1. For a typical example of a neo liberal approach to globalization see Ohmae, Kenichi, The Borderless World: Power and Strategy in the Interlinked Economy (Harper and Row, New York, 1991). For a critical review see Hu, Yao-Su, ‘Global or Stateless Corporations are National Firms with International Operations’, California Management Review, Vol. 34 (winter 1992), pp. 107–26.CrossRefGoogle Scholar

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4. Boyer, Robert, ‘The convergence hypothesis revisited: globalization but still the century of nations?’, in: Suzanne Berger and Robert Dore (Eds), National Diversity and Global Capitalism (Cornell University Press, Ithaca, NY, 1996), p. 47. These are not Boyer's own views. He argues that ‘This syllogism that equates globalization with convergence is logically flawed, and its premise may not correspond to the current state of the world economy’ (Ibid., p. 50). This is a conclusion with which we agree.Google Scholar

5. See, for instance, many of the contributions to Suzanne Berger and Ronald Dore (Eds), National Diversity and Global Capitalism (Cornell University Press, Ithaca, NY, 1996).Google Scholar

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7. Much of the early Japanese FDI in manufacturing was directed towards import substitution behind protective tariffs.Google Scholar

8. A note of caution is appropriate here. As we discuss later, even within the electronics sector, US and Japanese subsidiaries in East Asia have historically had different specializations. One source of recent convergence is that Japanese corporations have increasingly moved into the same field, personal computing equipment, which US firms have traditionally occupied.Google Scholar

9. For a good overview, see John, Robin (Ed.), Global Business Strategy (International Thomson Business Press, London, 1997).Google Scholar

10. Our focus on the dynamics of change is in line with the evolutionary, resource-based theory of the firm, based on the following references: Edith Penrose, The Theory of the Growth of the Firm (Oxford University Press, Oxford, 1959); R. Nelson and S. Winter, An Evolutionary Theory of Economic Change (Belknap Press, Cambridge, MA, 1982); B. Kogut and E. Zander, ‘Knowledge of the Firm and the Evolutionary Theory of the Multinational Corporation’, Journal of International Business Studies, Vol. 34, No. 4 (1993); Richard N. Langlois and Paul L. Robertson, Firms, Markets and Economic Change: A Dynamic Theory of Business Institutions (Routledge, London, 1995); Nicolai J. Foss and Jens Frøslev Christensen, A Process Approach to Corporate Coherence, (Copenhagen Business School, Danish Research Unit for Industrial Dynamics (DRUID), Working Paper 96–7, 1996); and Esben Sloth Andersen, ‘The evolution of economic complexity: a division-of-coordination-of labor approach’, in: E. Helmstaedter and M. Perlman (Eds), Behavioral Norms, Technological Progress, and Economic Dynamics. Studies in Schumpeterian Economics (University of Michigan Press, Ann Arbor, 1996). For a recent overview, see Langlois, Richard N. and Foss, Nicolai J., Capabilities and Governance: the Rebirth of Production in the Theory of Economic Organization (Copenhagen Business School, Danish Research Unit for Industrial Dynamics (DRUID), Working Paper 97–2, January 1997).Google Scholar

11. This concept allows us to analyze the globalization strategies of a particular firm by posing four questions. (1) Where does a firm locate which stages of the value chain? (2) To what degree docs a firm rely on outsourcing? What is the importance of inter-firm production networks relative to the firm's internal production network? (3) To what degree is the control over these transactions exercised in a centralized or in a decentralized manner? And (4) how do the different elements of these networks hang together? For details, see Ernst, Dieter, ‘Network transactions, market structure and technological diffusion—implications for south-south cooperation, in Lynn Mytelka (Ed.), South–South Cooperation in a Global Perspective (OECD Development Centre Documents, Paris, 1994). One problem with focusing on production networks is that this level of analysis does not lend itself readily to the use of aggregate data. Rather, it frequently relies on case studies that at best can be considered illustrative of the broader process underway.Google Scholar

12. We define East Asia to include the economies of both Northeast and Southeast Asia.Google Scholar

13. The following is drawn from Dieter Ernst, Global Production Networks in Information Industries. Carriers or Barriers for Industrial Upgrading?, chapter 1, ‘How globalization reshapes industrial upgrading options’ (Copenhagen Business School Press, Copenhagen, forthcoming).Google Scholar

14. Krugman's claim to the contrary is not convincing. Neo-classical economists claim that general overproduction is impossible: ‘… all of the increased production in the world has as a necessary counterpart increased income—every dollar of sales must also represent a dollar of wages or profits to somebody. And there are only two things you can do with income: save it or spend it’. Paul Krugman, Review of One World, Ready or Not: The Manic Logic Of Global Capitalism by W. Greider, 3 August 1998, http://mit.edu/krugman/www/greider.html. The conclusion drawn is that, short of a global excess of savings compared to investment opportunities, global oversupply is logically impossible. Such a conclusion is consistent with the basic assumptions of the maximization-and-equilibrium paradigm. Yet, it fails to address the existence of persistent overproduction in specific industries and markets, which, as George B. Richardson has convincingly demonstrated, explains why concurrent coordination is the basic rationale for the existence of the firm, George B. Richardson, Production, Planning and Prices (Department of Industrial Economics and Strategy, Copenhagen Business School, Danish Research Unit for Industrial Dynamics (DRUID), Working Paper 98–27, 1998).Google Scholar

15. For a basic model of periodic overproduction in the semiconductor industry, see Ernst, Dieter, The Global Race in Microelectronics, with a foreword by Prof. David Noble, Massachusetts Institute of Technology (MIT) (Campus Publishers, Frankfurt and New York, 1983), chapter 1.Google Scholar

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20. This matches Hakansson's observation that in ‘… foreign manufacturing units … there is an almost irresistible creepage from production engineering upstream into design and development’, L. Hakansson, ‘International decentralization of R&D—the organizational challenges’, in: C. A. Bartlett, Y. Doz and G. Helund (Eds), Managing the Global Firm (Routledge, London, 1990), p. 260. That knowledge migrates with manufacturing is also well documented in research on East Asia: see Ernst, Dieter and O'Connor, David, Technology and Global Competition. The Challenge for Newly Industrialising Economies (OECD Development Centre Studies, Paris, 1989); and Dieter Ernst, Tom Ganiatsos and Lynn Mytelka (Eds), Technological Capabilities and Export Success in Asia (Routledge, London, 1998).Google Scholar

21. In a recent survey, Vonortas and Safioleas found that transnational strategic alliances occurred far more frequently in the computer industry than in any other industry sector. Nicholas S. Vonortas and Stratos P. Safioleas, ‘Strategic Alliances in Information Technology and Developing Country Firms: Recent Evidence’, World Development, Vol. 25 (May 1997), pp. 657–80.Google Scholar

22. Ernst and Guerrieri have analyzed how the spread of different international production networks in East Asia has affected the trade links of the region with the US and Japan: Dieter Ernst and Paolo Guerrieri, ‘International Production Networks and Changing Trade Patterns in East Asia. The Case of the Electronics Industry’, Oxford Development Studies, Vol. 26, No. 2 (1998). This study documents that a far greater diversity of product groups is involved in Japanese in contrast to US trade links with East Asia. Of equal importance is a second finding: the trade balances of the two countries with the region are radically different. A consistently high and growing trade deficit characterizes US trade links with East Asia in the electronics industry. This is true even for computers and components, the two sectors where the US has re-established itself during the last few years as an uncontested leader. This is in stark contrast to East Asia's trade with Japan, where the latter enjoys large and rapidly growing surpluses. These differences can only be partially attributed to traditional macroeconomic factors that are the focus of standard trade theory. They can be better explained by some peculiar features of the international production networks that American and Japanese firms have established in East Asia. The chain of causation appears to work both ways. Changes in the organization of international production have led to changes in the composition of bilateral trade flows. Such changes in international trade patterns, in turn, lead to further changes in the organization of international production.Google Scholar

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51. Ibid., p. 16. For a case study of such learning in the IPN of Samsung Electronics, see Kim, Youngsoo, ‘Technological capabilities and Samsung Electronics’ international production network in Asia’, in: Michael Borrus, Dieter Ernst and Stephan Haggard (Eds), Rivalry or Riches: International Production Networks in Asia (Cornell University Press, Ithaca, NY, forthcoming).Google Scholar

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56. For a study of Intel's affiliate in Penang, see Ernst, Dieter, From Partial to Systemic Globalization: International Production Networks in the Electronics Industry (Graduate School of International Relations and Pacific Studies, University of California, San Diego, 1996). Report prepared for the Sloan Foundation project on Globalization in the Data Storage Industry. Jointly published as The Data Storage Industry Globalization Project Report 97–02, Graduate School of International Relations and Pacific Studies, University of California at San Diego, and BRIE Working Paper # 98, the Berkeley Roundtable on the International Economy (BRIE), University of California at Berkeley, April 1997.Google Scholar

57. We arc grateful to an anonymous referee for drawing our attention to this distinction.Google Scholar

58. The data have to be interpreted with some caution as they may also reflect increased sourcing from Japanese component suppliers who re-located to Southeast Asia in this period. The data, kindly supplied by Shujiro Urata, arc taken from Ministry of International Trade and Industry (MITI), Wagakuni Kigyo no Kaigai Jigyo Katsudo (Survey of the Overseas Activities of Japanese Companies), No. 21 (Tokyo, 1992) and Ministry of International Trade and Industry (MITI), Wagakuni Kigyo no Kaigai Jigyo Katsudo (Survey of the Overseas Activities of Japanese Companies), No. 25 (Tokyo, 1996). Japanese automobile ‘transplants’ in the US evince a similar pattern of expanded local sourcing over time—again with a substantial share coming from locally-based subsidiaries of Japanese component manufacturers. See Congress of the United States, Multinationals and the U.S. Technology Base, p. 21.Google Scholar

59. During the peak of the recession, when most Japanese electronics firms faced a serious profit squeeze, Japanese parent companies actually used sophisticated transfer-pricing techniques to transfer back home any profits made in Asia. Interview with Japanese venture capital firm, November 1993.Google Scholar

60. Ministry of International Trade and Industry (MITI), Overseas Investment Statistics Overview (Tokyo, 1992).Google Scholar

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64. Japanese PC vendors undoubtedly perceive this new reliance on OEM purchases as an intermediate solution. It enables them to discontinue lower value-added production activities at home; their objective, however, is to set up their own supply base for some of these products in China and Southeast Asia. The rapid growth of OEM contracts, therefore, may well not last for long (although again contending forces may be at work, e.g. the extent to which components become ‘commodified’). For the time being, however, Japan's PC-related imports from East Asia continue to grow rapidly, and they are sourced from a variety of different international production networks.Google Scholar

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70. Mitac in turn is responsible for the design and development of new products, as well as for manufacturing, transport and after-sales services at its manufacturing facilities in Taiwan, China, Britain, Australia and the US. Compaq expects to save up to 15% in overall life-cycle costs. Mitac's greatest attraction for Compaq is its plants and sales subsidiaries that are located in most of the world's key computer markets. Information provided by MIC/III, 27 October 1995.Google Scholar

71. For a theoretical foundation of the critical importance of tacit knowledge for Japanese management approaches, see Nonaka, I. and Takeuchi, H., The Knowledge Creating Company (Oxford University Press, Oxford, 1995).Google Scholar

72. Established in 1915, Yokogawa Electronic has a strong position in measurement equipment and control devices, and has also successfully diversified into PCs, medical systems, software, engineering and information services. Its consolidated group sales in 1996 were Yen 280 billion with 29,000 employees—which places it squarely in the important group of medium-sized Japanese corporations that arc often overlooked by foreign observers.Google Scholar

73. ‘[W]e are … able to learn … [from HP] many things like business strategy, American rationality and management style…. It is very valuable and profitable that we can learn business philosophy and management methodology from international top ranking companies. For example, our top management can meet and talk with Jack Welch, CEO of GE. Such an opportunity is very important and useful for considering our business strategy and management.’ Toshihiko Akaishizawa, director for strategic planning, Yogokawa Electronic, quoted in Yoshiya Teramoto, Naoto Iwasaki and Tohru Takai, Role of Inter-Organizational Networks: The Case of Japanese Corporate Groups (Maison Franco-Japonaise and Deutsches Institut fuer Japanstudien, 1997).Google Scholar

74. See, for instance, the discussion in Ernst, From Partial to Systemic Globalization: International Production Networks in the Electronics Industry, of HP's innovative approach to global chain management which, arguably, draws some of its inspirations from Japanese management approaches.Google Scholar

75. We need to emphasize however an important lacuna in existing research: to date little evidence is available of American subsidiaries in Asia mimicking the practices of Japanese companies. Our discussion of the case of Yogokawa Electronics has provided clear evidence of one instance of mutual convergence. To what degree American electronics firms have learned from some of the innovative Japanese human resource management practices like on-the-job-training (OJT), quality control circles and information sharing through frequent job rotation, has yet to be investigated. The same is true for other strengths of the Japanese management approach like inventory management and aggressive market penetration strategies in Asia's growth markets for electronics. American electronics firms, like Motorola, Compaq and Apple, for instance, have taken a keen interest in Japanese market penetration strategics in Asia (information provided by Dennis Tachiki, senior researcher at the Sakura Research Institute, Tokyo). It would also be of great interest to study whether SMEs in the American electronics industry have tried to learn from the internationalization strategics of Japanese SMEs.Google Scholar

76. We make no claims about how representative the East Asian production networks of Japanese and US electronics firms are of the behavior of US and Japanese companies’ foreign investments more generally. As noted above, the proximity of other East Asian countries to Japanese headquarters facilitates certain patterns of interaction between parent and subsidiary that are more difficult for US companies operating in the region, and which would be more difficult for Japanese companies in other parts of the world. We also note that certain characteristics of consumer electronics production enables the construction of networks of geographically dispersed plants that would not necessarily be cost-effective in other industrial sectors. The study of a single sector over time, however, has the advantage of controlling for some of the variables that may produce spurious correlations in aggregate analyses. One cost of our approach, however, is that some of the evidence, derived from case studies, that we offer is at best illustrative.Google Scholar

77. Kreinin, , ‘How Closed is Japan's Market? Additional Evidence’. The same is true for American firms when their primary focus is on domestic markets. For some evidence, see Encarnation, Investing in Asia: The Regional Operations of Japanese Multinationals. Google Scholar

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79. While noting that globalization has ‘… already led to converging transitions, and pointed to prospective organizational trends’, Humes acknowledges that this process still leaves sufficient latitude for organizational diversity, Samuel Humes, Managing the Multinational: Confronting the Global-Local Dilemma (Prentice Hall, London, 1993), p. 24. Ghoshal, whose well-known text with Bartlett is often seen as providing strong evidence for increasing convergence amongst firm strategies, similarly argues in a co-authored paper with Nohria that matching organizational structure to environment and strategy does not preclude different approaches by individual companies. Christopher A. Bartlett and Sumantra Ghoshal, Managing Across Borders: The Transnational Solution (Harvard Business School Press, Boston, MA, 1989); Sumantra Ghoshal and N. Nohria, ‘Horses for Courses: Organizational Forms for Multinational Corporations’, Sloan Management Review, (winter 1993): this message is captured in their article's title.Google Scholar

80. Recent research shows that this is even true for the financial sector, arguably the most globalized of industries, where the once clear-cut distinction between Anglo-Saxon and continental European/Japanese governance approaches has lost much of its earlier vigor, J. L. Christensen and I. Drejer, Finance and Innovation. System of Chaos? (Copenhagen, 1997). Globalization has placed different systems of corporate governance and of regulations in open competition with one another. Undoubtedly, strong convergence trends are evident. Yet significant differences continue to exist. In some areas it is possible to detect increasing diversity, due to a continuous hybridization of existing national institutional trajectories.Google Scholar