New Challenges for International Business Research: Back to the Future

Citation

Chen, S. (2011), "New Challenges for International Business Research: Back to the Future", Multinational Business Review, Vol. 19 No. 1, pp. 94-97. https://doi.org/10.1108/mbr.2011.19.1.94.1

As a visiting scholar at the Henley Business School at Reading, I was delighted to be asked to review this book by the late John H. Dunning (1927‐2009), who is widely known as the Founder of the “Reading School” of International Business and one of the leading figures in the international business community. This volume of selected works by John Dunning was the last volume that he worked on before his death in 2009 and was completed by Sarianna Lundan, who co‐authored a number of other works with him, including the second edition of Multinational Enterprises and the Global Economy (Dunning and Lundan, 2008). As noted by Lundan in her introduction to this volume, John Dunning was an eclectic researcher who was not in the least snobbish about the journals where he drew his ideas from or where he published, and the volume contains several articles which many readers will not be aware of as they appeared in less well‐known journals or as book chapters. Certainly for me, in reading the book, I learned a lot more about the man and his ideas, which I was not aware of previously. In doing so, I also learned a lot more about the intellectual foundations of the “Reading School” of thought in international business, which he founded.

The book is divided into five parts. Part 1 contains three essays which discuss three of the pillars of the Reading School – Penrose's (1955, 1956) work on growth of the firm and foreign investment (1956), Hymer's (1960) work on FDI and Buckley and Casson's (1976) work on internalization theory. Part 2 contains five essays which discuss the institutional perspective in international business including how institutions affect the location of FDI, human development and institutional reform in European transition economies. Part 3 contains three essays which discuss the role of FDI in the competitiveness of firms and countries. Part 4 contains two essays on ethical challenges in global capitalism. Finally, Part 5 contains two personal essays, one reflecting on his life as an international business scholar and the other on his personal observations on the changing relationship of the United Nations with respect to TNC's in the last 40 years or so.

Although the assembly of the essays into these five parts does make sense in terms of topic areas, I found in reading the book that the relationship between the ideas made more sense and was more interesting after reading Chapter 14 by Dunning on the origins and development of his research in international business. A senior colleague once commented to me that there are two types of researchers – those who are good at analysis and those who are good at synthesis. While this may be an over‐simplification, it, nevertheless, does refer to two types of thinking which have been well documented by psychologists. Dunning was clearly a synthetic thinker par excellence and, after reading the book, one gains a better sense of how Dunning's work and, more generally, the international business discipline of which he was a leading light, has grown by incorporating ideas from various sources.

In Chapter 14 (an updated version of a short autobiography published in 2002), Dunning explains how, after a brief career in the navy and graduating with a first‐class degree in Economics from University College, London, he started his academic career in 1952 as a Lecturer in Economics at Southampton University, where his research had two main thrusts. The first was on locational economics, more specifically on the role of UK Government Policy in the development of regional clusters of economic activity. The second was on the contribution of US affiliates in Britain to UK industrial development. Although both topics are connected and Dunning returned in later years to the former topic, it was the latter research which set him off in his career in international business and where he made his name. Earlier research had shown that, on average, manufacturing firms in the USA were 2.5‐4 times more productive than UK manufacturing firms. Dunning found through his research, which later formed the basis of his PhD thesis from Southampton University, awarded in 1957, that, on average, US subsidiaries in the UK recorded a productivity of around three quarters of that of their parent companies in the USA. He explained these findings using two of the factors which were later to form the basis of the “eclectic paradigm” for which he is best known. He argued that the productivity difference between US affiliates and domestic UK firms was largely due to the ownership (O) advantage rather than location specific (L) differences. This line of reasoning has proved useful over the years and continues to be the basis of much research in the IB field, such as Rugman's (1996) firm‐specific advantage versus country‐specific advantage framework.

Dunning did not add the third leg of the eclectic paradigm, internalization, until 18 years later in 1976. In 1964, he was appointed to the Foundation Chair in Economics at the University of Reading, where he had to spend time building up the department from scratch and his time was also taken up in other research on FDI and competitiveness of the UK. From his accounts, in the interim, several scholars, most notably, Peter Buckley and Mark Casson at Reading, Birgitta Swedenborg and Nils Lundgren in Sweden and Jean Francois Hennart in the USA, were seeking to extend Coase's (1937) transaction cost thinking on the origin of firms to explain the origin of MNEs. Based on their work and earlier work by McManus (1972) which argued that firms chose to engage in FDI rather than a non‐equity alliance with a foreign firm when the transaction costs of the former were less than the latter, Dunning added internalization (I) to his earlier OL framework. As Dunning is at pains to point out (p. 388), he did not see the eclectic paradigm as an alternative to the internalization theory of the MNE as presented by earlier scholars, but rather as an extended version of the theory of the firm.

In 1987, Dunning took up a position as Visiting Professor at Rutgers University, New Jersey, an association which led to him being offered a State of New Jersey Professorship in 1989. From 1988 until his retirement from Reading in 1992, he held a concurrent ICI sponsored Research Professorship at Reading, examining the interaction between MNEs and government. His work during this period is not included in the present volume but clearly formed the basis of some of his later works in Part 3 on FDI and economic development.

Retirement from Reading in 1992 and, subsequently, Rutgers in 2000, did not halt Dunning's research. In fact, all of the 15 essays in the collection appeared in print after 2002. His research in the post‐retirement period from 1992 seems to have taken two sometimes intersecting paths – refinement of the eclectic paradigm and application/extension to new problems in international business. In 1993, in response to merger and acquisition boom taking place at the time, he introduced the concept of strategic‐asset‐seeking FDI (p. 393). This introduced the idea that some FDI takes place, not to exploit the existing competitive advantages of the firm, but in order to protect such advantages or acquire new ones.

In 2003 (Chapter 1), he revisited the earlier work of Penrose (1955, 1956) on the growth of the firm and not only showed how Penrose's work had contributed to understanding of the nature and determinants of MNE activity but also added a dynamical element to his own eclectic framework. Revisiting his own OLI framework, he distinguished between ownership advantages arising from the creation of new assets (Oa advantages) and ownership advantages arising from more efficient coordination and/or disposition of existing assets (Ot advantages).

In 2008 (Chapter 2), in a paper co‐authored with Christos Pitelis, he re‐examined the work of Hymer (1960) on FDI. Once again using Dunning's eclectic framework, they show how much of what Hymer (1960, p. 20) originally discussed could be explained using OLI terms and was also consistent with the work of Penrose. However, in some cases, there may be over reliance on the OLI framework. For example, removal of conflict between firms in different countries is cited as one reason for FDI given by Hymer, and the paper refers to game theoretic approaches to MNEs as providing some support for Hymer's views but this is not elaborated on elsewhere in the paper.

From 2006 to 2008 (Chapters 4‐8), Dunning sought to add the dimension of institutional analysis to his framework. This is most explicit in Chapter 6, which he co‐authored with Sarianna Lundan. They distinguish ownership advantages derived from institutions (formal and informal) at the level of the firm (Oi) from asset‐derived ownership advantages (Oa) and transaction‐based advantages (Ot). Similarly, they argue that, like ownership advantages, certain location‐based advantages can also be institutionally related (Li) and, finally, that much of the thinking on internalization (I) factors is implicitly or explicitly institutional because it is aimed at assessing the costs and benefits of exploiting O‐specific advantages. Dunning himself in the introduction to the volume (p. xiii) considers the role of institutions in shaping the OLI configuration of MNEs and in economic and social development to be a major contribution of the works in this volume, and their importance in his thinking is apparent in the later essays in Parts 3 and 4, where he draws on institutional theory to consider questions of economic development and, more intriguingly, the ethical and moral underpinnings of global capitalism.

In the three essays in Part 3, Dunning returns to one of his favourite themes, dating back to his early days as a researcher, the relationship between FDI and the national economy, but this time introducing the role of national institutions. Unlike most of the other essays in this volume, these three essays are empirically based, drawing on international FDI statistics. As described in Chapter 15 of the volume, Dunning had a long and close relationship with the UN, particularly UNCTAD, as an economic adviser, and his research on the effects of FDI on national economies has influenced international policy. This applied economics perspective is most evident in Chapter 9, where Dunning draws some implications of his findings for the Korean Government, but also in the other chapters where it is clear that the focus is less on hypothesis testing but rather drawing practical insights from the analysis of descriptive statistics on FDI. For instance, in Chapter 11, co‐authored with Masataka Fujita of UNCTAD and Nevena Yakova, Dunning again makes good use of statistics sourced from the UN in the globalization versus regionalization debate sparked off by Rugman's (2000) work.

The two essays in Part 4 were for me the most surprising as, I am ashamed to say, I had not read them before and was not aware that Dunning had an interest in ethics and corporate social responsibility. However, reading his life history in Chapter 14 makes his interest in this area more understandable. As a committed Christian, the son of a Baptist Minister, it is quite understandable that towards the end of his life he would turn to questioning the moral underpinnings of global capitalism, which he had so deeply studied from an economic perspective for much of his life. As with previous research questions, Dunning's intellectual tactic here has been to seek to integrate corporate social responsibility into existing IB theory by adding another factor into the OLI framework, this time using institutions as the lynchpin. In doing so, he raises a number of questions for future IB research on CSR, such as how global capitalism can be more responsible and how MNEs can help encourage the acceptance of CSR.

Conclusion

As the title of the book suggests, it is truly back to the future. The book is a testament to the breadth of Dunning's interests, but what is also most impressive is that it shows how, in the course of his long career in researching such a wide range of questions, Dunning was able to achieve so much through the use of a relatively few concepts, the strength of which can be seen by the fact that many are still widely used today in IB research. However, it also sets out new challenges for IB research. Many of the questions which stimulated Dunning's research back in the 1950 s are the same questions that are being asked today by researchers. The book will give a better understanding of how they have been answered by a leading figure in the field but may also suggest other avenues for future research. It shows how, even after his death, Dunning still has the capacity to inspire us.