susan strange- states, firms and diplomacy

8/13/2019 Susan Strange- States, Firms and Diplomacy

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States, Firms and DiplomacyAuthor(s): Susan StrangeSource: International Affairs (Royal Institute of International Affairs 1944-), Vol. 68, No. 1(Jan., 1992), pp. 1-15Published by: Blackwell Publishingon behalf of the Royal Institute of International AffairsStable URL: http://www.jstor.org/stable/2620458.

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Susan Strangethe nature of the competition between states has changed, so that macro-economic management nd industrial olicies may oftenbe as or even moreimportant orgovernments han onventional oreign olicies sconventionallyconceived. The thirdpropositionfollows from the second, and concernsthesignificance f firms s actors nfluencinghe future ourse of transnationalrelations not least for the study of internationalrelationsand politicaleconomy.Structural changeMost commentators n internationalffairs ave in our opinion paid far toolittle ttention o structural hange, particularlyo change in the structure fproduction n the world economy.3 Our recentwork arguesthat most of therecent changesin world politics,however unrelatedthey may seem on thesurface, anbe tracedback in large partto certain ommonroots n theglobalpolitical conomy. We see common drivingforces f structuralhangebehindthe iberation fCentralEurope,thedisintegrationftheformer ovietUnion,the ntractable ayments eficit f the United States, heJapanese urpluses, herapid rise of the East Asian newly industrialized ountries, nd the U-turnsofmany developing country governments from military or authoritariangovernmentto democracy, and from protectionand import substitutiontowards open borders nd export promotion.These common drivingforcesof change, n brief, re theaccelerating ateand cost of technological change, which has speeded up in its turn theinternationalization f production and the dispersion of manufacturingindustryonewly ndustrialized ountries; ncreased apitalmobility,whichhasmade thisdispersion f industry asier and speedier;and those changes n thestructure f knowledge that have made transnationalommunications heapand fast and have raised people's awareness of the potentialfor materialbettermentn a market conomy. These common roots have resulted, t thesame time and in many countries,n thedemandfor democraticgovernmentand fortheeconomic flexibilityhat s impossible n a command economy.This perceptionof the power of universal structural hange came fromlooking in detail as we did at the processes of bargainingbetween hostgovernmentsnd foreign irms n threedeveloping countries, razil, Malaysiaand Kenya. The bargainingn questionrelatedmainlyto theterms n whichthe firms ould operateand would invest n a particularventurewithin thecountry.We interviewedgovernmentofficials nd corporateexecutivesofforeign irms n the threecountries.3 Peter Drucker is the most notable exception, with The new realitiesLondon: Mandarin, I989).Among others,note C. Freeman, ed., Technology nd thefuture f Europe: global competitionnd theenvironmetntLondon: Pinter, 99I); G. Dosi and C. Freeman, eds., Technological hange ndeconomictheory, artvi (London: Pinter, 988); K. Ohmae, Triadpower: thecoming hape ofglobal competition(New York: Free Press, I985); John Dunning, Multinatiotnalntterprises,conomictructuirend

internationalompetitivenessChichester: Wiley, I985); and P. Cerny, The changitngrchitectturefpolitics(London: Sage, 990).2


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States, irms nd diplomacyThe firmswe interviewedwere working n a variety f sectors f businessand were of various national origins. Though the study was based on case-studies nd attention o detail at the micro evel, while we were struck irst ythe diversity f states' esponses o global changes, ertain ommon trendswererather learlyvisible n therelations etweenstates nd firms, specially oreignfirms. he pressures n both firms nd governmentsppearedto be very imilaracross all three countries. These pressures were forcing both the hostgovernments nd the foreignfirms o compete more and more actively forworld market hares, nd in so doing to reach new modes of accommodationwith one another.4 t seemed clear to us that these pressures rose fromstructuralhanges n the globalmarket conomy thatwere not always obvious

either o areaspecialists r to writers n corporatemanagement rdevelopmenteconomics.Technologicalhange,mobile apital, ransborderommunicationsMost obvious of thestructural hanges cting s thedriving orceon firms ndgovernments like were those n thetechnologyof industrial nd agriculturalproduction; related to them were changes in the internationalfinancialstructure. he acceleratingpace of technological change has enhanced thecapacityof successfulproducersto supply the market with new products,and/or to make them with new materials r new processes.At the sametime,product and process lifetimes have shortened, sometimes dramatically.Meanwhile, the costs to the firm of investmentn R & D, researchanddevelopment and therefore f innovation have risen.The result s that allsorts of firms hat were untilrecently omfortably nsconcedin theirhomemarketshave been forced,whetherthey like it or not, to seek additionalmarkets abroad in order to gain the profitsnecessaryto amortize theirinvestmentsn time ostayupwiththecompetitionwhen thenexttechnologicaladvance comes along. It used to be thoughtthat internationalism as thepreserve fthe arge,privately wnedWesternmultinational'or transnationalcorporations. oday, thanks o the mperatives f structuralhange,thesehavebeen joined by many smallerfirms, nd also by state-owned nterprisesndfirmsbased in developing countries.Thus it is not the phenomenonof thetransnationalorporation hat s new, but thechangedbalance between firmsworking onlyfor a local or domesticmarket, nd thoseworkingfor a globalmarket nd inpartproducing n countries ther hantheir riginalhome base.Besides the acceleratingrate of technological change, two other criticaldevelopments ontributedo therapid nternationalizationfproduction.Onewas the liberalizationof international inance,beginning perhapswith theinnovationofEurocurrency ealingand lending n the I960s, and continuinguncheckedwiththemeasures f financial eregulationnitiated y the United

The notion of ntationalcomparative advantage in much current conomic analysistends to obscure thefactthat, n the real world today, comparative advantage tendsto be firm-specificmore than state-specific.Moreover, the nature of the comparativeadvantage is apt to vary considerablyfrom sector tosector.


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Susan StrangeStates n themid-I97osand early 98os.5 As barrierswentdown, themobilityof capital went up. The old difficultiesf raising money for investmentnoffshore perations nd moving it across the exchangesvanished. t was eitherunnecessary orthe transnationalorporations o findnew funds, r they oulddo so locally.The thirdcontributing actorto internationalization as often been over-looked the steady and cumulative owering of thereal costsof transbordertransportnd communication.Withoutthem, entral trategic lanning f far-flung ffiliates ould have been riskier nd moredifficult,nd out-sourcing fcomponents s in car manufacturewould have been hampered.Broader erspectivesThese structural hangeshave permeated beyond finance nd productiontoaffectglobal politics at a deep level. They have, for instance, ignificantlyaffectedNorth-South relations.The so-called Third World no longerexistsas a coalition of developing countriesranged, as in UNCTAD (the UNConferenceon Trade and Development), in oppositionto therich countries.Developing countries re now acutelyaware thattheyare competingagainsteachother, he aggardsdesperately rying o catchup withthe uccessful ewlyindustrialized ountries. he transnationalorporations' earch ornew marketswas often a major factor eading them to set up productionwithin thosemarkets. ometimesthiswas done for cost reasons.Other times t was donesimply because the host governmentmade it a condition of entry.Theinternationalizationf production ythemultinationals as surely een a majorfactor n the accelerated ndustrialization f developing countries ince theI95os. For it is not only the Asian newly industrialized ountries whosemanufacturing apacityhas expanded enormously n the last two or threedecades,but also countries ike India, Brazil, Turkeyand Thailand.At the same time,the internationalizationf productionhas also played amajor part in the U-turn taken in economic policies by politicalleadersincountries as diverse and far apart as Turkey and Burma, Thailand andArgentina,ndia and Australia.Structural hange, exploitedmore readilybysome thanothers, asaltered heperception fpolicy-makersnpoor countriesbothabout thenatureof thesystem nd theopportunitiestopensto them forthepresentndthefuture.n the paceof a decade,therehasbeen a strikinghiftaway from policies of import-substitutionnd protectiontowards exportpromotion, iberalization nd privatization.It is no accidentthatthe dependencyschool' writers f the 970S have lostso much of their audience. Not only in Latin America (wheremost of thiswritingwas focused), we see politiciansand professorswho were almostunanimous n the 970S in castigating he multinationals s agentsof American5 See S. Strange, nternational onetary elations, ol. 2 of A. Shonfield, ed., Internationalconomicelations

oftheWesternworld1959-1971 Oxford: Oxford University PressforRoyal Institute f InternationalAffairs, 976); also S. Strange, Casino capitalism Oxford: Blackwell, I986).4


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States, irmsnd diplomacyimperialismwho now acknowledge them as potential allies in earning theforeign xchange badly needed for further evelopment.Nor, we would argue, s the end of theCold War, the detente n East-Westrelations nd the liberationof Central Europe from Soviet rule and militaryoccupationto be explainedby politics r personalities lone. Here too there reways n which structuralhange has acted,both at the evel of government ndthe bureaucracy, nd at the popular level of consumers nd workers.In the production structure, ven in the centrally planned economies,industrialization as raised living standards rom the levels of the I930S andI940S, at eastfor heprivileged lasses f society.Materialprogress as not beenas fast as in the market economy, but in the socialist countries s in LatinAmerica or Asia, the ranks have multiplied of a middle class of managers,professional octors, awyers,engineers nd bureaucrats,manyof whom aresignificantlyetter ducatedthan theirparents.With this mbourgeoisementascome greater warenessof what is going on in othercountries, nd of thewidening gap between ivingstandards n theaffluentWest and theirown.In the world market conomy, competition mong producershas loweredcosts to consumers nd widened their hoice of goods, while raising heirrealincomes. Under the pressures f shortening roduct ife-cycles, eavier capitalcosts and new advances in technologies, rivalry among producers hasunquestionably contributed o material wealth for the state as well as forconsumers.Witnessthe spread down through ncome groups of cars, colourTV, washing machines, freezers, video recorders, telephones, personalcomputers. n anyWesternhome, a high proportion f theseconsumergoodscarry he brandnames f foreignfirms.By contrast, he Soviet consumerhassufferedhedeprivation onsequentonthe economy's insulation from the fast-changing global financial andproduction tructures. ut the information bout what others njoyedin theWest could not altogether e keptfrompeople even in theSovietUnion, letalone in CentralEurope. The revolution n communications, nd thus n thewhole global knowledge structure, elpedto reveal thewideninggap betweenstandards flivingfor similar ocial groupsunderglobal capitalism nd undersocialism.At the same time,the new bourgeoisie,aware of the inefficienciesf thecommand economy, saw that economic change was being blocked by theentrenched pparatusof centralizedgovernment nd could onlybe achievedthroughpoliticalchangeand widerparticipation.While the burden ofdefencespending certainly layed a part n both East and West in furtheringetenteand making possible the liberationof CentralEurope, political change wasacceleratedwithinthesocialist ountries y the rise of a new middle class andtheirperception fthegap in livingstandards nd of theapparent nability fcentrally lanned systemsorespond o thestructuralhange n technologies fproduction.We would arguethat imilar tructural orces lso lie behind the worldwidetrend o democratic overnmentndtherejection fmilitarynd authoritarian

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States, irms nd diplomacyworld market shares. The firm has, first, ommand of technology; second,ready ccess to global sourcesof capital; third, eady ccess to major markets nAmerica,Europe and, often, apan. f wealth for the state, s for the firm, anbe gained only by sellingon world markets for the same reason thatnationalmarkets re too smalla sourceof profit or urvival thenforeign olicy shouldnow begin to take second place to industrial olicy; or perhaps,more broadly,to the successfulmanagement f society nd the efficientdministration f theeconomy in such a way as to outbid other states s thepreferred ome to thetransnational irmsmostlikelyto win and hold world market hares.While the bargainingassets of the firmare specificto the enterprise,hebargaining assetsof the stateare specificto the territoryt rules over. Theenterprise an operate n thatterritory even if t ust sellsgoods or services opeople living there-only by permission nd on the terms aid down by thegovernment. et itis thefirm hat s addingvalue to the abour,materials ndknowhow going into theproduct. Statesare thereforeompetingwith otherstates o getthevalue-addeddone in their erritorynd not elsewhere.That isthe basis of the bargain.Firm-firmiplomacyA thirddimension, qually the productof the structural hangesnoted earlier,is the bargaining hatgoes on between firms. his too may ead to partnershipsor alliances n which,while they may be temporary r permanent, ach sidecontributes omethingthat the otherneeds, so that both may enhance theirchancesofsuccess n thecompetition orworldmarket hares.Firms nvolvedin thisthirddimensionofdiplomacy may be operating n the same sector asin aircraftdesign, development and manufacturing) r in different ectors(where,for nstance, ne partymay be contributingtsexpertise n computerelectronics,he other n satellite ommunications).For scholarsof internationalelations, othnew dimensions re important.The significance f the state-firm imension s that states re now competingmore forthe means to createwealthwithin heir erritoryhanforpower overmore territory.7ower, especiallymilitary apability,used to be a means towealth. Now it is more the other way around. Wealth is the means topower not ustmilitary ower,but thepopularor electoral upport hatwillkeep present ulinggroups n theirobs. Withoutthiskindofsupport, venthelargestnuclear arsenalsmay be of littleavail. Nowadays, except perhapsforoilfields nd water resources, here s little materialgain to be found in thecontrolof more territory. s Singaporeand Hong Kong have shown,worldmarket hares and theresultingwealth can be won with theveryminimumof territory. ven where, as in Yugoslavia or the Soviet Union, there s arecurrence f conflict ver territory,heforcesbehind t are not solelyethnicnationalismof the old kind. Many Slovenes, Croats, Russiansor Georgians7 On this see S. Strange, The name of thegame', in N. Rizopoulos, ed., Sea changes New York:Council on Foreign Relations, I990).

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States, irms nd diplomacyMalaysia never once put controls on the right of foreignfirms o transmitprofits r even capital abroad. Nor did it impose punitivetaxes,even thoughboth profits nd capital gains were high. These terms, dded to the reassuringpresenceof British roops,meant therewas no exodus of foreign apital afterindependence uch as Kenya experienced,nor any wild indulgence n foreignborrowing uch as Nkrumah'sGhanawent nfor.Malaysia carried nwith thisopen, liberal policy long after he demise of the old sterling rea in the lateI960s, even though he beneficiariesn the I970S and I980s were mostlyJapaneseor American rather han British.There can be littledoubt that these policies contributed ubstantially ocomparativelyhigh ratesof investment y foreignfirms, nd in turnto highrates of economic growth: 7.3 % a yearin the period I965-80. (Though lessthan Brazil's average of 8.8% in thesame period, Malaysia's growthwas lessvulnerable o thehard times fthe 98os: while Brazil's average thenfellbelow3 %, Malaysia's held up at over 4.5 %. Exports continued growing at aphenomenalrate of over 9 % a year, nd by I988, 45 % of theseby value weremanufactures.This is not to say,ofcourse,thatpoliciestowardsforeign irmswere or arethe only factor. Malaysia's wider range of policy options compared withKenya's was certainly elped bya highrateofdomestic avings 36 % ofGDPin I988 and by past moderation n foreignborrowing. The exigencies ofdebt-servicing uffered y Brazil and Kenya made itharderforthem both tofight nflation nd to resistthe fatal temptation o resortto distortingndineffective rice controls.So thediversityfgovernment esponses o structuralhange usuallyreflectsthe policy dilemmas peculiar to the government f that ociety.But preciselybecause ofincreasedntegrationn theworld market conomy, t ismore andmore difficult or governments o 'ring-fence' a particularpolicy so thatimplementing t does not directly onflictwith, perhaps negate,some otherpolicy. For instance, t is no good Kenya luring foreign nvestorsnto a freeexport-processingone if at the sametimethe administrationf mport icencesto economize on foreign xchange prevents otential xporters romreplacingspare partsquickly enough to keep up the flowof output.Contemplation of the diversityof host-countrypolicies in monetarymanagement, rade nd competition olicy very oon bringshomethe fact hatthere reno short uts and no magic tricksnwooing foreign irms.However,somegeneral dvice s stillpossible.One pieceof advice sobviouslytopinpointthe policy dilemmas where objectives clash. Another is to cut out theadministrativeelays nd inefficiencieshatbedevilthe work of ocal managers.In Kenya, forexample, one really striking uccess storywas to be found n asectorwheregovernmentntervention nd controlshad beenminimal, n thegrowing and export offlowers nd pot-plants.Anothergood piece of advice,alreadystressed n thegrowing iteraturen themanagementof internationalbusiness,s to breakup monopoliesand enforce ompetition mong producers.Michael Porter,for example, has rightly tressed he importanceof fierce

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Susan Strangerivalrybetween local firmsunprotectedby trade barriersfrom competingimports.9 n the basis of our work we would agree thatBrazilian growthhascertainly eenhamperednot only by featherbeddedtatemonopolies,but alsoby the power given to the big business associations of local and foreignproducers n some key sectors f industry.But useful s such analyses s Porter'shave been, theyhave rather eft ut thepolitical element,both domestic and global. The diversity f governmentresponseswhich so struckus is surelydue not only to mulish stupidity rignorance f thekeystosuccess.Governments re,after ll, political ystems orthe reconciliation f conflicting conomic and social, and sometimesethnic,interests. oreover, the global structuralhanges hat ffect hem ll do so verydifferently,ometimesputting nakes, ometimes adders n theirpath. Somesmallboats caught by a freak ow tide n an estuarymay escape grounding nthe mud by alertand skilfulmanagement; othersmay be saved by luck. Ourresearch uggests hatthe crucialdifference etween states hesedays is not, asthepolitical scientists sed to think, hat between strong' states nd 'weak'ones, but betweenthe sleepy and the shrewd. States today have to be alert,adaptableto external hange, quick to note what other states re up to. Thename of the game, for governmentsust as for firms,s competition.Firms as diplomatsOur thirdgeneralpoint the mportance f firms s majoractors n the worldsystem will be obvious enough to leadersof finance nd industry. hey willnot need remindingthatmarketsmay be moved, governmentsblown offcourseandbalancesofpower upsetbythebig oil firms, ythe handful fgraindealers, by major chemical or pharmaceuticalmakers. It will come as nosurprise o them that the game of diplomacy thesedays has two extranewdimensions s well as the conventionalone betweengovernments.But while I have scratchedthe surface of one of these-the bargainingbetween firms and governments I have not said much about the third,bargaining between firms.This deserves to be the subject of a whole newresearch rogramme.Examples have recentlymultiplied f firmswhich wereandmayremain ompetitors ut which underthepressures f structuralhangehave decided to make strategic r even ust tactical lliances with other firmsin their own or a related sector of business.10n the studyof internationalrelations t is acceptedas normal that tates houldallythemselveswith otherswhile remaining ompetitors,o that thebargaining hat takesplace betweenallies s extremely oughaboutwho takeskey decisions, ow risks remanagedand how benefits re shared.The implications or nternational elations nalysis f the three-sided ature9 M. Porter, The competitivedvantage f nations New York: Free Press, 990). See also a recent reportfor the National Bureau of Economic Research,Washington DC: J. Levinshon, Testing the imports-as-market-discipline ypothesis', using data from the experience of Turkish firms ince the liberalizingpolicies adopted after 984.

a See, e.g., L. Mytelka, Strategic arttnerships:tates,irms nd internationalompetitionLondon: Pinter,I99 ).I0


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States, irms nd diplomacyof diplomacyare far-reaching. he assertion hat firms re major actors s atodds with the conventions f nternational elations spresently aught n mostBritish niversitiesndpolytechnics. he standard exts nthe subject ubscribeto the dominant realist' school of thought,which holds thatthe central ssuein international ociety is war between territorial tates, and the primeproblematic hereforesthemaintenance forder n therelations etween thesestates.11 his traditional iew of nternational elations lsoholds that he objectof study s thebehaviourofstates owardsother tates, nd the outcome of suchbehaviourfortates:whether hey re better r worse off, ess or more powerfulor secure. Transnational orporationsmay be mentioned n passing,but theyare seen as adjunctsto or instrumentsf statepolicy. 2

Our contentions thattransnationalorporationshould now be put centrestage; thattheir orporate trategiesn choosing host countries s partners realready having great influenceon the developmentof the global politicaleconomy, and will continueincreasingly o do so. In common with manycontemporary olitical conomists, ur interests notconfined o thebehaviourof states r the outcomesfor tates.Who-gets-what uestionsmust lso now beasked-about socialgroups,generations,enders, nd not east, bout firms ndthe sectors n which theyoperate.Ten yearsfromnow we anticipate hattheconventionsand limitations f what has sometimes been called the Britishschool of international elationswill be regardedas impossibly dated, itsperceptions s demode as I950S fashions. his isnot to say,ofcourse, hat hereare no lessons to be learnedby economic ministries nd corporateexecutivesfrom the diplomatic historyof interstate elations.Only that the studyofinternational elations mustmove with the times,or be marginalized as anarrowspecialism.There are three ssues, n our understanding,n the state-firm elationshipthatdeservemuch closerexpert ttention hantheyhave so farreceived.Oneissue is how and why governments hoose firms s partners; second is thespecifics hat re bargainedover,and who is likelyto have theupperhandonanyone ofthem;the third elates o thenationalityf firms. he questionhereisnot so much what internationalizedroductiondoes to thestate,but what itdoes to the national dentity nd behaviour of the transnationalirm.1. Whygovernmentshoose irms spartnersAs to thefirst, ot the eastattribute f the shrewd tate s theability o choosethe rightpartners mong firms.Depending on sectors,markets nd circum-stances, hismaybe a leadingfirm r a follower.There areprosand cons eitherway. Similarly, irmshave difficulthoices to make about which markets o

Hedley Bull's The anarchical ociety: study f order ntworld olitics London: Macmillan, I977) isexplicit on the point. See also Bruce Miller, The world f states London: Croom Helm, I98I), and amuch used text,Joseph Frankel, nternationalolitics, onflictnidharmonyLondon: Penguin, I969).12 Some well known textson international olitics-K. Holsti, Internationalolitics New York: PrenticeHall, I972), for nstance-do not even mention multinationals.Even Robert Gilpin, in The political

economy f nternationalelationsPrinceton, NJ: Princeton University Press, I987), devotes less than 30out of 400 pages to them.I I


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Susan Strangecontest,where to locate what elements fproduction, esearch nd financing,and how to manage their ffshore perations.Our point simply s thatbeforeeithergovernment r firmgets to the point of bargaining ver the terms ndconditions nder which the firm perates, oth have to make strategic hoicesabout theirpartners.Governments herefore eed to be well advised on therelative trengthsnd weaknesses f differentirms.As much attention houldbe paid to the corporatehistory,haracter nd decision-making abits f majortransnationalirms s internationalelations pecialists avebeen used topayingto nation-states.2. Knowingyour lliesSecond, the advice 'Know your enemy' appliesalso to alliesand partners.nbargaining ver specific ssuesbetween hostgovernments nd firms, ach sideneeds a clearerunderstanding han theyoftenhave of theother's ong-termobjectives, ts bargaining trengthsnd weaknesses.Thus in order to achieveyour own prime objective, t maybe well worthwhilemaking concessions nsome othersubjectivelyminor ssue.A recurrentssue, for example, is exports. So many countries re eitherburdened with debt-servicecharges or have ambitious development pro-grammesneeding mports f foreign apital goods thatfirms hat make extraefforts o increase xport saleswill be especiallywelcome. Subsidies-such asBrazil offersunder its Befiex cheap-credit, ow-tax programme-are anindicationof such a wish. On the otherhand, subsidies re rarelydecisive ncorporate strategies.When General Motors, to the furyof the US TradeRepresentative's ffice, ooka Brazilianexport ubsidy or particular roductline, ts objectivewas to undercutabour costs nDetroit and to consolidate tsposition n thepotentially ery arge and competitiveBrazilian market.Thesubsidywas just an added bonus.Anothercommon issue-witness the Franco-Britishquabble over whetherNissan carsmade inBritain re British rJapanese is domestic ontent:whatproportion f thefinalproduct smadeup of ocally produced components. ordeveloping countries, his determines he importantquestion of how muchspillover mong small ocal enterprisesan be expectedfromthepresence famultinational. ut it is not only developingcountries hatbargainhard withforeign irms n whether he ocal contentof a productshould be 6o or 75%of the value added. A major US concern in the US-Canada Free TradeAgreementwas to make surethatJapanese arsproduced nCanada conformedto (higher)Americandomesticcontent equirementsftheywere not to incurtariff arriers.The industrialized ountries re less concerned about how much foreignfirms re preparedto spend on training ocal workers.But for developingcountries-especially thosewho have experiencedthe exploitationof younggirls on the assembly ines of export-processingones-it is an importantquestion.Even though managersmay suspectthatnot all workerstheytrainI2


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States, irms nddiplomacywill stay with the company, tmay be a price worth paying to gain access tothe market. f the market s potentiallyarge and the global competition evere,a training rogrammemay reap long-termdividendsthat exceed thecost.The same may be said of firms'willingnessto throw into the packagesubstantial ontributions o local health services or environmental lean-upprogrammes. One Italian construction ompany operating in Africa auto-matically ends out a small fieldhospital,properly taffed nd supplied,withevery constructionob it undertakes. o thisare welcomed not only its ownlocal workers, ut anyone nneed.Presumably t has foundthispractice goodinvestmentn government-firmiplomacy.Japanese ompanies re sometimes raised nd enviedby Europeansfortheirmoreopen, lessclass-riddentyles f management.But their xclusivist, ot tosay racist, abitsofrestrictingeniormanagementobs toJapanese ndkeepingout the ndigenousworkforcemay provea handicap nthe ong run. n Brazil,some Japanesefirms eportedlywould not consider ven BrazilianJapanese sforemen.They were perceivedas having gone native'.In CentralEurope and theformer oviet Union, as inAsia, another ontestedissue willbe the ocationofresearch entres nd theemployment oreign irmsare prepared to offer to locally trained and educated science workers.Companies thathave come to think hat not inventedhere' rulesout researchwork by their overseas affiliatesmay be losing important pportunities orbeatingthecompetition.All the issues brieflyoutlined here pose questions for research on thebargaining processbetween governments nd foreign-and sometimesalsodomestic-firms; and most of them are rathermore significant or the firmthan thevalue of tax breaks or subsidies.3. National dentityndtransnationalfirmsThe third nd rathermore abstract ssueconcerns henationality f firms, ndthereforehevalidity fpoliciesbasedon discrimination etween one of ours'and 'one of theirs'.While it is true that US-based firmsrarelyadmit non-Americansto theirmain board-they are more likelyto appointa statutorywoman or a black American-nevertheless the behaviourof firms nd theirvital interests annot always be predictedfrom the countrywhere theyareregisterednd have theirheadquarters.NorthernTelecom is Canadian basedand controlled, ut itsUS operations re more mportanthan tsoperationsnCanada. In firms ike General Motors or Volkswagen, theirgeographicallydispersedoperationscreate tensionswithin the company that are essentiallypoliticalrather han economic and which altertherelations fmanagement othehomestate.Academicswho are nterestednthephenomenon fnationalismshouldpay much closerattention o current hange affectingmultinationals.For governments,nd fortheway they re organizedand staffed,othnewdimensionsof diplomacy have far-reachingmplications.Governmentsmayfind hattheyneed to makeradicalchanges n theirforeignministries-orelse

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Susan Strangedrastically o cut themdown in size and importance. hey may need to be moreopen to short-term ntrants rom ndustry r finance, nd to recruit ew staffwith business xperienceor technical nd scientific ualifications. he Britishgovernment n particularmay need to think hard about the lessons of itsrelationship ithNissan,Honda and Sony.While British irmswere axing obsand cutting ack in the summerof I99I, Nissan was expanding,offering ewjob opportunities n a formerlydepressed region. The prejudices of MmeCresson,of some Americancongressmen nd of some British radeunionistsagainstJapanesefirms annot bear rational ssessment f the national nterest.A European state'sbestally among firmsmay ust as easilybe American orJapanese s European.

To sum up. Much moreanalyticalwork is neededon firm-firmargaining swell as on state-firmbargaining in all its multivariantforms. It needsrecognizingthat both typesof bargainingare interdependent ith develop-ments n state-state argaining the stockin tradeof international elations),and that his nturn s nterdependent iththe other wo forms ftransnationaldiplomacy. In the disciplineof management tudies, orporate diplomacyisbecomingatleastas important subject s analysis f ndividualfirmsnd theircorporate strategies orfinance,productionand marketing. n the study ofinternationalelations,n interestnbargaining s alreadybeginning o supplantthe still-fashionablenalysisof internationalegimes.13A focus on bargaining,and the interdependence f the three sides ofdiplomacy thattogether onstitute ransnational argaining,will necessarilyprove more flexiblendbetter ble to keep up withchange nglobal structures.No bargain s forever,and this s generallywell understoodby anyonewithhands-onexperienceofnegotiation.The politicalart forcorporate xecutives,as forgovernmentdiplomats, s to devise bargainsthatwill hold as long aspossible,bargains hatwill not easilybe upset by changes n otherbargainingrelationships. his is true for political coalitions between parties, r betweengovernments nd social groups, such as labour; and it is equally true forbargainsbetween governments nd foreign firms, nd between firmsandotherfirms.The multiplicity f variables n the patternof any one player'sinterlockingeriesof bargains s self-evident.A finalpoint about the interlocking utcomes of transnational argainingrelates to theoriesof international elations and political economy. Social13 See, forexample, R. Grosse,Multinationialsnt atin America London: Routledge, I989). In our view,regime analysis has always been weak on dynamics. This approach sees chanige n internationalregimes, whether n trade, money, ecology or any other ssue-area, as taking place only periodicallyand in steps,not progressively nd continuously all the time. And far too much weight is attached torules and codes agreed (but not always observed) by governments. n trade,forexample, theinvestment-related lows generated by the firmswe talked to will carry on unaffected y the ultimatefateof theUruguay Round negotiationsbetween governments.Yet scholarsand journalistscontinueto pay undue attention o inter-governmental egotiations. n monetary matters, hough the IMFcertainlyhas a role as far as debt-trappedgovernments re concerned, ts regime' has beenundergoing perpetual change since the I960s and it bears littlerelation now to the blueprintofBretton Woods.'4


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States, irms nddiplomacyscientistsike to thinkthat the accumulationof more and more data, theperfecting f analytical tools and their rigorous application according toscientific rincipleswill some day, somehow, produce a general theory toexplain political nd economic behaviour.They are a bit ike peasantswho stillbelieve there s a pot of gold buried at the end of the rainbow despite theirrepeated failuresto track it down. Today, the complexityof the factorsinvolved in each of the three formsof transnational argaining,and themultiplicity f variablesat play, inclineus to deep scepticism bout generaltheories.Not onlyare economics-pace theeconomists-inseparablefromtherealworld ofpowerand politics, ut outcomes ntheglobal political conomy,the product of thiscomplex interplayof bargains,are subject to the greatdivergences hatwe have observed.

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susan strange- states, firms and diplomacy

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