International business refers to cross-border trade between different political jurisdictions. International business can either be carried out by private businesses or the private companies. Since the dawn of the western civilization, nations have been trading with each other to supplement the commodities that were missing in their jurisdictions. The works of neoliberal economist influenced the nature of economic trade between nations. Globalization added to liberalization of the economy. Private business enterprises were allowed to enter the market. International business posed many risks to businesses that were quick to enter the global market without taking the risks into considerations. Cross border trade is determined by the economic and the political environment of the host county. Between 1902 and 1929 businesses that attempted to enter the international market soon after they were started ended up collapsing. The businesses started the process of internationalization without ensuring that they have a strong corporate governance system. The consequence of these investments was either the liquidation of the companies or the retreatment of the companies to the domestic economies.
A historical scrutiny of the international business shows the necessity of taking history of international business into consideration before making investments. International business scholars have ignored the essence of history. The majority of the international business failures have occurred because of the failure of businesses to abide by the lessons taught by the history of investment. History has proved that multinationals experience major challenges in the cross border operations. The majority of them result from hostile economic environment. Hostile environment could be mitigated by carrying out a prior research of the potential pitfalls of the internationalization.
The objective of this article written by Jeffery Jones and Tarun Khanna is to generate a point of view backed by evidence from which fellow international business scholars can deduce that history matters in Business. Jones and Khanna contend that the history matters but in this journal article they seek to answer a basic question that has been ignored by international business scholars; how does history matter? Khanna and Jones acknowledge that the historical variation is worthy a compliment for highlighting issues in the contemporary cross sectional concepts. Historical variation is closely intertwined with Historic evidence. Economic theories on international business can only be regarded as workable if they are validated by historical evidence. Historical evidence may challenge the explanation for determinants; in relation to the appearing and disappearing of firms. Khanna and Jones explore the roots of penrosian resources in this journal article that was published in the Harvard Business Review. They further equate the contemporary economic phenomena with the 20th Century Business practices. Jones and Khanna argue that the choices made by Jardine and Swire in India are an outgrowth of strategic growth choices in evidence for over a century. The Journal articles further explores the differences between the direct financial evidence and a staple international business literature. Jones and Khanna argue that Rigorous methods must be adapted to in analyzing small-scale qualitative date especially when the conventional regression methods do not apply. The adoption of historical evidence method is hampered by the fact that the majority of the international business scholars have not been trained in analyzing quantitative data.
The end of the Second World War signaled the end of imperialism and colonization. Many countries got their independence and, therefore, the international market was flooded with new entrants. The western countries had flourishing economies. After the second world, International Business scholars used Vernon’s product cycle model to explain the wave of investment in the Postwar Europe. Jones and Khanna appear to endorse the product life cycle model developed by Raymond Vernon. Both Khanna and Jones contend that the Heckscher-Ohlin model had failed. If a successful product is introduced in the market, the country where the product was developed exports the product to the rest of the world consumers. With the internationalization, the product shifts the country of production. A case in point is the invention of computers. Before the development of the Product life cycle model, Raymond Vernon undertook an extensive research at Harvard Business School to determine the origin of multinationals. He developed the product life cycle theory to replace the failed model. Jones and Khanna explored some of the issues raised by Vernon.
The two international business scholars urge for the recognition that history matters international business. They conducted research on journals and found that business Journals mentioned history as important in international business, and none used the history of international business to explore international issues. In addition, International business scholars did not explain how history matters .The principle tenet of international business is to reduce the cost of producing goods. Multinationals relocate to countries that have cheaper production rates in accordance with the transaction cost theory. Mark Casson and Jean Hennart used the transaction cost theory to explain the way in which businesses operated in exploiting the cross border entrepreneurial opportunities. Jones and Khanna focus their argument on the historical patterns of horizontal and vertical integration natural and resource manufacturing industries. The operation of a multinational and the behaviour of related international business companies have been riddled with economic puzzles. Transactions cost theory to explain the changing modes by the multinationals before the Second World War. The explanation was in regard to relocating and shifting their transaction bases to countries with favorable economic environments.
Jones and Khanna uses the large scale research on the growth of large scale research to advance their argument. They focus on Companies such as Jardine Mathewson and Swire. The British companies act evolved over years to fully regulate the activities of the companies. Jardine and Swire, British companies, went multinational to increase their profits. In china, Jardine was harshly treated by the communist ruling party. Some of their investments were confiscated. The companies disappeared from the international arena after losing huge profits.
The use of historical analysis to confirm the Cross sectional theory is correct. Firm’s strategies reshaped by the political and economic environment. Any change in the dynamics of the business environments affects the business and the investments. A change in the political environment can have deleterious effects to the business. The socialist government that came into power in the Peoples’ Republic of Chinas in 1949 hurt the multinational operations in the country. The Communist oriented government confiscated the investments and the assets of TATA industries; an Indian Multinational in the country. The economic and political climate is never constant. The shifting patterns of competitive marketing strategies make force some businesses to disappear from the international arena. Contrary to economic expectations those businesses have formed a habit of resurfacing after certain duration of time. Historical research shows that the presence of multinationals in the international arena is influenced by the external environment. Historical evidence challenges the international Business scholars to find a correlation between the organization of firms and variables that necessitate the change in the international business environment.
History warns international business scholars to investigate the occurrence of modern phenomena. The creation of international businesses had happened before the Second World War. New businesses were formed and started the process of internationalization. The new entrants to the financial market were referred to as the global newborns. The global newborns were started between 1902 and 1914. By 1918, the phenomenon slowed down. The phenomenon stopped entirely after 1929. The born global business had insufficient government structures to support domestic and cross border operations. The majority of them succumbed to the risks of cross-border business operations and retreated to the domestic economies. Some businesses, however, survived the hurdles of international market and ended up being the most successful businesses in the world.
Pre-colonial business cartels in areas that were occupied by the British Empire controlled the flow of information in the world. Government chartered corporations such as the European East Indian companies and the Imperial British East African companies controlled forty percent of the world economy. The companies dominated the international markets and influenced the political directions that their host countries were to adopt. The onset of the Second World War marked the beginning of the extermination of the government chartered corporations. They emerged out of the Second World War wounded and since them they have disappeared from the international business arena. Some companies were reduced to providing air operations and small scale services.
Edith Penrose argued that the history matters in the growth of a firm. Penrose argued that the history of firms determined its distinct competencies. She argued that the growth of the firm is evolutionary in nature and was determined by the collective knowledge gained from the experiences of the business in the economic arena. Penrose engaged in an extensive research, in the growth of and the history of the petroleum industry. She acknowledged the major political and economic influence exerted by the resource based and path dependent theories of the firm. Like the other international business scholars, she acknowledged that the history has been ignored in the study of the global economic system. The failure of the neoclassical approach necessitated the international business scholars to put an effort to understand the penrosian resources. The understanding will enable scholars to solve some of the international business puzzles that have mind boggled economist for years.
Econometric evidence suggests that multinationals trade information about the operation of their business with other equally performing multinational companies. That information is expressly guarded form misuse by private sources. The information is not even available to the international business scholars. Nevertheless economist such as Solvell and Zander argue that the capacity of multinationals to transfer technological knowhow has been overestimated. International business scholars have studied the transfer and the diffusion of knowledge across businesses for a long period. Historical materials are important too in identifying the cross border determinants of the exchange of information between the corporations.
Professional historians can be able to identify the business corporations that were once considered important, but have died out. A research of the in the Harvard Business Review website can reveal the businesses that were once revered, but have drifted toward obscurity. Such knowledge is paramount to international Business scholars. Such information offers insight into the future of modern corporations. A historical study on the dependence path theory on the exchange of information showed discrepancies in the exchange of business information in some internationally revered multinationals. The Ford Multinational operated in Europe for over a decade without clear and accurate communication between the organizations.
Many benefits will accrue from the inclusion of historical evidence in the on the foreign investments. The historical evidence will show market determinants such as labor and capital and their interplay with the political climate of the country of choice. Historical evidence will enable businesses to avoid the investment failures experienced by the TATA industries, Jardine and Swire multinationals. Countries that have unstable political environments will be avoided by the investors. A comparative approach study on the Political and economic landscape of India has shown that Indian economic topography is constantly changing. Multinationals have to be wary of the Political environment in order to achieve economic stability in the country. Despite the numerous economic opportunities posed by the Indian Sub-continent, the economic climate can become the melting pot of multinational corporations
There are both professional road blocks to explain the shifting patterns of competitive advantage about the changing world. Alfred Chandler involved the multinational strategies in explaining the role of international multinational strategies in explaining the chemical and mechanical strategies in the shifting patterns of competitive advantage. Chandler urged for the use of business monographs that contain large and rich sources of data to explain the shifting market strategies in the international arena.
In conclusion, it is evident that scientific Quantitative research has lost value of this value of this historical value. Quantitative research used to rescue international business scholars from having to rewrite their theories. The practice has been ignored over time. Jones and Khanna propose that Historical variations should be used as a testing crucible to test ideas and business theories. Indeed, history allows us to explain the effects of long run phenomena. Some corporations invest blindly without taking historical data into consideration. They follow wrongly interpreted international business theories; hence end up winding their international operations after a titanic failure. International Business scholars should be sensitive to historical evidence to avoid naïve mistakes. They would not be required to alter their theories decades later when it is subjected to fierce criticism Contemporary International business scholars should be trained to use the rigorous small sample and qualitative data.
Works Cited
Berg, Hendric and Joshua Lewer. International Trade and Economic Growth. New York: M.E. Sharpe, 2007. Print.
Berger, Simon. International Joint Ventures: A Practical Guide. New York: Financial Times Prentice Hall, 2009. Print.
Clifford, Mathews. Managing International Joint Ventures: The Route to Globalizing Your Business. New York: Kogan Page Publishers, 2009. Print.
Dlabay, Les and James Scott. International Business. New York: Cengage Learning, 2010. Print.
Jones, Geoffery and Tarun Khanna. "Bringing History Back into International Business." Journal of International Business Studies (2006): 453-468. Document .
Moore, Geoffery. Crossing the Chasm: Marketing and Selling Disruptive Products to Mainstream Customers. New York: HarperCollins, 2008. Print.
Rugman, Allan. International Business: Theory of the multinational enterprise. New York: Taylor & Francis, 2008. Print.
Selmer, Jan. International management in China: cross-cultural issues. New York: Psychology Press, 2008. Print.
