizations." 

 98. Robert Bartlett, The Making of Europe (Princeton: Princeton University Press, 1993), p. 27. 

 99. Hedley Bull, The Anarchical Society: A Study of Order in World Politics (New York: Columbia University Press, 1977). 

 100. Rosenau, Turbulence... p. 247. 

 101. Ruggie "Continuity and Transformation..." p. 273. 

 102. Camilleri and Falk, The End of Sovereignty, p. 45. 

 103. Ruggie notes at least three ways in which systems of rule have differed from the modern territorial state. First, they need not be territorial at all; second, they need not be territorially fixed; and third, they may not entail mutual exclusion. "Territoriality and Beyond..." P. 149. 

 104. Camilleri and Falk, The End of Sovereignty, p. 152. 

Re-engineering of Business Processes in Multinational Corporations

Katholische Universitat Eichstatt, Germany 

Working Paper No. 95-4 

The research for this paper was supported by a grant from the Carnegie Bosch Institute and was presented at the Institute's International Research Conference, November 2, 1994. 

Re-engineering of Business Processes in Multinational Corporations

Prof. Dr. Michael Kutschker

Abstract

Contents

• Introduction 
• International Business Processes 
• - Management of Ongoing Business Processes 
• - Improvement of Business Processes 
• - Re-engineering of Business Processes 
• Management of International Business Processes 
• - Coordination 
• - New Information Technologies 
• Re-engineering of International Business Processes 
• - Characteristics 
• - Information Technology -
•  Deeper Structure 
• - Internationality 
• - Complexity 
• Conclusion

Introduction

Both the characteristics of international management and the process orientation underlying the philosophy of BPR have been the reasons to present a paper at this conference. Fifty in- depth interviews in 30 large Multinational Corporations (MNCs) of Germany and Switzerland constitute the background for the authorÕs comments on Business Process Re-engineering in an international context. 

International Business Processes

Management of Ongoing Business Processes

Improvement of Business Processes

Re-engineering of Business Processes

However, in most cases the holistic approach ends at national borders. There are two possible reasons for ignoring the international dimension of business processes. Either the redesign of international processes is deemed to be unimportant or the international dimension is perceived not to change the character of BPR substantially. In view of the increasing internationalization of many industries, the first reason is rather academic. Therefore only the second reason may be accepted, raising the question: What is special about international BPR? The answer to this question is one of the objectives of this paper. 

Practitioners as well as academics and consultants have differing views about business processes. In the survey conducted for this research the interviews showed considerable variation in their understanding of business process issues. Some companies had improved or redesigned some isolated business processes, others had changed process systems, and only very few had introduced a comprehensive process re-organization, decomposing the ongoing activities of the company into a well defined set of business processes. Some authors stress organizational aspects of processes, others concentrate on aspects of improving processes or Business Process Re-engineering. Consultants often sell old concepts under the name of the new concept, BPR. Although perceptions and understanding of business processes are different, their common focus is to optimize the efficiency of an organization. Efficiency can be increased by a planned change of appropriate processes, thus shifting the attention of organization theory from structure to process. 

Management of International Business Processes

Coordination

Obviously, each subsidiary has its distinctive set of context factors, implying that a firm has to control different headquarter-subsidiary relationships in different ways. Empirical results confirm that firms are successful when they adapt the coordination instruments to the subsidiaries' specific situation. Moreover, it may be assumed that the coordination pattern of the headquarter-subsidiary relationship also varies with the character of strategic business units and of functional departments . 
A process orientation assumes that managers adapt the application of coordination instruments to the specifics of the business process. Therefore, the above mentioned four business processes were analyzed with respect to their political and structural character. The interviews with managers in German and Swiss MNCs clearly supported the view that managers do vary their use of coordination instruments according to the character of business processes. Personal instruments such as face-to-face meetings, personal instructions, and visits are more often used in political and ill-structured processes like strategic planning. In contrast, managers often apply technocratic instruments of coordination such as rules, programs and written documents in operational and well-structured decisions, such as physical distribution and warehousing. The processes of product launch and budgeting have a mix of personal and operational elements. In these processes managers vary the use of coordination instruments over the course of time, preferring face-to-face meetings in value-intensive soft phases and exchanging formalized documents in the operational phases of budgeting or product introduction. 

Managers construct the reality of their firms, subsidiaries, departments, and strategic business units. They design the structures of their units, develop organizational cultures, expand the internationality of their departments, and decide on "appropriate" coordination instruments in general. However, this self-created static frame of contingencies can only deliver a partial explanation of organizational behavior. Within the business processes, individuals constantly construct reality anew, accepting, ignoring or inventing new contingencies on the base of their perceived and assessed reality. So, it is not so much the absolute character of a business process that determines the selection of coordination instruments, but rather the perception of process complexity that dictates the use of coordination instruments. The interviews strongly support the view of "bringing mind back in . 
New Information Technologies

New Information Technologies (IT) are said to have a major impact on the coordination of headquarter-subsidiary-relations. New IT such as electronic mail, corporate and public data bases, application systems, fax, video and computer-conferencing , are considered to be some of the driving forces of internationalisation. 

However, very little academic research has focused on the interface between International Management, Organization Theory and Information Systems. Only a few authors have considered the fit between global business strategy and global IT strategy. Even though the strategic importance of IT is asserted, few studies closely investigate the relationship between state of the art applications of IT in MNCs and their impact and importance for coordinating dispersed activities and business processes. Research linking IT and coordination focuses either on domestic inter-unit coordination , or lacks empirical content. Some studies have the right research focus, but they are outdated because of the rapid change of IT. 

Regarding the enabling role of IT for the internationalization process, the interviews conducted produced mixed results. On the one hand more companies than expected have developed worldwide communication networks. These networks include E-mail as well as internal fax networks. On the other hand, the stereotype that IT pushes globalization was not supported. Firms change IT to facilitate the management of international business processes and renew the communications hardware when higher levels of internationalization ask for it. IT follows internationalization, but not vice-versa. 

New IT influences the interaction between headquarters and subsidiaries and may have an impact on the use of coordination instruments. In many interviews the influence of IT on coordination in MNCs was discussed. IT helps to solve problems which are intensified by the international scope of business processes: geographical distances that have to be overcome, scattered members in a decentralized organization who need to create and process information in many places, and different time zones between senders and recipients of information that pose additional problems. 

Our hypothesis that the impact of IT varies among the four business processes has been confirmed. Operational, well-structured processes like logistics tend to be more supported by IT than political, ill-structured processes like strategic planning. 

The perception of the surveyed respondents was that new IT does not lead to a substitution of coordination instruments. In those companies using global networks for the exchange of data and written information, the frequency and intensity of personal visits abroad have not decreased. The major reason for this lies in the fact that confidence and personal relationships can not at all be established by computer or video-conferencing. 

The four business processes do not only vary concerning the use of IT and coordination mechanisms, but also have different international orientations. An initial assumption was that internationalization will be realized by a well designed and orchestrated strategic planning process. Surprisingly, operational business processes are much more mutually dependent and linked than political processes. Operational processes appear to be better designed for the purpose of international coordination than strategic planning processes. Applying Perlmutter's framework , strategic planning is more ethnocentric with a strong orientation towards centralized decision-making, whereas R&D or logistics processes resemble more a geocentric network of mutually coordinating partners. However, the greater bulk of the sample is far away from having realized the vision of a transnational network organization - at least at the strategic level. 

The research was started with a traditional view on coordination instruments which can be considered as central subjects of the theory of international management. Throughout the interviews it was recognized that the question of international coordination is certainly interesting to managers. It was also evident that managers do not bother very much about traditional coordination instruments. Centralization, standardization, or formalization were found to be less important than questions of international team-building or the participation of foreign managers in strategic decisions. 

Decision arenas provide opportunities to exchange values, opinions, data, and test theories and thereby form organizational identity. Thus corporate culture controls and coordinates activities. The interviews show that traditional coordination mechanisms are supplemented or even replaced by such "new" forms of coordination. Norms and organizational culture play an increasingly important role in managing business processes. 

The internationalization of firms increases the dynamics and complexity of their relations with the environment. Rapid external change makes MNCs so vulnerable that they cannot fully rely on adaptive structural changes. They have to organize their business processes in ways that allow greater flexibility. Organizing for more flexibility means deliberately to design or re-design existing international business processes. 

Re-engineering International Business Processes

See Handelsblatt (1994), No. 117, June 21, 1994.
See for instance Davenport and Short (1990), Hammer (1990), Harrington (1991), Knorr (1991), Barton
(1993), Davenport (1993), Hammer and Champy (1993).

 These interviews have been carried out together with Professor Krcmar, Chair of Information Systems at the 
University of Stuttgart-Hohenheim,  and  two research assistants, Ulrich Hanfeld  and  Dr. Bettina Schwarzer, 
both being financed by the generosity of the Carnegie Bosch Institute.

  The terms business process re-engineering  and  business process redesign are used synonymously throughout 
the paper.

  See for instance Stopford and Wells (1972), Franko (1976), Doz (1980), Welge (1981). 
  The criteria for selection are taken from literature pertaining to individual  and  collective problem solving. See 
for instance March and Simon (1958). The selection was performed to obtain a large variance representing the 
spectrum of processes found in organizations.
  From an external point of view this situation leads to disjointed incrementalism; see Lindblom (1964).
  See on interface problems for instance Lim and Reid (1992) or Brockhoff and Hauschildt (1993).
  See Harrington (1991), Short and Venkatraman (1992), O`Sullivan and Geringer (1993).
  See Kane (1986), Belmonte and Murray (1993), Davenport (1993), Hammer and Champy (1993).
  The problem of coordination mechanisms originates in the bureaucratic model of Max Weber. Here we refer 
to Kenter's classification of coordination instruments. See Kenter (1985). 
  For exhaustive reviews of the literature see Khandwalla (1975), Welge (1981), Baliga and Jaeger (1984), 
Egelhoff (1988), Martinez and Jarillo (1989), Wolf (1994).
  See Prahalad and Doz (1987).
  See Brandt and Hulbert (1976), Prahalad and Doz (1981), Ghoshal and Nohria (1989), Roth and Nigh (1992).
  See Macharzina (1992), Sullivan (1992), Kutschker (1994).
  See Brandt and Hulbert (1977), Welge (1981), Kenter (1985).
  This was the title of an article stressing the role of the manager; see Pondy and Boje (1976).
  For a complete listing  and  interpretation see Conger (1988).
  See Manheim (1990), Jarvenpaa and Ives (1991).
  See for instance Jarvenpaa and Ives (1990), Jarvenpaa and Ives (1991), Ives and Jarvenpaa (1991).
  See for one of these studies Samiee (1984), Sethi and Olson (1991), Palvia and Saraswat (1992). 
  See Conger (1988), Moynihan (1985).
  See Malone (1988).
  See Mandell (1975), Brandt and Hulbert (1976), Mandell and Grub (1979).
  See Keen (1991), Manheim (1991).
  See Heenan and Perlmutter (1979).
  See Bartlett and Ghoshal (1989).
  See Etzioni (1968), Deal and Kennedy (1987), Bartlett and Ghoshal (1989), Nohria and Ghoshal (1994).
  See on flexibility Boudette (1989), Bleicher (1990), Maljers (1992), Amburgey, Kelly and Barnett (1993). 
  See Striening (1988), Hammer (1990), Gilbert and Siong (1993), Harrison and Pratz (1993), Girth (1994).
  See Gaitanides (1983), Peters (1988), Davenport and Short (1990), Holst (1991), Davenport (1993).
  See Kane (1986), Davenport (1993), Scheer (1993).
  See on process owners Striening (1988).
  See Pall (1987), Vantrappen (1992), Blattberg and Deighton (1993), Hammer and Champy (1993).
  See Handelsblatt-Karriere (1994), No. 29, July 29-30,1994, Fischer et. al. (1994).
  See Davenport (1993).
  See Gaitanides (1983), Bellmann (1991), Striening (1988).
  See Simon (1989), Fromm (1992).
  The sample consisted of an undifferentiated sub-sample of German MNCs  and  two Swiss  and  German sub-
samples in the electronics  and  the pharmaceutical industries.
  For instance Davenport, Ernst&Young or Hammer and CIC or Scott-Morgan and ADL.
  See for example Fischer et al. (1994) who give a disillusioning report.
  See Davenport (1993).
  See Kane (1986).
  See Brandes et al. (1989), Davenport and Short (1990), Hammer (1990), Venkatraman (1991), Scheer (1993), 
Benjamin and Levinson (1993), Hauser and Thurmann (1993).
  See for instance Schwarzer, Krcmar and Kutschker (1993), Schwarzer (1993), Schwarzer and Krcmar (1994).
  See Etzioni (1968). For the interplay of data, values,  and  theory in science see Galtung (1978), Kirsch 
(1991).
  The distinction between surface structures  and  deeper structures is based on ChomskyÕs concept on the 
syntax of a language; see Chomsky (1965), Kirsch (1991), Kirsch (1992).
  See for instance Kirsch, Esser and Gabele (1979), Kirsch (1991), Hedberg (1981), Meffert (1984), Stata 

(1989).

  See Handelsblatt Karriere (1994).
  See however Scott-Morgan (1994).
  See on co-orientation Kirsch (1992).
  See Etzioni (1968), Ouchi (1981), Nohria and  Ghoshal (1994).
  See Eisenhardt (1989), Yin (1990), Wollnik (1992), Schmid (1994).
  See for instance Adler (1991).
  See Porter (1985), Porter (1986), Bartlett and Ghoshal (1988), Bartlett and Ghoshal (1989).
  See Bellmann (1991), Wildemann (1993)