Farok J. Contractor

Reconceptualizing the Firm in a World of Outsourcing and Offshoring: The Organizational and Geographical Relocation of High-Value Company Functions

In the largest sense, global strategy amounts to (1) the optimal disaggregation or slicing of the firms value chain into as many constituent pieces as organizationally and economically feasible, followed by (2) decisions as how each slice should be allocated geographically (‘offshoring’) and organizationally (‘outsourcing’). Offshoring and outsourcing are treated as strategies that need to be simultaneously analysed, where just ‘core’ segments of the value chain are retained in-house, while others are optimally dispersed geographically, as well as dispersed over allies and contractors. This amounts to a reconsideration of the nature of the firm that captures the dynamic changes in global configuration and a reconsideration of what constitutes ‘core’ activities that need to be retained internally. The article proposes a new research agenda that searches for each firms optimal degree of disaggregation and global dispersion given that further scattering of value chain activities entail benefits as well as increased complexity and costs.

Country location choices of service multinationals: An empirical study of the international hotel sector

This article examines international country location choices for equity investment undertaken by global hotel chains. Why do certain host countries attract more hotel investment than others? A second underlying issue that we tackle in this article is whether the traditional foreign direct investment determinants used in past studies on manufacturing also apply to services--or whether service sector-specific determinants are better explanatory variables for understanding the distribution of service foreign direct investment across countries.

Valuing corporate knowledge and intangible assets: some general principles

This paper provides a general set of principles, organized into a usable framework, for the valuation of intangible assets as well as corporate knowledge, in the act of transferring, sharing, selling, or licensing it from one company to another. It provides benchmarks for valuation to both seller and acquirer, to licensor and licensee, and to both partners in a corporate alliance. Part I of the paper classifies the nature and attributes of different kinds of corporate knowledge. Part II focuses on the valuation framework. Intangible assets, whether registered intellectual property such as brands, patents, copyrights, or whether they be ‘knowhow’, or general corporate expertise, are increasingly separable from their organizational context, and can be sold or shared with another firm—for compensation. As such activity increases—as part of a general trend towards outsourcing and modularization of business functions, aided by codification of previously tacit or intuitive knowledge—placing a money value on a ‘knowledge package’ is a crucial managerial function. Many of the principles presented in this paper can also be used when the same firm makes its own investments in other markets, by transferring corporate knowledge to its own subsidiary. The various benchmarks and criteria found in the literature are here, for the first time, presented in a comprehensive valuation framework, eminently usable by managers and negotiators. Copyright

The raisons d'être for international management as a field of study

What justifies international management as a field of study? What differentiates international management from international business? These, and other issues of domain and curricular coverage are discussed in this introductory essay.

Alliance and technology networks: an empirical study on technology learning

Patterns of alliance ties and patent citations, between firms in the chemical-pharmaceutical sector over a 13-year period, were mapped to draw alliance and technology networks in the industry. We then investigated how technology learning takes place in the networks. Learning was particularly high when the allies have had direct interorganisational ties, and when both allies have accessed the common pool of external or third-party knowledge. The results emphasise the importance of developing trust around direct alliance ties. There appears to be a tension however, concerning the extent to which firms should have similar or different technology profiles, in order to learn most effectively from each other. The results suggest that learning is most likely when partners are similar in their technology base at the network level, but still remain distinctive in their dyadic technology profiles.

Global Outsourcing and Offshoring: Global outsourcing and offshoring

Introduction The activities of any enterprise can be broken down into a large number of discrete steps along its value chain, from research and design, to production, marketing and distribution, to customer service. Even these are but broad categories which can be micro-dissected into their component pieces. For instance, the “research” function can include creative design, requiring high technical skills and intelligent market feedback into the design process. But research also entails several mundane activities such as field testing, patent applications, and data compilation. This chapter deals with three broad trends affecting the reconfiguration of company functions, for which we propose an integrated approach for theory and strategy: (a) The increasingly finer micro-dissection of company functions all along the value chain. This enables a finer-grained evaluation of which of the micro-activities are best performed within the company, and which may be outsourced – in short, the organizational relocation of functions which previously may have been performed in-house. (b) Geographical relocation and the choice of foreign country and partner. (c) The greater outsourcing and offshoring of activities that used to be considered “core,” proprietary, or strategically crucial, such as Research and Development vital to the continued competitiveness of the firm. The chapter addresses a crucial global strategy question, “What is the optimal global and organizational configuration for each micro-activity or function for a company?” Although the driving forces of outsourcing and offshoring have recently escalated, the roots of geographical and organizational restructuring of economic activity can be traced back into prehistory.

Inter-Firm technology transfers and the theory of multinational enterprise

A company that has developed a technology has a choice of transferring and sharing it with other firms for appropriate compensation, or using it for its own operations worldwide. How should firms make this choice, and what does the theory of multinational enterprise have to say about this decision? This article examines the theory, identifies attributes of a technology that makes it more transferable internationally, discusses changes in the international business environment which have fostered inter-firm transfers, and concludes with a section on host-government policies on the acquisition of foreign technology.

Alliance formation propensity in a global industry network

What factors determine which firms in an industry ally with each other? This paper analyses a sample of 497 alliances, in ten countries, in the global pharmaceutical sector where alliances are prolific and central to corporate strategy. The results suggest that direct technological commonality (measured by cross patent citations between each pair), indirect commonality (measured by the degree to which they share common third-party technology sources), and prior alliance ties statistically explain the propensity that any two firms in a network will form an alliance. We also explore cross-border effects to see if companies originating in different nations are more likely, or less likely, to form alliances because of their national origins.

Between markets and collusion: The implications of joint ventures for public policy and regulation

There has been virtually no discussion of the public policy aspects of joint ventures and other forms of interfirm collaboration despite the explosive growth of these arrangements over the last decade. Joint activities by firms have not merely an antitrust implication, but affect issues at the heart of industrial policy, science and technology development, trade policy, and intellectual property rights. This paper explores and maps the connections between corporate alliances and these policy issues.

Internationalization and performance: the role of depth and breadth

The purpose of this paper is to analyze the relationship between multinationality and firm performance (M-P) in Latin American companies, commonly referred to as multilatinas. The study conceptualizes the depth (intensity) and breadth (geographical scope) of internationalization and examines their effect on financial performance. Although scholars have studied how internationalization in various contexts and industries affects performance, little is known about firms in Latin America.,The authors conducted an analysis of the effect of the depth and breadth of multilatina internationalization on financial performance by creating a database using information from America Economia, a specialized Chilean magazine that publishes an annual ranking of multilatinas. Additional data came from the Osiris database of Bureau Van Dijk and Compustat. The hypotheses were tested using an autoregressive heteroskedastic model.,The results show that the extent of the depth and breadth of internationalization affects financial performance. Multilatinas’ depth of internationalization has a curvilinear (U-shaped) impact on performance while breadth has an inverted curvilinear impact on performance.,The theory portion and results expand the literature on firm internationalization and performance by distinguishing between two types of international firm expansion, depth and breadth, and discussing how each contributes to different stages of the three-stage theory of multinationality and performance.,The findings indicate that multilatinas benefit from their regional expansion, but outside Latin America, expansion has a negative effect on financial performance. They also show that firms can implement different types of internationalization strategies in terms of intensity and scope to achieve better performance.,Este articulo analiza la relacion entre la multinacionalidad y el desempeno de la empresa (M-P) en companias latinoamericanas, conocidas como multilatinas. El estudio conceptualiza la profundidad (intensidad) y extension (alcance geografico) de la internacionalizacion, y examina su efecto en el desempeno financiero. Aunque varios investigadores han estudiado como la internacionalizacion en diversos contextos e industrias afecta el rendimiento, poco se sabe con respecto a las empresas en America Latina.,Los autores realizaron un analisis del efecto producido por la profundidad y extension de la internacionalizacion de la multilatina en el desempeno financiero, mediante la creacion de una base de datos con informacion de America Economia, una revista chilena especializada que publica anualmente un ranking de multilatinas. Datos adicionales provienen de la base de datos Osiris de Bureau Van Dijk y de Compustat. Las hipotesis fueron probadas usando un modelo heterocedastico autoregresivo.,Los resultados muestran que el grado de profundidad y extension de la internacionalizacion afectan el rendimiento financiero. La profundidad de internacionalizacion de las multilatinas tiene un efecto curvilineo (en forma de U) sobre el desempeno financiero, mientras que la extension geografica tiene un efecto curvilineo invertido en dicho desempeno.,La seccion teorica y los resultados extiende la literatura sobre la internacionalizacion y el desempeno de las empresas al distinguir entre dos tipos de expansion internacional: profundidad y extension. Tambien se discute como cada uno contribuye a las diferentes etapas de la teoria de la multinacionalidad y desempeno.,Los resultados indican que las multilatinas se benefician de su expansion regional. Sin embargo, fuera de America Latina, dicha expansion tiene un efecto negativo sobre el desempeno financiero. Tambien se senala que las empresas pueden implementar diferentes tipos de estrategias de internacionalizacion en terminos de intensidad y alcance para lograr un mejor desempeno.