International Business Review 10 (2001) 571–596 www.elsevier.


The ICT revolution, internationalization of technological activity, and the emerging economies: implications for global marketing
P.M. Rao

College of Management, Long Island University/C.W. Post Campus, Brookville, NY 11548, USA

Abstract The paper examines the impact of the information and communications technology (ICT) revolution on internationalization of technological activity with special reference to emerging economies and its implications for global marketing. The issue is examined principally around the transaction cost framework. The evidence from recent literature suggests that ICT applications such as workflow systems, groupware systems, e-mail, and data transfer through Internet and videoconferencing may have diluted the traditional market failure arguments for vertical integration of firms’ technological activity and contributed to internationalization of MNE R&D and the rapid growth of technology alliances. In terms of implications for global marketing, the impact of ICT via the internationalization of MNEs’ technological activity would have its strongest impact on product development decisions. The trend towards modular designs and the companion platform product strategy in which a firm designs a common core with different versions for different segments is likely to accelerate. Hybrid forms of governance (e.g., alliances) will continue to experience rapid growth in the internationalization of MNE R&D. The paper also suggests that alliances may be important for successful product differentiation in global markets. With respect to emerging economies, the ICT revolution, by making more, better, cheaper and faster exchange of information possible globally, may have the effect of reducing the country-specific risks associated with the development of new products and services. Overall, emerging countries like India and China with significant competencies and rapidly developing ICT infrastructure, appear to be well positioned to become serious players in the trend towards internationalization of technological activity.  2001 Elsevier Science Ltd. All rights reserved.
Keywords: ICT; Technology transfer; Emerging economies; R&D; Technology alliances

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P.M. Rao / International Business Review 10 (2001) 571–596

1. Introduction We enter the new millennium with the information and communication technology (ICT) fundamentally transforming the way business is conducted around the world. The Internet, which is at the center of this transformation, has made it possible to globalize space, time, and image at a pace unthinkable only a few years ago. Telecommunications networks now link research, manufacturing, marketing, finance, and distribution globally with voice, data, and video services. Among the key technological trends driving these changes are growing capacity made possible by optical fiber and satellite technologies; digitization of telecommunications networks, which allows any type of information (i.e. data, voice, and video) to be sent in compressed form and reconstructed at the receiving end; convergence of telecommunications, data processing, and imaging technologies, which makes it possible to combine voice, data, and images according to the user needs; and ubiquity of mobile and personal communications made possible by advances in wireless technology (Hudson, 1997). However, the high level of diffusion of ICT has thus far been concentrated in the industrialized countries. The disparity in ICT infrastructure that exists between industrialized economies and emerging economies is striking. For example, the average teledensity (main telephone lines per 100 population) in China and India with almost 40% of the world’s population is 5 compared to 66 in North America (ITU, 1999b). Still, such broad indicators of poor ICT infrastructure mask several other facts that appear to be favorable to the developing countries as they enter the new millennium. First, the developing countries have been following a variety of restructuring strategies to increase the pace of ICT infrastructure development. They go under many overlapping labels such as corporatization, introduction of competition, privatization, deregulation, and liberalization. Second, the growth of ICT infrastructure in the urban centers of the emerging economies has been impressive. For example, American firms do not seem to be impeded by the generally poor ICT infrastructure when they hire contractors in Bangalore, India, to develop and transmit software programs. Third, access to telephones and computers is greater than individual ownership in the developing economies. This is, in part, due to lower living standards that force consumers and businesses alike to share the available infrastructure in a quid pro quo manner. Therefore, telephones per capita and computers per capita are not necessarily good indicators of access to critical information. Fourth, in the critical area of internationalization of technological activity, which is the focus of this paper, the ICT revolution appears to favor the developing countries in several ways. For example, the geographic concentration or clusters of R& D activity and indeed foreign direct investment (FDI) in and around few urban centers, where the level of ICT infrastructure has passed the critical mass, could accelerate the transfer of technology and spillovers to the emerging economies. This process

patenting. Williamson’s transaction cost theory (1975).M. very little of it has to do with the impact of ICT on such activity. 1976). mainly from the standpoint of the developed world’s multinational firms. Buckley & Casson. and even less with emerging economies. and the unbundling of R&D activity. the growth of technology-based alliances. for example). would it. ceteris paribus.P. and other means — the discussion in this paper is limited to multinational enterprise (MNE) R&D and international technology alliances. 1984. and externalization . The fourth section provides a summary and draws implications for global marketing strategies. The rest of the paper is organized into three sections. Rao / International Business Review 10 (2001) 571–596 573 is further aided by the fact that scientific communities the world over are relatively small and closely knit. the emergence of the independent software industry. The issues addressed in this paper include: What is the impact of ICT on firm specificity of technological assets such as investments in R&D? If ICT reduces the importance of firm specificity of assets. 1993). A major purpose of this paper is to help fill this gap from the perspective of global marketing. An important part of this section is a discussion of how the ICT revolution may call for a re-examination of the traditional explanations concerning internationalization of technological activity. trade. the transaction cost analysis and the market failure arguments — around which the issue of internationalization of technological activity is discussed. The conceptual context 2. Although there exists a substantial body of literature of recent vintage on internationalization of technological activity (literature on international technology alliances and internationalization of R&D activity. and the internalization theory (Caves 1971. All of these theories have their origin in Ronald Coase’s famous question of what determines which activities a firm chooses to do for itself and which it procures from others (Williamson & Winter.1. Included in this section is a discussion of internationalization of R&D. It is found in one of Arrow’s earlier works on inventive activity (1962). reduce the incentive to internalize such assets through vertical integration as the conventional transaction cost theory would predict? What effect would this have on internationalization of technological activity? What is the role of technology alliances in the transfer of technology from the developed to the emerging economies? It should be noted at the outset that while the term “internationalization of technological activity” covers numerous aspects of cross-border technology spillovers — FDI. Sources of market failure in innovation The traditional conceptual framework within which externalization of firms’ technological activity — of which internationalization is just one aspect — is examined revolves around the market failure problems associated with innovative activity. Section 3 presents recent evidence on internationalization of technological activity with reference to the emerging economies. 2. The second section provides a conceptual context — for example.

when applied to a standalone R&D business.M. which arises when economies of scale and economies of scope are present in the innovation process. 1999). and marketing. 31) suggests that it is opportunism paired with information impactedness that presents the difficulty for writing cost-plus R&D contracts. well over 95% of company-funded R&D in the US is vertically integrated (NSF. Vertical integration of R&D and large size reduce uncertainty through pooling (or diversification) across a large number of R&D projects. suffers from such uncertainty that it is impossible to write meaningful and enforceable contracts. The second problem associated with innovative activity is uncertainty. as was the case with AT&T prior to its 1984 breakup. Rao / International Business Review 10 (2001) 571–596 of technological activity presents something of an anomaly in each of them. especially in its early stages. Moreover. Williamson (1975). Williamson argues that it is information impactedness (which is a derived condition from uncertainty) and opportunism that can give rise to a small-numbers problem. The value of information to a potential buyer is not known until it is disclosed. Williamson (1975. markets would be vulnerable to opportunism. Uncertainty is also reduced through free flow of information between research. The first of these is the problem of appropriability which. This is especially true when a firm combines vertical integration of R&D into manufacturing with a high degree of horizontal integration at the downstream service level. manufacturing. The latter arises when the market for innovations is thin and incentives for stand-alone innovator firms are impaired. Information impactedness exists when information relevant to the transaction is known to one or more parties but can be transmitted to others only at great cost. The third source of market failure is indivisibility. Similarly. because all provide strong arguments for vertical integration of R&D. Appropriability is enhanced when R&D is integrated into the production of goods and services. Opportunism and information impactedness are eliminated in an integrated structure. p. This is because innovation is expensive to produce and cheap to copy. There are three principal sources of failure. Economies of scale arise from lumpiness of R&D projects. especially as it concerns internationalization of technological activity vis a vis the emerging economies. The strong presence of economies of scale and scope impedes specialization and therefore market solutions.574 P. among others. The starting point for this is to ask why so much of innovative activity the world over is vertically integrated into the firm rather than outsourced from the market. our discussion here will be limited to the firm’s “technological bound` ary”. For example. This is the problem of moral hazard. means that it will be unable to internalize the fruits of its innovative activity. This is an indication that free-standing R&D businesses are difficult to sustain because of the market failure problems associated with innovative activity observed by Arrow (1962). the output of innovative effort. but once it is disclosed. While Coase’s question goes to the heart of the limits of vertical integration and firm boundary. integrated R&D in a large firm allows exploitation of . Vertical integration or internalization of R&D effort combined with large size are viewed as ways of mitigating each of the three sources of market failure in the innovation process. and economies of scope or joint production from technical interconnectedness. Although uncertainty is present in all economic activities. Buckley and Casson (1976). he need not pay for it.

coordination costs. Moreover. a theory of the FDI as well as a theory of the MNE. & Sjolander. So far the market failure arguments advanced by Arrow have been placed in the context of Williamson’s analysis of impediments to market solutions for innovation. can be viewed as an antecedent to recent literature on international technology alliances (Dunning. TCF allows for hybrid forms of organizations such as joint ventures. Put differently. As noted above. Granstrand. the hybrid form achieves superior coordination but sacrifices market incentives. Hakanson. The principal dimension on which coordination costs depend is asset specificity.g. Williamson’s framework. 1996. and market failure It is simplistic to suggest that Williamson’s TCF views the organization of innovative activity as a dichotomous choice between markets and hierarchies. the hierarchy “outperforms” the market at very high levels of asset specificity. 1997. joint ventures. 1999) and internationalization of R&D (Dunning. which pertains to “the degree to which an asset can be redeployed to alternative uses and by alternative users without sacrifice of productive value” (Williamson. Indeed. 1999. ceteris paribus. 1994. it should be noted that Williamson’s transaction cost framework (TCF) is much broader and deeper than the above discussion suggests. Boyd & Dunning. 1981).M. and at very low levels . assets with a high degree of specificity represent sunk costs that have little value outside of a particular exchange. Rao / International Business Review 10 (2001) 571–596 575 scale and scope economies in R&D and mitigates the indivisibility problem (Nordhaus. many authors have argued that the problem of appropriability associated with proprietary technology is one of the major reasons why firms.2. p. they must be transaction specific). the hybrid form allows greater incentives but sacrifices cooperativeness. and alliances (Caves. Starting with Hymer (1976). 2. 1976). the internalization theory advanced by Buckley and Casson (1976) suggests that the strongest incentives for replacing licensing and other contractual exchanges with FDI occur in markets for knowledge. licensing. in terms of coordination costs. bureaucratic commitment. 1996. The greater the degree to which technological assets are specific to a firm (strictly speaking. alliances. Indeed. In comparison to the market. as it concerns innovation. consideration of path dependency. 107). 59). Application of the market failure framework to cross-border technology-transfer issues is only a short conceptual step. in part. Thus. and bureaucratic costs (Williamson. 1984. the market failure argument becomes. It deals with the sources of market failure as well as organizational failures (e. and venture capital) in the innovation process and allows for hybrid forms of organizations such as alliances. In comparison to the hierarchy.P. internalization theory views the monopolistic power gained by exploiting firm-specific advantage such as proprietary technology as the MNE’s raison d’etre. 1993). p.. adaptability. would rather engage in FDI than use other forms of cross-border involvement such as trade. and franchises that fall between markets and hierarchies with respect to incentives. the stronger the case for hierarchy and vertical integration of a firm’s technological activity. However. Asset specificity. Buckley & Casson. Thus. Nooteboom.

Finally. Two questions arise that are central to this paper. This is because internal monitoring costs of protecting proprietary technologies with or without legal protection can be considerable. p. but does not eliminate it.M. This means large-scale R&D units that result in lower average cost. Put differently. He suggests that classical specialization by which initial development and testing is done by independent inventors and small firms. The first type involves economies of scale associated with physical assets — in the familiar sense — employed in the innovation process. As noted earlier. As noted earlier. Rao / International Business Review 10 (2001) 571–596 of asset specificity the market outperforms hierarchy with hybrid falling in the middle. A second dimension that affects coordination costs is uncertainty. The TCF distinguishes between two types of indivisibilities. a source of market failure in innovation. The second type of indivisibility has to do with the set-up costs associated with the acquisition of information. Williamson emphasizes behavioral uncertainty that arises when asset specificity and incomplete contracts are joined (1996. R&D activity. ICT and the organization of technological activity The critical issue here is the impact of ICT revolution on the organization of a firm’s technological activity. The lumpiness of a project. according to Koopmans (1957). and subsequent management and marketing of successful developments by large firms. or physical asset specificity such as specialized equipment and brand name. Note that asset specificity could take any one of several forms that include human asset specificity arising from learning-by-doing.g. 60). Also relevant to the TCF is uncertainty which. Williamson observes that there is a coexistence of the transfer process (which allows firms to specialize) and internal development of R&D activity. hierarchy will outperform the market and hybrid forms. the world over. in terms of coordination costs.3. vertical integration of technological activity is undertaken to overcome the appropriability problem (Teece. arises from lack of timely and efficient communication between decision-makers concerning decisions and plans. That is. suppliers. random acts of nature). that vertical integration only mitigates the appropriability problem at best. however. A weak appropriability regime could increase the costs of coordination within the firm (this point is generally ignored in the TCF) just as easily as it increases the coordination costs of the market and the hybrid forms. In the intermediate range of asset specificity. is overwhelmingly vertically integrated. In addition to the state-contingent kind of uncertainty (e. and buyers. impedes specialization. with respect to the appropriability problem. by its nature. this type of indivisibility is different from the one that arises from the lumpiness of R&D projects. If such investments cannot be legally protected or if legal protection is ineffective. hierarchy is preferred over the market and hybrid forms for organizing technological activity.576 P. a weak appropriability regime increases the coordination costs of the market and hybrid forms relative to hierarchy. as the TCF would predict. might be more efficient. However.. . hybrid outperforms both market and hierarchy. 2. the issue is that the value of technological assets may be appropriated by competitors. It is important to note. 1986).

Reddi. Malone. and plain anecdotal evidence. As a result. Malone. and videoconferencing. Recall that a reduction in asset specificity leads to preference for the market and the hybrid form of governance structure over hierarchy. Garbe (1998) provides an excellent summary of the findings of these and other studies. These studies focus on human capital and conclude that ICT reduces the specificity of geographically “locked-in” human capital.. (1993) examined information technology (IT) assets themselves and concluded that increasing standardization combined with more flexible software and hardware will result in reduction in asset specificity and redeployability of IT assets. Malone. (Note that ICT is not merely an exogenous variable affecting asset specificity. Milgrom and Roberts (1992). as Jaikumar and Upton (1993) note. Does ICT shift this preference in favor of the market or the hybrid form or both under certain circumstances? 2. which is made possible by computer-integrated production. and from less vertically integrated firms.) Clemons et al. it has become possible for engineering and design to be effectively supplied by physically and functionally distinct organiza- . The focus of each of these studies varies with respect to the type of asset examined. many product and process specifications in manufacturing have been reduced to computational procedures which are easily transportable right to the production process via the standardized telecom links and reproducible (i. and Row (1993). All five studies focus on the important issue. might reduce their specificity and increase their redeployability. The studies employed a variety of methodologies ranging from regression analysis. groupware systems. The authors also maintain that IT has the ability to lower coordination costs without increasing the transaction risk. (1988. What implications would this shift have for internationalization of technological ` activity vis a vis the emerging economies? The discussion in this and subsequent sections focuses on these two questions. and videoconferencing. Rao / International Business Review 10 (2001) 571–596 577 1. and Kambil (1994). Among the studies relevant for the purposes of this paper are: Benjamin. and Gurbaxani (1988). Brynjolfsson. Brynjolfsson. Benjamin et al. Studies by Brynjolfsson et al. leading to more outsourcing but from a reduced set of stable partnerships. This is made possible by ICT applications involving workflow systems. IT applications that make this possible include databank and information systems. Clemons. A number of authors have attempted to address the first question posed above. (1986) treated time as an asset and concluded that the specificity of information as an input factor will be reduced.P. In addition. of the impact of ICT on asset specificity.M. All five studies appear to conclude that ICT reduces asset specificity and hence moves the governance structure toward the market and hybrid forms. since information. 1994) bear more directly on the central theme of this paper: the impact of ICT on internationalization of technological activity. from the standpoint of TCF. Milgrom and Roberts (1992) examined physical assets and concluded that “flexible manufacturing”. Gurbaxani. e-mail. e-mail. and Yates (1986). every part made by any machine running a particular procedure will be exactly the same). is a time-specific resource.e. case analysis. groupware systems. reduction in asset specificity comes about when economic agents act to exploit to gain competitive advantage. by its very nature. Ultimately.

with respect to the appropriability problem. as a result. To the extent ICT reduces the specificity of technological assets (some evidence of this was noted earlier) and increases contractibility of transactions. .. to the extent ICT reduces the lumpiness of R&D projects (i. ICT is more likely to accentuate the appropriability problem than mitigate it. cross-border hybrid and market solutions become more attractive. there is little direct empirical evidence on this question. and. as noted earlier. favor market and hybrid forms of organizing R&D over hierarchy.. thus leading to more outsourcing from a larger number of separate firms. it reduces the average size of the R&D project) and encourages specialization. With respect to indivisibility. uncertainty. Note. a feature inherent in its design. cost.M. One important implication of these trends is that some R&D personnel become fungible.e. Brynjolfsson et al. The presumption is that smaller entrepreneurial firms are better able to take advantage of their specialized human capital and adapt to changing conditions in the industry. This is because the entrepreneur in the information age needs access to knowledge accumulated in the software writer’s head or in other forms. lightguide technology and digital switching). However. Thus. in principle ICT can mitigate the problem of spillovers (through encryption and “fire walls”. that externalization (i. firms would. rather than large sums of money tied up in physical capital. for example) or accentuate it through free flow of information. This too is favorable to cross-border alliances with firms in the emerging economies. the authors suggest that the widespread use of ICT may increase the viability of smaller firms relative to larger ones. customers. This discussion suggests that the ICT revolution may have diluted the traditional market failure arguments for vertical integration and contributed to greater externalization of technological activity of the firm. Finally. and indivisibility — with respect to innovation? Unfortunately. Rao / International Business Review 10 (2001) 571–596 tions from manufacturing units. Yet another way ICT may have reduced the uncertainty associated with the innovation process is by improving the quantity and quality of internal as well as external exchange of technical information.g. and effectiveness — information sharing with suppliers. and other external partners becomes central to the innovation process. ceteris paribus. have been made feasible by the ICT in terms of time. in part. an obvious and dramatic increase in the timely and efficient communication between geographically dispersed decision-makers should reduce secondary uncertainty referred to by Koopmans (1957) with respect to all transactions including those involving technology. Therefore. is the technical interconnectedness of R&D projects (e. (1994) also find broad evidence that investment in ICT is significantly associated with subsequent decreases in firm size. behavioral uncertainty to which Williamson (1996) refers is mitigated. the emergence of ICT (with its low coordination costs and superior information flows) may have reduced the benefits of integrating R&D activity within the firm relative to the market and hybrid alternatives. What is the impact of ICT on the three classic sources of market failure — appropriability.578 P. In addition. Moreover. however.e. in this age of supply chain management and relationship marketing — which. Another source of indivisibility. This occurs because ICT reduces coordination costs (especially external coordination costs) more than it reduces production costs..

Anderson’s finding of a positive relationship between human asset specificity and the use of an in-house sales force has obvious relevance to the use of in-house R&D personnel.4. the study is significant for its focus on the relationship between foreign-entry modes and asset specificity as well as on what the authors call idiosyncratic services. and does not necessarily involve internationalization. Similarly. Rao / International Business Review 10 (2001) 571–596 579 a shift toward the market and hybrid forms) of technological activity does not necessarily mean internationalization and vice versa. One of the chief claims of TCF — that a firm when faced with the need to protect specific assets seeks to minimize its transaction costs through vertical integration — is broadly supported by these various studies.P. A firm’s human asset specificity in the context of R&D has to do with the extent to which it is necessary for R&D personnel to learn and to develop working relationships within the firm in order to produce commercially successful innovations. neither internationalization nor externalization need necessarily include the emerging economies. A large majority of these studies (27 out of 45 reviewed) attempted to explain a wide range of marketing phenomena with asset specificity as an important and often the only independent variable. there is a significant body of marketing literature that attempts to operationalize the TCF from a strategic marketing perspective. The finding by Erramilli and Rao that US service firms favor hybrid or shared-control foreign-entry modes when asset specificity is low. The phenomena examined in these studies include the use of in-house sales forces versus manufacturers’ agents. a multinational firm that launches a program of dispersing its R&D around its foreign subsidiaries is internationalizing its technological activity but not externalizing it. and the degree of separability between production and consumption. From the standpoint of this paper. while consistent with the TCF prediction. the term “externalization” is generally reserved for a shift away from hierarchy towards hybrid and market forms of governance of technological activity. One of them concerns the behavior of MNEs with respect to organization and location of R&D activity. For example. is moderated by a number of non-transaction cost variables such as firm size. 2. Internationalization of technological activity There are two strands of research in this area that are relevant to this paper. internal versus external procurement of components. An excellent review of this literature through. and shared versus full-control modes of foreign market entry.M. The findings of two studies — Anderson (1985) and Erramilli and Rao (1993) — are particularly relevant to this paper. Marketing literature on TCF While the discussion thus far has drawn mainly upon industrial organization literature. country risk. integrated versus independent channel for foreign market entry. of which R&D is one. Moreover. 1996 can be found in Rindfleisch and Heide (1997). 3. The literature on this issue provides considerable insight into recent .

Duysters & Hagedoorn. While the focus of these various studies is not on the emerging economies. Note that these statistics mask some important country and company differences. More important. Western Europe. India. For example. Moreover. Gassmann and von Zedtnitz (1999). and Japan reported by Roberts (1995) found that firms from all three triad regions have increased their share of foreign R&D. view this trend as a form of vertical disintegration of R&D-driven. Dunning. 1999). 1999). Gerybadze & Reger. which suggest that the R&D share of nonbank majority-owned foreign affiliates of US MNEs has increased from about 9% in 1982 to about 12% in 1997 (Mataloni 1993. 1996. R&D follows a similar pattern. MNE R&D is located overwhelmingly in home countries.580 P. 40% of North American firms (which have always lagged behind Japan and Europe in this respect) reported that . We begin with three well-known facts about MNE R&D. 1996. 3. More important. Another strand of literature concerns the rapid growth of technology-based international strategic alliances since the early 1980s. By contrast. the Middle East. 1999). First. and foreign shares of R& D of companies like IBM and Siemens run as much as a quarter of their total R& D (Dunning. when MNE R&D is located abroad. Dunning (1994).4% of FDI and 2. including this author. Rao / International Business Review 10 (2001) 571–596 trends in the internationalization of R&D activity. A benchmark survey on strategic management of technology practices in 224 R&D-intensive corporations in the US. Internationalization of R&D The literature in this area is dominated by the activities of MNEs with respect to organization and location of R&D. and Pearce (1999). 1999. Rao. It is found in Granstrand et al. Vonortas & Safioleas. China.1. and Africa combined accounted for 2. 1999. Duysters. there is evidence that technology alliances between the developed world’s MNEs and the firms in the emerging economies are becoming increasingly popular. A discussion of these two strands of literature follows. by the ICT revolution — in the developed economies and a shift toward the market and hybrid forms of organizing R&D at home and abroad (Gomes-Casseres. Nooteboom.1% of R&D (Mataloni. Second. Boyd & Dunning. Gerybadze & Reger. This is consistent with the US Department of Commerce data. Gerybadze and Reger (1999). Yoshino & Rangan. This compares with about 30% for European firms and 10% for Japanese firms (Mataloni 1993. it seems to follow FDI. 1997.M. since FDI flows are largely between the developed economies. The share of US manufacturing FDI in Europe and Canada in 1997 was 65% and the share of R&D expenditures of nonbank foreign affiliates was 80%. Third. 1996. in part. 1999). the foreign share of MNE R&D has been on an upward trend in the triad regions since the late 1980s. 1997. 1999. 1997. Some authors. which includes the role of ICT. 1995. their findings have important implications for them. (1993). among others. The proportion of R&D expenditures of US MNEs accounted for by their foreign affiliates is about 12%. 1999). Smaller countries of Europe such as Switzerland and Sweden have greater shares of their R&D located abroad. the same survey reports a shift in the proportion of firms expected to rely on external sources — including cross-border sources — for technology.

Their essential features and coordination mechanisms are summarized below: Type A firms: These are companies from large countries with dominant R&D center in home country and supplemental R&D activities in other locations (e. 1994). Gerybadze and Reger (1999) distinguish between four generic types — Types A and B and their respective variants — of transnational R&D and innovation. This takes the form of adaptation of products and processes to local conditions through technical support laboratories. and 1 or 2 R&D center(s) in lead market(s) (e. US biotechnology or semiconductor firms).2.g. Rao / International Business Review 10 (2001) 571–596 581 they would place high reliance on external sources for technology three years from now compared with about 10% today (Roberts. A variant of Type A. More recent literature reveals the strategic capabilities of the MNE foreign-R&D and dynamic interaction effects between R&D. Gerybadze & Reger. 1992). 1999.1.g. They have multiple leading-edge R&D centers abroad (e. Type D. Type C.2. 3. Decision-making is centralized in the home country. An excellent summary of this literature is found in Granstrand et al. places emphasis on coupling of lead-marketing and R& D in the home country. is characteristic of companies — from small and large countries — with . & Singh. and advanced manufacturing (Gerybadze & Reger. a trend towards convergence of R&D practice. more diversified R&D.. Recent literature 3. 1995). Toshiba in the flat panel display market in Japan). 1999) and new concepts in international R&D organization (Gassmann & von Zedtnitz. 1994).. Therefore. the high correlation between FDI shares and foreign R&D shares noted earlier is to be expected. Type B firms: These are companies from small and large countries with deficiencies in R&D in a particular field. Pearce. and increased importance of foreign R&D and global approaches to innovation (Pearce & Singh. An earlier part of this literature emphasized a trend toward increased international specialization and pluralism of organizational forms (Dunning. cross-functional teams in the dominant country. and increased networking among R&D labs (Casson. increased division of labor in inventive activity (Arora & Gambardella. Pearce. 1999). 1999. Gerybadze and Reger Based on an analysis of 21 leading R&D-intensive MNEs. A variant of Type B. which is also characteristic of companies from large countries. 1992)..M. lead marketing. all driven by dynamic fast innovation regime. Chrysler’s widely reported shift from predominantly internal management of R&D to extensive use of outside partners is a case in point. Roche from Switzerland in pharmaceuticals) with global team management and globally integrated technology portfolio.g. However. What are the driving factors behind the internationalization of R&D activity? The traditional argument for internationalization of R&D is to support local production. (1993). the literature since the early 1990s began to discern the emergence of new patterns of R&D internationalization involving a variety of motives and organizational forms.P.

268). When product adaptation through the geocentric centralized model proves inadequate or when foreign technology becomes too important.g. coupling of lead marketing and innovation (e. ICT plays a central role in the success of the hub model by reducing the costs of coordination and information flows between the center and the decentralized units. and organizational learning across many sites connected by means of flexible and diverse coordinated mechanisms (e. The authors’ analysis also revealed that the spatial distribution of learning and R&D-performing activities is quite different from the spatial distribution of coordination and control. Nissan). and Japan. The hub model with its tightly controlled central coordination becomes inadequate in an environment of increasing competencies and technological strengths of decentralized R&D units and gives way to the integrated R&D network model. In terms of the degree of complexity each presents for coordination and the cost of coordination (and hence the importance of ICT for each type). Synergy.. and Hoechst). Competencies. 1. 5. Philips. Pressure to reduce the costs of R&D are forcing companies to move toward . Nestle.g. and cross-functional integration within lead market. The focus is on specialization. Tapping of foreign technology and knowledge through listening posts and joint research centers becomes the main source of know-how (see Fig. The authors identified five major trends in the evolution of international R&D organizations. C.. and A in that order.. companies move toward the R&D hub model. but with external orientation. 2. close cooperation with other sites. Rao / International Business Review 10 (2001) 571–596 lead market deficiencies. The emphasis here is on access to foreign lead market.2. European flat panel display manufacturers). and hence the entire company. and unrestricted flow of information (e. Gassmann and von Zedtnitz Another view of recent trends in the international R&D organization was presented by Gassmann and von Zedtnitz (1999) in their study of 33 technology-based MNEs with home bases in Europe.M. An absolute prerequisite to the success of the network model is global ICT infrastructure.g. 4. synergy effects. 3. Tapping. still centralized. Costs.g. Canon and Schering). US. 1 for Daimler–Benz’s R&D hub model). The authors conclude that many companies in the sample have adapted a strategy of multiple centers of learning with one dominant center of coordination (p. The need to achieve synergy led many companies to abandon the polycentric decentralized model — an extreme form of decentralization with no coor´ dination mechanisms — in favor of the network model (e. The key factors in this move are the degree of product differentiation demanded by different regional markets and the availability of all necessary technology in-house. Localization. Many companies with ethnocentric centralized R&D are realizing the need to be more sensitive to local market needs and moving toward a geocentric model. 3.. The advantage of an integrated network is that it seeks to leverage the competencies of each unit for the benefit of all units. type B ranks highest followed by D.2.582 P.

Note: numbers in circles are head counts. 1. and decline of centralizing forces on R&D — that is. communication and coordination problems.3. 3. Such a model demands flexible and diverse coordinating mechanisms in which ICT not only plays a central role. synergy. Pearce A recent study by Pearce (1999) provides further evidence of an increasing trend toward decentralized international R&D units that are focused on their group’s strategic competitiveness rather than simply playing the role of adapting the group’s products for local market needs. Source: Gassmann and von Zedtnitz (1999). Daimler–Benz’s R&D hub model. concerns over protection of technology. strategic partnerships. and interdependence. The goal is to cut costs by reducing duplicate R&D and at the same time exploit scale economies. an integrated network with fewer leading research centers. The principal conclusions of the study are: increasing involvement of MNE overseas labs in product development rather than adaptation and interdependent position in a group’s technology programs. This is because ICT reduces . increased importance of host-country technology competencies. but also contributes to the evolution of the model itself. The common theme that appears to run through these various studies is that MNEs’ international R&D is gradually evolving into a decentralized integrated network type model with emphasis on specialization. and economies of scale became less important. exploitation of local competencies. The study was based on a survey of 180 R&D labs of foreign MNEs located in the UK.P.M. Rao / International Business Review 10 (2001) 571–596 583 Fig.2.

With ICT. more recently. Moreover.M. Rao / International Business Review 10 (2001) 571–596 coordination costs. Thus. Duysters (1996). technology sharing. the issue. According to one estimate.3. is whether ICT reduces the level of human asset specificity involved in the transfer of technology. 1998). The rapid growth of international interfirm technology alliances since the early 1980s — which parallels the ICT revolution — has been the subject of a growing body of academic literature. which the ICT revolution may have helped bring about. 3. and videoconferencing have revolutionized the way scientists conduct research around the world. Over the past 20 years. However. production joint venture. and the like. ICT costs have declined by a factor of 10 or more for large systems and by more than a factor of 100 for smaller systems. quickly. The links between geographically dispersed scientists and the frequency and volume of communication have experienced a phenomenal growth (OECD. Although this paper. Vonortas and Safioleas (1997) and. and cheaply than before. International technology alliances International technology alliances represent yet another form of internationalization of technological activity. Oxley (1999) are but a few of the many that provide the most extensive documentation and analysis to date on international technology alliances. vast quantities of scientific data and digital information can be handled more easily.584 P. ICT is becoming an important tool to reduce costs and improve quality of production even in emerging economies like China and India. As a result. Studies by Hagedoorn (1993). groupware systems. many of them involve horizontal relationships between firms — sometimes among competing firms — in the same line of business. The first three studies and the Oxley study rely on what is known as the MERIT– CATI database — developed by the Maastricht Economic Research Institute on Innovation and Technology (MERIT) on Co-operative Agreements and Technology Indicators (CATI) — and focus on alliances in ICT and other high-technology industries. 1999).) Horizontal relationships can take the form of cross-licensing. which is quite consistent with the trend toward decentralized R&D under the integrated network type of organization discussed above. would make countries like China and India with significant technological competencies serious candidates for increased MNE “tapping”. there should be little doubt that a shift toward a decentralized integrated network type model. (The author thanks the anonymous referee who pointed out the lack of reference to horizontal relationships in an earlier draft. from the standpoint of this paper. ICT applications involving workflow systems. email. the difference in ICT cost between the systems of 20 years ago and the systems of today for the same task is greater than the difference in labor costs between the US and China (Westland & Clark. following the TCF tradition. data transfer through the Internet. The study by Vonortas and Safioleas (discussed in the next section) uses a rich . as in the case of vertical relationships. It constitutes yet another piece of convincing evidence on growing internationalization of technological activity. views technology alliances from a vertical perspective.

societal trust) on the choice between contractbased alliances and equity joint ventures are statistically significant. if the impact of ICT on product design is to make it more divisible. From the standpoint of this paper. and on firms’ ability to manage alliances involving multiple technologies. (1994) and others combined with dramatic decline in coordination costs would explain the trend towards rapid growth of international technology alliances within the TCF. cultural distance. How does the rapid increase in the internationalization of R&D and technology alliances square with the TCF and internalization theories? Reduction in asset specificity brought about by the ICT revolution suggested by Brynjolfsson et al. all else being equal.M. and focuses on ICT alliances with the developing country firms. (iv) None of the control variables intended to capture the effect of cross-country differences in institutional environment (e. for Information Technology Strategic Alliances. (iii) Changes in the scope of activities in an alliance — that is. Rao / International Business Review 10 (2001) 571–596 585 database called ITSA.. and the dominance of international technology alliances by the leading firms in the ICT industry.. the author estimated two binomial logit appropriability models of alliance governance. the TCF prediction which favors joint ventures is diluted. The principal findings of the study are: (i) The simple appropriability model. provides strong support for the transaction cost hypotheses. Similarly. especially software and telecommunications sectors. cultural distance) on governance form. Utilizing a sample of 727 technology transfer alliances in 27 countries (in which each alliance involved one US-based firm allied with a firm in another country). without the control variables. as suggested earlier. three findings from the Duysters–Hagedoorn studies are worth noting: the importance of technological complementarity and reduction in innovation time span as two of the most important motives for all technology alliances.g. Oxley’s findings need to be evaluated in terms of the impact of ICT on the appropriability problem. if ICT reduces the complexity and cost of managing alliances involving multiple technologies. In . a shift away from traditional joint-venture equity type long-duration alliances towards contractual non-equity-type with short duration. (ii) Product design and mixed design and production alliances — because of the difficulties in writing contracts — are more likely to be organized as equity joint ventures than are pure production or marketing alliances.P.. For purposes of this paper. US firms.g. The models test the effect of a number of “hypothesis-related” independent variables (e. moving from an alliance covering only a single technology to one involving multiple technologies — increases the likelihood of an equity joint venture. The study by Oxley (1999) goes beyond describing the characteristics of alliances and empirically tests several transaction-cost-related hypotheses concerning crossborder technology alliances. strength of intellectual property protection) and “control” variables to account for differences in institutional environment (e. are more likely to organize an alliance as an equity joint venture when the host country’s intellectual property protection is weak. On the other hand.g. preference for joint ventures may be reduced. on product design. All else being equal. if ICT accentuates the appropriability problem. firms have one more reason to prefer the joint venture form of alliances over the contractual type.

Given the irreversibility and uncertainty associated with most R&D investments. 1999). As a result. 118) recognizes the need for hybrid forms of organization such as temporary alliances when the issue is “timely entry”. involve technology transfer. or transfer of technological knowledge. Yet another view of the alliance phenomena which has drawn considerable attention in the literature was advanced by Zajac and Olsen (1993). interpartner learning literature may have more to offer than the TCF (Hamel. it is important to note that TCF is not the only mechanism by which one can explain the growth of technology alliances. 2). technology alliances would be viewed as value-creating options. summarized below. dispersion of technology (Ohmae. . Nooteboom. 1995). be it MNE affiliate R&D or alliances. Although the aggregate data provided by the study refer to developing countries. p. 3. Interfirm alliances in ICT with developing country firms have been growing faster than worldwide ICT alliances. A World Bank study by Vonortas and Safioleas (1997) provides the most comprehensive data to date on ICT alliances with developing country firms.586 P. 1996). all forms of international technology transactions. 1989). Moreover. The share of alliances by developing country firms with explicit technological content has experienced a sharp increase and was found to be higher than the average worldwide — 81% versus 71% in 1994 (Fig. However. exchange. Still other explanations include: radical changes in the structure of the ICT industry combined with the emergence of stand-alone software industry (Rao. On the other hand. deepening of industry convergence and positioning strategies of individual firms (Gomes-Casseres. agreements involving cooperative R&D have been increasing. developing countries’ share of ICT alliances has increased from 7% in 1984 to 13% in 1994 (Fig. Williamson (1996. and entrepreneurial globalization (Yoshino & Rangan. The large majority of alliances with developing country firms involve creation. challenge the widely held view that interfirm technology partnering is largely a phenomenon of the developed economies. internationalization of MNE R& D through foreign affiliates is an extension of intrafirm transactions and consistent with internalization theory. Technology alliances with developing country firms Much of the evidence on international technology alliances and internationalization of R&D presented thus far has to do with the industrialized economies of the West and Japan. 3). The study’s findings.4. country-level data include many emerging economies like India and China. The authors examine interorganizational strategies from a transnational value perspective and suggest that expected joint gains from hybrid forms of governance often outweigh transaction cost considerations.M. 1999). Finally. ICT alliance records appear to roughly resemble the relative industrial strength of each country. Rao / International Business Review 10 (2001) 571–596 addition. In terms of internalization theory. 1991. If technological complementarity and reduction in innovation time span are important motives for alliances. The options approach suggested by Dixit and Pindyck (1995) and others offers another explanation of alliances. the prevalence of short duration contractual nonequity alliances is an anomaly.

Source: Vonortas and Safioleas (1997). Share of ICT alliances with technological content. especially in telecommunications and computers. . selected years.M.P. 3. selected years. Asian firms have the dominant share (61%) of developing country ICT alliances over the 1984–1994 period (i.e. The most alliance-active ICT firms from industrialized countries have been large MNEs. Fig. Developing countries’ share of ICT alliance records worldwide. Rao / International Business Review 10 (2001) 571–596 587 Fig.. 2. Source: Vonortas and Safioleas (1997). including countries of Eastern Europe and former Soviet Union).

1 18. For example. 1) to develop and transmit software programs.588 P. Rao / International Business Review 10 (2001) 571–596 Bearing in mind that technology alliances account for a very small fraction of total cross-border technology transfers.5 1.0 10.4 5.0 4.8 Largest city teledensity 45. 3.9 6. ` However. mobile cellular is often used as a substitute rather than a supplement to fixed-line networks. average teledensity) relative to industrialized countries do not tell the full story. 3. Source: ITU (1998).g. Overall teledensity versus largest city teledensity ICT infrastructure in few urban centers of emerging economies where firms’ technological talents are concentrated is what counts most for emerging country firms to become players and for developed country firms to engage in international technological activity. This is because broad indicators of poor ICT infrastructure (e. . India (recall the Daimler–Benz example shown in Fig. Some key indicators of ICT infrastructure noted as follows help explain the reasons.3 9. the emergence of large MNEs from the industrialized countries as the most alliance-active firms in search of technology development sites in the developing world is consistent with the changing organizational forms of international R&D activity discussed earlier. Cellular substitution In the developing countries. one need only ask why firms from the industrialized world do not seem to be impeded by the generally poor ICT infrastructure when they hire contractors in Bangalore. ICT infrastructure in the emerging economies A key question concerning the ability of firms in the emerging economies to participate in the internationalization of technological activity has to do with the availability of a threshold-level ICT infrastructure. largest city teledensity (main lines per 100 inhabitants) for India is seven times that of its overall teledensity (Table 1).2 20. Therefore.M.7 49. As noted in the Introduction.5.1. this paper takes a more optimistic view of this issue vis a vis the emerging economies like India and China. 1996a Area/country Oceania Europe Americas (excluding USA) Asia China India Africa a Overall teledensity 37.5.5 1. which many developing countries lack.2. 3.8 19. the relevant indicator is not so Table 1 Overall area/country teledensity versus largest city teledensity.1 Note: Teledensity refers to number of mainlines per 100 inhabitants.5. Moreover..6 30. the above evidence clearly indicates that internationalization of technological activity is no longer confined to the developed world.

1 3.1 1. Between 1995 and 1998.2 29.9 0.1 87.20 0.20 16.27 0. the ratio of mobile cellular subscribers to total telephone subscribers.70 87.10 9. Note that part of the Internet Table 3 Selected information technology indicators by area/country.89 0.2 16. Internet density in India and China has been growing at an average annual rate close to 100%. 1998a Per 100 inhabitants 21. or 30% above France’s level at the start of 1999 (Tables 3 and 4).6 Cagr (%19951998) 32.50 886.5.84 0.1 0.4 5.1 Area/country Oceania Europe Americas (excluding USA) Asia China India Africa a Source: ITU (1999b). At that rate. At that rate it will not be long before access to telephone service reaches present levels of many industrialized countries. 1999a Internet host density per 10 000 inhabitants 363.0 22.90 362. A high ratio like 21% for China suggests that many subscribers have no alternative for telephone service owing to long waiting lists for fixed-line or lower connection charges for cellular service.6 26.3 100.78 today to 200. Information technology indicators As with overall teledensity data.8 73.40 Internet users per 10 000 inhabitants 1236. although personal computer (PC) density compares slightly better.P.9 67.50 488.7 70. 3.1 27.2 72.5 63. it would take just 7 years for India’s Internet density to rise from 0.10 21.3 13.3.10 0.2 87. the average annual rate of growth for cellular service in India was 150% (Table 2).10 132.9 91.70 5.40 13.3 149.81 Sources: ITU (1999b) and ITU (1999a).5 21.2 12. much the density but rather the substitution rate — that is.78 2. However.80 2. . Internet host density (Internet hosts per 10 000 inhabitants) in India and China is 1% of Europe.5 Percent of total telephone Percent digital subscribers 34.4 33.0 90.90 20. Rao / International Business Review 10 (2001) 571–596 589 Table 2 Cellular mobile subscribers by area/country.M.80 Area/country Internet hosts (000) PCs per 100 inhabitants Oceania Europe Americas (excluding USA) Asia China India Africa a 1056 10571 28523 3167 106 74 144 38.

Moreover. Daimler–Benz’s Research Center India was established in Bangalore in order to take advantage of the region’s high software productivity. much of the content and infrastructure reside in the US. Arunachalam.7 78. even when communication is between neighboring nations. The case of the Indian software industry The success story of India’s software industry documented by two recent studies (Arora.M. Daimler–Benz not only expects to use this center to provide input for its “Internet multimedia on wheels” prototype car. 1999. development transactions involving low-level design .2 96. 1994–1998a Area/country Asia China India Americas (excluding USA) Europe Africa Oceania World a Average annual rate of growth (%) 102.3 76. As the TCF would predict. 3. selected areas/countries. Rao / International Business Review 10 (2001) 571–596 Table 4 Internet host density per 10 000 inhabitants. but also considers Bangalore as a bridgehead for gaining access to local subsidiaries and the Indian industry (Gassmann & von Zedtnitz. it appears to pass the threshold level for many developed countries’ MNEs to engage them as partners in the production of new technologies.7 95. the US is home for 94 of the top 100 Websites in the world (ITU. & Fernandez. The availability of low-cost. Thus. OECD. The rapid growth of the industry (over 50% per year in the past 6 years) driven by exports to the industrialized countries of the West — 80% to the US and Europe — attests to the increasing outsourcing of software development by the MNEs. It is important to note that not all outsourcing is executed offshore. judging from the rapid growth of alliances. Virtually all leading ICT MNEs of the West have established or are establishing software development centers in India in collaboration with local partners. high-skilled specialized talent in countries like India and China appears to be central to this process. 1999a). Asundi.3 69. Somewhere between one-third and two-thirds of the work is done offshore in India and the rest is performed onsite. infrastructure problem is mitigated by the fact that much of the developing countries’ Internet traffic is routed through the US.2 Source: ITU (1999b).6. This is because connection cost to the US is significantly less than that for intraregional connections.5 58. while the current ICT infrastructure of emerging economies like China and India is far from ready for large-scale e-commerce. For example. 1999).590 P. 2000) supports the rather optimistic view of the prospects for emerging economies presented above.4 79.

M. (1988. transactions with a high degree of tacit knowledge and high asset specificity) are least outsourced (OECD. systems requirements. like China and India. the property of accelerating crossborder technology alliances by reducing the specificity of geographically “lockedin” human assets. Williamson (1975) in his TCF. transactions with a high degree of codified knowledge and low asset specificity) are most outsourced. 2000). This paper argues that ICT has. While MNE R&D is still overwhelmingly located in home countries. and high-level design (i. and interdependence. but also contributes to the evolution of the model itself. and visas. employee attrition. the evidence suggests that ICT may have diluted the traditional market failure arguments for vertical integration of R&D and contributed to greater externalization of technological activity of the firm. groupware systems. marketing access. and Caves (1971) and Buckley and Casson (1976) in their internalization theory. Available evidence.e. synergy. (1999) support the view presented in this paper that while communication infrastructure is expensive and limited. ICT reduced the specificity of geographically “locked in” human capital. cross-border hybrid and market solutions (e.e.1. strategic partnerships. 1994). TCF occupies a central place in this analysis because internationalization of technological activity in the form of alliances and other external transactions depends importantly on ICT’s ability to reduce asset specificity and coordination costs. More important. e-mail and data transfer through the Internet. 4. and those involving earlier stages of development. This issue was examined around the market failure issues associated with innovation developed by Arrow (1962). Rao / International Business Review 10 (2001) 571–596 591 and coding (i. Such a model demands flexible and diverse coordinating mechanisms in which ICT not only plays a central role. it is ranked fifth among the major problems behind manpower shortage. Recent literature suggests that MNEs’ international R&D is gradually evolving into a decentralized integrated network-type model driven in part by ICT. Summary and implications 4. In short. especially Brynjolfsson et al.. with significant technological competencies serious candidates for increased MNE “tapping”. The rapid growth of cross-border technology alliances — led by large MNEs in .. Finally. respectively) became more attractive. with emphasis on competencies.. its foreign share has been rising in the triad regions since the late 1980s. technology alliances and contract R&D. among other things. thus making R&D personnel fungible. There should be little doubt that a shift towards a decentralized network-type model of MNE R&D would make countries.P.g. the results of a survey of Indian software export firms by Arora et al. Summary A major purpose of this paper has been to examine the impact of the ICT revolution on internationalization of technological activity with special reference to emerging economies and its implications for global marketing. suggests that ICT applications such as workflow systems. and videoconferencing have helped reduce firm specificity of assets and coordination costs. As a result.

producing an optimal design. and market access.M. Modular designs offer great strategic flexibility and enable a firm to rapidly create product variations in response to changing markets and technologies (Sanchez & Mahoney. they complement the trend towards a globally decentralized network model of MNE R&D. contractual agreements versus equity joint ventures) depends on the severity of the appropriability problem and the difficulty in writing contracts. the principal driving force is ICT itself which reduced the cost of coordinating alliances and made R&D activity more divisible. and agreements involving cooperative R&D have been increasing. because it makes R&D activity more divisible. it does not necessarily follow that the traditional approach to product strategy — that is. & Dutta. given the costs and needs of the chosen target — will be replaced. when alliances involve countries with weak intellectual property protection and when they involve product design. What is new in the alliance literature is the finding that. specialization being central to modular designs (e. is likely to accelerate the trend towards modular product designs.. From the standpoint of global product strategy. US firms prefer the joint venture mode to contractual agreements. modular design becomes a necessary condition for a platform strategy in which a firm designs a common core with different versions for different segments (John. their technological content has been increasing faster than the average worldwide. interfirm alliances in the ICT with the developing country firms have been growing faster than worldwide ICT alliances. 1999) suggests that the choice of a particular form of alliance (e. Moreover. The two forms of internationalization — that is. These trends challenge the widely held view that interfirm technology partnering is largely a phenomenon of the developed economies. More important. While the principal motives behind alliances are technological complementarity..g. It is just as likely to facilitate the implementation of a global product strategy which requires intermarket segmentation as a customization strategy. as the TCF would predict. led by large MNEs. decentralization of MNE R&D and rapid growth of technology alliances — need not have similar impacts on development decisions. as opposed to pure production of marketing agreements. Rao / International Business Review 10 (2001) 571–596 the ICT sector of the developed world — since the early 1980s represents another form of internationalization of technological activity. modular programming in software design). What ICT does is create greater flexibility in global product strategy.g. More recent empirical research on cross-border technology alliances (Oxley.592 P. the ICT revolution. 4. However. A decentralized globally integrated network-type model to which the MNE R&D appears to be evolving would improve the traditional product adaptation role of overseas labs as well as increase their involvement in the global product development process.2. 1996). 1999). Thus. All of this depends critically on continued dramatic declines in the costs of coordinating decentralized R&D and greater integration of . reduction in innovation time span. Implications for global marketing The greatest impact of ICT via the internationalization of MNE technological activity would be on product development decisions. Weiss.

In an environment of uncertain markets and technology. Thus. Thus. Transfer of technology becomes a two-way street between the developed-country firms and the emerging-country firms. it appears that. If the analysis presented above is correct. International technology alliances. 1999). on the other hand. this paper highlights an inverse relationship between ICT and asset specificity. one scholar suggests that alliances are central to product differentiation (Nooteboom. In this connection. The ICT revolution. The trend towards greater outsourcing of R&D (e. However. Internationalization of technological activity through alliances also represents a form of “technology trading” to which marketing scholars need pay more attention. emerging economies like India and China with significant technological competencies.M. and between internationalization of technological activity and asset specificity. will produce many benefits to the emerging economies well positioned to take advantage of it. Internationalization of MNE R&D will extend to many more emerging economies as local scientific talent develops and ICT infrastructure improves. and faster exchange of information possible globally. internationalization of R&D requires internationalization of marketing as well. the other relationships have not been. the conceptual framework for marketing in technology — intensive markets developed by John et al. hurdle rates required to justify investment in the emerging economies would be lower than they would otherwise be. software) suggests that it has become more divisible. hybrid forms of governance of a firm’s technological activity will continue to experience rapid growth as asset specificity is reduced and as R&D activity is unbundled and globally dispersed. (1999). While the relationship between ICT and asset specificity has been examined empirically. especially the concept of vertical positioning of various marketable components of a firm’s know-how. Future research in this . Country-specific risks associated with information imperfections are likely to diminish. although they can be when they are of a long-term type with elements of quasi-integration. they too can be important to product strategy. Indeed. they are not an extension of intrafirm transactions. rapidly developing ICT infrastructure and the beginnings of a credible regime of intellectual property protection are well positioned to become serious players in the trend towards internationalization of technological activity. Rao / International Business Review 10 (2001) 571–596 593 marketing with R&D in terms of global product decisions. and one needs to focus as much on strategies for the marketing of technologies as on the marketing of final products and services. This is especially true of high-technology firms which suffer most from the appropriability problem.g. the inverse relationship between asset specificity and propensity for shared-control modes of foreign entry established by Erramilli and Rao (1993) becomes stronger as firms operate.. Given the complementary relationship between R&D and promotion. it is difficult to achieve successful product differentiation without alliances. This implies a positive relationship between ICT and internationalization of technological activity.P. Technology alliances between the developed world’s firms and the emerging-country firms will continue to experience rapid growth. As a result. offers promise. in an increasingly ICT-intensive environment. present a different set of issues and implications for global marketing. overall. better. Unlike the MNEs’ overseas R&D. cheaper. within and without. by making more. Finally.

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