INTERNATIONALEXCHANGE:A FOUNDATIONFOR THEORY BUILDINGIN INTERNATIONALBUSINESS BrianToyne* Universityof South Carolina

Abstract. There does not appear to be a consensus concerning whatis the conceptualdomainof internationalbusiness.Thispaper arguesthat this is due in part to an emphasison the firm as the unitof analysis.It is furtherarguedthata comprehensive, generative and theoreticallyintegrativedefinitionof internationalbusiness could be establishedif exchangewere made the unit of analysis. By usingthe politicaleconomyparadigmand the variousconcepts of exchangeadopted by the social sciences, nine characteristics are identifiedand developedwhichuniquelydefinethe conceptual domainof internationalbusiness.

Despite the obvious growing prominanceof internationalbusiness, research and theory concerning the topic offer little hope at this time of providing a unified body of knowledge. The reason for this deficiency partlystems from an insufficientconcernwith articulatingthe topic's conceptualboundariesand developing the interorganizationallinkages that permit the accumulationof complementaryfindings. The general body of literatureon internationalbusiness researchand theory can be groupedunderthreecore perspectives.Eachview encouragesspecialized researchand theory-buildingwith the firm as the unit of analysis (e.g., MNE, exporter,tradingcompany). Except for the studyof the economic andpolitical issues relatedto the MNE and nationstates, and the internationalfunctioning of financial markets, the largerproblemsof interorganizationalrelations and institutionaldominanceat various levels of aggregationgo unexamined. One school of thoughtviews internationalbusiness as involving the study of themanagerialandfunctionaladjustmentsof individualfirmsconductingbusiness in locations other than the home country (e.g., organizationaladjustment, marketingprogram adjustment,productionconfiguration). Collectively, this school drawsheavily fromthe business disciplinesfor its theoriesandresearch questions. However, the accumulatedbody of knowledge is fragmentedto the *BrianToyneis Professorof International BusinessattheUniversityof SouthCarolina. He is the coauthorof GlobalMarketingManagement: A StrategicPerspective,and numerousarticleson international businessandindustrialdevelopmentpoliciesfor developingcountries. Helpful comments and suggestions were provided by J.S. Arpan, J.J. Boddewyn, S.J. Kobrin, Z.L. Martinez,D.A. Ricks, and three anonymouisreviewersof earlierdrafts. Received: November 1987; Revised: April 1988; Accepted: June 1988.

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extentthatthe businessdisciplinesarefragmentedandspecialized. Essentially, the business disciplines are interestedin differentproblemsand use different terminologies. Managementscholarsdo not thinkas finance scholarswho do not think as marketingscholars. The second school of thought views internationalbusiness as the study of businesspractices,and the environmentalforces definingthese practiceswithin andacrossdifferentcountries.This school's contributionsareprincipallyviewed by theotherschoolsas providing"background"informationforanunderstanding of firm-level adjustments,again fragmentedalong business discipline lines. Forexample, the influenceof cultureon businesspracticesis generallystudied from a functional perspective (e.g., the influence of culture on marketing practicesand programs). The third school embraces the study of the conditions, criteria, and rules governingor influencingthe behaviorof groupsof firms, notablyMNEs. This school of thought, dominatedby industrialorganizationand microeconomic scholars, seeks to develop special theoriesto explain the observedpatternsof behavior of these phenomenain economic terms. A few exceptions to this tendency may be noted, such as in the work of Gilpin [1975], Gladwin and Walter [1980], Kobrin [1982], and Moran [1985] who have addressedthe political dimension. What is lacking is a constructof sufficient scope and abstractionwhich can tie the three schools of thought, their research, and their special theories together. The purposeof this paper is twofold: (1) to explore the possibility business; of using exchangeas a unifyingconstructfor the studyof international viewed international b usinesswhen define the conceptualdomainof and (2) to as a politicaleconomy concernedwith the distributionof resourcesandpower. Exchange is an integrativeand generative construct in the sense that it is common to all three schools of thoughtin particular,and the social sciences in general.In addition,the politicaleconomyperspectivefocuses equalattention on the economic and political dimensions of internationalbusiness (i.e., the acquisition and distributionof resources and power), and permits a direct connectionbetweenorganizationsat variouslevels of aggregation(e.g. groups, firms, governments,nations), and networksof organizations. INTERNATIONAL EXCHANGE AND INTERNATIONAL BUSINESS

Exchangeis a centralconcept for most social sciences. The concept exists in economics, sociology, psychology, and anthropologyas well as the business disciplines.It is also centralto the study of internationalbusiness.For example, Buckley and Casson [1976, 1985], Dunning [1973, 1980], Rugman [1975, 1982], and Teece [1986], just to name a few, have used markettransactions to fully or partiallyexplain multinationalenterprise(MNE)behavior.Exchange is also centralto internationalmarketingstudies, internationalfinancialmarket studies [Adler andDumas 1983], and exporterbehaviorstudies [Welch 1980]. As a concept, exchange is both broaderin scope and of higher abstraction thanthe firm. It is centralto a wider range of humanactivity, and transcends

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spatiotemporalcircumstancesand events (e.g., U.S. MNEs in the twentieth centuryand Dutch tradersin the nineteenthcentury). Unfortunately,exchange lacks a centraldefinition among the social sciences [Bagozzi 1979]. To economists, exchange entails a transfer of money for a productor service, is for self-gain, and is usually based on an assumptionof rationalbehavior.1To psychologistsandsome sociologists,exchangeis regarded as the joint outcome in a relationship when two actors choose from among two or moreactionspotentiallyaffecting each other. Social influence, conflict, and bargaining can be included in the process of the joint outcome. To anthropologists,andmanysociologists, the defining characteristicof exchange is the fiunctionit plays for a specific group, or organization. Three Characteristicsof International Exchange

Using the above concepts of exchange, at least three characteristics of internationalbusiness need to be recognized when defining its conceptual domain, and the phenomenato be explained: 1. International businessinvolvesthe exchangeof goods andlorservices across or within nationalboundariesbetween two or more social actors in differentcountriesfor commercialreasons. 2. International businessis anexchangeprocess involvingrelationships, inputs and outputs, between social actors located in different countries. 3. Internationalbusinessmay be influencedby noncommercial(social and political) considerations. These three characteristicsof internationalexchange provide some notion of what internationalbusiness may entailwhen defined in exchangeterms. First, the firm is no longer viewed as the unit of analysis. Second, the range of exchanges can conceptually include all exchanges consummated for both monetaryandnonmonetarycommercialreasonsbetweenand amongindividuals, groups,organizations,communities,andnations. Third,internationalbusiness is not solely the result of unsatisfied needs and wants, but can also be the resultof relationships(economic,social, andpolitical),negotiation,andplanning. Examples of this latter point include politically inspired embargoes, social welfare pressures, historical ties (e.g., the British Commonwealth),and the personalproclivityof individuals[Aharoni 1966]. Althoughexchangeprovidesa morecomprehensive,generativeandtheoretically integrative definition of internationalbusiness than the firm, the concept introducesconsiderableuncertainty.Concernsrequiringsome attentioninclude: (1) defining the social actorsto be included, and the criteriaused to delineate between theirdomestic and internationalactions, and (2) defining what parts of a nationalenvironmentshouldbe included,andwhatpartsshouldbe excluded. Answers to some of the questionsraisedby these two points can be found by briefly looking at the source and natureof internationalexchange.

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The Source and Nature of International Exchange

of exchangeprovideno informationon thepreconditions The threecharacteristics that give rise to internationalexchange and thus determine its nature and structure.For example, they do not explain why a particularinternational exchange opportunityexists, its attributes,and the conditions, criteria, and rules underwhich it is to be satisfied. Many schools of thoughtcan be called upon to answerthese concerns (e.g., economics, politicalscience, sociology). Also, they can be addressedat several levels of aggregation(e.g., national,industry,firm, even individual).To keep the discussionbrief, only two schools of thought-economics andorganization theory-and two levels of aggregation-nation and firm-will be used here. In economics, the origin and natureof internationalexchange is explainedby juxtapositioningtwo concepts: demandand supply. On the demandside, an internationalexchangeopportunityis an unfilled, or imperfectlyfilled national exchange opportunity.That is, a tangibleor intangibleneed is unsatisfied,or orservicesector(privately imperfectlysatisfiedbecausea society'smanufacturing or publicly held) lacks the wherewithalto consummatethe exchange, or does it less efficiently, or satisfactorily,than anothercountry'smanufacturingand service sector. This, of course, is not new, but its fundamentalmessage is often ignored,or forgotten.For example, a firm-leveldefinitionof international business carrieswith it the implicit assumptionthatfirm activity, not national needs or wants, give rise to internationalbusiness.2 Within a firm-level perspective, primary attention is on the adjustments undertakenby a firm, or groupof firms, in orderto satisfyspecific international exchange opportunities. The opportunitiesand the conditions giving rise to them are mostly viewed as exogenous and assumed static, even though it is known thatthey change over time for economic, social, andpolitical reasons, and that firms must be responsive to these changes. But this gap in our understandingshould be of centralinterestsince the predictivepower of our special theories (e.g., MNE behavior, exporterbehavior)depends directlyon such knowledge. Putdifferently,ourspecial theoriesareprimarilyexplanatory theories, and their predictive power is limited since they are essentially spatiotemporallydetermined. Moreover, the firm-level view implicitly assumes thatthe firm-the MNE or exporter-is the major (if not sole) transfer agent of foreign innovation, technology, and managerialknow-how. Ignored are the demand-stimulating anddemand-modifyingroles playedby othertransferagentssuch as the media, thetraveler,theimmigrant,and,perhapsmoreimportantly,industryandbusiness organizationsand the government. Internationalbusinessscholarsarepreoccupiedwith the firm's immediateneeds (e.g., what internaland external factors stimulate, constrain, and modify a firm's internationalbehavior). Becauseof this preoccupation,andthe tendency for increased specialization within the business disciplines, little scientific attentionis given to moremacro-levelissues affectingthe internationalexchange process and internationalfirm behavior. Mainly ignored, for example, are the

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modifyingeffectsof suchthingsastheinteraction of nationalmarkets,national industrypolicies,international agreements(e.g., theMulti-Fiber Agreement), andinternational institutions(e.g., GATT)on firmbehavior. Unsatisfiedor imperfectlysatisfiednationalexchangeopportunities not only precedeanddescribeinternational exchangeopportunities, theyaredynamic andaffecttheprocessby which they areto be satisfied.A country'slackof needednaturalendowmentsand technology,and its industrialorganization, laborcosts, andpolicies(in relativeterms)areexamplesof preconditions for the existenceof demand-related international exchangeopportunities.Most aredynamicandchangeas a resultof sociocultural,economic,andpolitical changes,andeconomicandpoliticalrelationsandactions. On the supplyside, the issue is not so clearcut since two types of supply needto be recognized:demand-satisfying supply,anddemand-creating supply. Fordemand-related international to be satisfied,either exchangeopportunities fullyor partially,one countryor its socialactorsmustpossess,or havesome controlor influenceover, a surplusof naturalendowments,and/orthe andservicewherewithals(e.g., products,services,technology, manufacturing laborcosts)to satisfyanothercountry'sunfilledor imperfectlyfilled needs. Thistypeof supplyis, of course,definedbythecharacteristics of theimperfectly fillednationaldemand.Thesecondtypeof supplyinvolvesthehotlydebated notionof demandcreation.3An examplewouldbe a countryor socialactor with surplusfactorsof productioncreatinga demandin anothercountryin orderto putthesefactorsto some use. An extremecase wouldbe an arms dealerencouraginga revolutionin orderto sell militaryhardware.According to someeconomistsandmarketing scholars,demandcanbe createdby suppliers undercertainconditions[Galbraith1973]. Implicitin this argumentis the belief that firms, particularlylarge firms, createdemandby manipulating customersas a resultof marketpower.Theimportance of thistypeof supply is thatit can be viewed as a stimulatorand consummatorof international business. The existenceof an international exchangeopportunitydoes not meanthat exchangewill occur,or even fully satisfythe opportunity.The reasonsfor this are many, includinggovernmentfiat (e.g., quotas, embargoesand lackof resources(e.g., foreignexchange),ideologicaldifferences prohibitions), of potentialtradingnationsandtheirsocialactors(e.g., theUnitedStatesand Cuba), the predilectionof potentialexchangeactors (e.g., reluctanceof companiesto exportor to enterinto joint ventures),or simply a lack of awarenessby potentialexchangeactorsconcerningthe exchangepotential. Thatis, nationalandfirm-levelconditions,criteria,andrulesexternalto the actualexchangeopportunity, butdirectlyimpactingon it, mayexistandhave to be satisfiedby one or both sides beforean exchangecan occur. These externalities,andtheircurrentexpression,largelydeterminewhomtheactors will be (e.g., governmentagenciesor privatefirms,Asians, Europeans,or NorthAmericans).How they will behave(e.g., exporting/importing, FDI, businesspractices),andthe criteriatheymustmeet(e.g., level of economic efficiency,level of socialaccountability).

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Thus, internationalexchange cannot be explained exclusively in economic termsat the nationalor firmlevels (e.g., absolute, comparative,or competitive advantage). Internationalexchange at both levels is conditioned by factors other than economics. Hawley [1968], for example, writing in the area of organizationtheory, arguedthat: As the relianceon exchangeadvances,the social environmentactually displaces the naturalenvironmentas the critical set of influences. A populationis never emancipatedfrom its dependenceon physical and animatematters,but the importanceof locale declines with increasing involvementin a networkof intersystemrelations. (readintercountry)relationsare dynamic, This suggeststhatinterorganizational andthepremisesuponwhich they arebasedalso changeas exchangeadvances. In later stages, exchange may not be driven solely by economic goals, such as efficiency. In advancedstages, specific exchanges, andthe conditionsunder which they are to be consummated, can be the result of sociopolitical considerationsat the national and/or firm levels (e.g., foreign aid tied to exports, preferentialtarifftreatment,and tradingwith the enemy restrictions). In otherwords, internationalexchangescan be viewed as an arrayof alternatives for satisfyinga society's or some lessor organization'sdependenceon physical and animatematterwithin a complex of previously establishedor expanding interorganizationalsociopolitical relationships.At the nationallevel, Finland is an excellent example of the historicalsociopolitical dynamics involved in achieving balance in its exchanges with Westernand Easternbloc countries.4 IBM's dealingswith Mexico and GeneralMotor's negotiationswith Australia are two firm-level examples. Countriesand firms (at least in marketeconomies approximatinglaissez-faire conditions)have the rightto definewhich unfilledor imperfectlyfilled demands are to be satisfied, which social actors are to be involved in satisfying these demands,how they will satisfy these demands, andunderwhat rules they are satisfied. However, the degree to which they will exercise these rights, and the business practicesthatwill evolve, are partlydependenton the natureof the demandsto be satisfied (e.g., do they have to be satisfied immediately, or can they be delayed indefinitely), and partly on prevailing sociopolitical arrangements.Suppliercountriesand firmshave similarrights. Supply can be withheld, and conditions imposed. At the nationallevel, internationalexchange can be conceptualizedas one of several possible outcomes of an economic, social, and political coalition of countrieshavingbothcommonandconflictinggoals. This thought,for example, is presentin Moran'sstudy [1985] on the political economy of foreign direct investment.The same conceptualizationholds at the firm level. It is a central concept of firm behavior in work done by Gladwin and Walter (conflict management)[1980], PfefferandSalancik(resourcedependence)[1978], Mason and Mitroff (stakeholdermanagement)[1981], Cyert and March (negotiated environment)[1963], and Larsson (power relationsin MNEs) [1985].

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From the above discussion, three points can be made concerning the origin and natureof internationalexchange. They are: 1. Internationalexchange is either the satisfactionof an unsatisfied national exchange opportunity, or the result of the simultaneous creationand satisfactionof a nationaldemand. 2. Both types of internationalexchange have attendantconditions, criteria, and rules that are prescribedeconomically, socially, and politically. 3. The conditions, criteria,and rules governingthe consummationof an internationalexchangeopportunityarethe resultof within-country interactionof nationaland/orfirm-leveleconomic and sociopolitical considerations, and between-country national and/or firm-level economic and sociopolitical relations. To summarize, internationalbusiness can be defined as a sociopolitical conditioned exchange process involving two or more countries and two or more social actorswhose commerciallymotivatedpurposeis to either-satisfy imperfectlysatisfiednationalexchanges,or to simultaneouslycreateand satisfy nationalexchanges.This definition,althoughaddingflesh to the threeexchange characteristicsidentifiedearlier,does not establishthe domainof international business, since all aspects of a nation's need-satisfying activities could be included. INTERNATIONAL BUSINESS: THE ENVIRONMENT AND ACTORS

Fromthe aboveit is apparentthatcertainelementsof nationalmarketpreferences andindustrialorganizationareendogenousto the internationalexchangeprocess. Also, governmentandothersocial organizationscan be exogenous influences, endogenousactors,orboth.5Moreover,theprocessshouldbe treatedas dynamic, multileveled, and influenced by historical events and national (societal) assumptionsconcerningthe role played by business activity. All these things, when put together, not only resultin uniquetypes of firm behavior, they also resultin uniqueexchangeopportunitieswith uniquecharacteristicsandattendant conditions. A Static or Dynamic Perspective?

From an exchange perspective, there are at least two theoreticaldeficiencies in the currentemphasison the firm as the unit of analysis. first, by focusing on the firm, only a very narrow,one-sided aspect of exchange is addressed. Thus, thereis a tendencyto assumethatthefirmis theinitiatorandconsummator of international exchange. Second, the firm's actions are predominantly characterizedas a concern with matchingorganizationalcapacities to a fixed (not dynamic) set of environmentaldemands[Astley and Fombrun1983]. In otherwords, the firm is viewed as adaptingin a rational,benefit-maximizing,

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anddeterministicfashionto a diversityof environmentalpressuresandconditions thatareassumedfixed atthe nation,industry,and/ormarketplacelevels. These deficiencies, of course, are not solely the result of the internationalbusiness scholar'spreoccupationwith the firm.They arealso partlydue to thewidespread adoptionof a staticmicroeconomicparadigmby businessandeconomicscholars [Arndt1983; Bourgeois 1984; and Hirsch and Friedman1986]. Examplescan be drawnfrom the threeschools of thoughtdiscussed earlierto illustrate these deficiencies. For example, the various special theories and explanationsof MNE behavior(e.g., the eclectic theory,intemalizationtheory, oligopolistic reaction theory) assume MNEs are changeable(in the sense of seeking an efficient, maximizing state), but that marketpreferences, market structures,and governmentinfluence are exogenous and fixed at any point in time. Furthermore,these special theories and explanationsare not interested in explainingtheprocess thatbringsabouttheMNE'sformationandcontinuance. The one-sided, firm-level approachto exchange, and the influence of a static microeconomicparadigmare also evident in the theory-buildingand theorytestingwork of some internationalbusiness scholars. These scholars, strongly influencedby theircore disciplines, mostly explaininternationalfirmbehavior as exogenously defined. As anexample, marketingandinternationalmarketing assume that a basic role of marketingmanagementis to maximize profits within a static environmentof exogenized marketpreferencesandgovernment influence, by findingthe optimumcombinationof the marketing-mixvariables [McCarthy 1960]. The same is also true of the work done by Boddewyn [1986], Porter[1980, 1986], and Prahaladand Doz [1987] on MNE strategy. A central assumptionin finance and internationalfinance is that the goal of managementis to maximizeutility, again,withina staticenvironment.Neglected in these approachesare such centralissues as the role of entrepreneurship,the role of power, changingmarketpreferencesand marketconditions, changing sociopoliticalrelationsand actions(at the nationaland firmlevels), the creation and destructionof coalitions, and the joint effects they have on management practices. This, of course, is not true of all internationalbusiness researchand theory. For example, Buckley and Casson,just to name two, have both addressedthe dynamic issue, specifically as it relates to the MNE. Buckley [1983, 1985, 1988], in discussions on the internalizationtheory of MNE, notes that the theory "lacks a dynamic," and suggests that this can be introducedeither throughthe time profile of costs, or the concept of entrepreneurshipas the primum mobile [1988]. For example, the ability to predict the timing of a foreigndirectinvestmentrequiresknowledge concerningthe incidenceof costs and theirtime profile [1985, p. 192]. Also, in summarizinga contributionby competence Casson,Buckley statesthat " . . .the distributionof entrepreneurial between firms and nations is a furtherexplanatoryvariable in the growth and spatial distributionof multinationalfirms" [1985, p. 195]. He expanded on this latter possibility by suggesting that "[w]hat is critical for the dynamic analysis of the MNE is the use made of informationby the entrepreneurand the cumulativeeffect of this on strategy" [1988].

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Casson, [1983, 1985, 1986], in papers on entrepreneurship,recognized the limitationsimposedby a firm-levelfocus. He suggested thatinsteadof looking at MNEs as bundlesof activities, they should be viewed as actors responding to an arrayof internationalopportunities(demands) with "common roots." In addition to recognizing that internationalexchange opportunitiesprecede andconditionfirmactivity,Cassonintroduced,by meansof the entrepreneurship concept, a dynamicmarketdevelopmentparadigm.6Europeaneconomistsview as " . . . the movingforce, who creates,reforms,anddestructs the entrepreneur theorganizationalmarketforms" [De Jong1986, p. 69]. Beyondtheimplications that this view has for understandingMNE behavior, it also suggests that entrepreneurship(which is socioculturallydefined) affects the conditions and characteristicsof internationalexchange. For example. Kojima [1978] has argued that Japanese and U.S. firms respond differently to environmental opportunities,suggesting, perhaps, that they eitherview the opportunitiesor their resources/advantagesdifferently. A theoreticalproblemwith most static microeconomicstudies undertakenat the present time is the assumptionthat what describes behavior today also describesbehaviorin the future.Neglectedin this andotherattemptsto develop internationalfirm-level theoryis the influence that firms, and the nationsthey belong to, have on the future characteristicsof the internationalexchange process. A paradigmthat does provide for voluntaryand proactivebehavior is the political economy paradigm. Exchange and the Political Economy Paradigm

The analysis of exchange based on the political economy paradigmis to view exchangeas the outcomeof a networkof organizationsrespondingto interacting sets of majoreconomic andsociopoliticalforces thataffect collective behavior and performance[Sternand Reve 1980]. Thus, exchange-whether analyzed at the national, or firm level-is the joint or collective result of political, social, and economic forces. A network of organizationsaffecting exchange may consist of directly or indirectly linked sets of organizations.Examples includenation-states,MNEs andnation-states,industries,channelarrangements, MNEs andtheirsuppliers,MNEs andtheirsubsidiaries,andtradingcompanies and theirnetworksof suppliersand buyers. As used here, exchange-its form, process, and conditions-is the joint or collective outcome of an emergent network of distinguishableorganizations havinga significantamountof political,social, andeconomicinteraction[Benson 1975]. Unlike otherapproachesthatare based on atemporalassumptions,and concentrateon a focal organization(e.g., the MNE)andits currentenvironment, exchange is viewed as the result of incremental,voluntaristic, and proactive behavior of individuals and organizations.This does not mean that a crosssectional approachcannot be taken, and deterministicand reactive behavior assumedundercertainconditions. However, the political economy approach does insist on the simultaneousanalysis of the economic, social and political forces, with an emphasison the interdependencies[Arndt1983].

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by comparing canbe contrasted Thedifferencein thetwoanalyticalapproaches the studiesdoneby GladwinandWalter[1980]andAggarwal[1985]. Both betweensocialactorsmayresultin extensive, studiesrecognizedthatinteraction reciprocalexchangesof resourcesor intensehostilityandconflict.However, conflictmanagement thestudydoneby GladwinandWalteron multinational forthepurposeof developinga wasbasicallycross-sectional,andundertaken toconflicts.TheAggarwal foranalyzingandresponding framework contingency study viewed the Multi-FiberAgreementas intermittentoutcomesof a howchangingeconomic,social, process,andsoughtto demonstrate longitudinal and politicalforces have affectedthe substance(rules, conditions)of the Agreement,andthe use to whichperiodicrevisionsof the Agreementhave beenputby tradingpartners. Basedon the workof scholarsusing the politicaleconomyparadigm[Zald 1970; Benson 1975, 1977], Arndt[1983] identifiedthreedimensionsas of (1) polityanalysisof organizations: significancein thecomparative particular These and (3) substructure-superstructure. economy;(2) external-internal; of international dimensionsareusefulfortentativelyidentifyingtheboundaries businessand the phenomenato be includedwhen exchangeis the unit if analysis. systemof an Thepolity-economydimensionrefersto the power-and-control organization(e.g., group,firm,government),or a networkof organizations, on the one hand, and to the arrangementof productiveactivitiesof an organization,or networkof organizations(e.g., allocationof resources, efficiency),on theotherhand.Thepolityhasas its goal theeffectivenessof of interorganizational exchanges.Theeconomyhasas its goal thestructuring exchanges. the efficiencyof theinterorganizational betweenthe Thepolity-economydimensionimpliesthatthereis a relationship exerciseof powerandcontrolon theone hand,andeconomicactivityon the otherhand.Thissuggeststhatall socialactorswho havepowerandcontrol (influence)overeconomicresourcesandactivityas theypertainto international exchange(demandand supply) should be objects of explanation.Thus, capacity,andthemarketplace government,ownersof productiveandattendant areto be included.The featurethatdistinguishesnationalandinternational socialactorsis not exclusivelythe economicresourcesthey own or control, butthepowertheyexerciseovertheseresourcesconcerningtheirnationalor use in bothdemandandsupplysituations. international andinternal dimensionrefersto theexternal(environment) Theexternal-intemal (organizationor networkof organizations)aspectsof polity and economy. Whatdeterminesthe boundaryof this dyaddependson theunitof analysis. Forexample,at the nationallevel, the internaldomaincanbe viewedas the networkof tradingcountries and their enterprises(e.g., the European Community).At the firm level, the internaldomaincan be viewed as the of a MNEandits subsidiaries,or its network arrangement interorganizational of independentsuppliers, and buyers. For both examples, the external environmentconsistsof suchthingsas nationalsocialwelfaregoals, market

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preferencesanddemand,industrystructure,industrialpolicies, andthe laws andregulationsaffectingthe networkof tradingpartnersandtheirrelations bothdomesticallyandinternationally. Thelist is quitelong, andtheselection of andtheweightassignedvariousenvironmental dimensionsis still opento considerablespeculation. Forexample,FarmerandRichman[1965]notedthatdifferencesin business inthecultural,economic, activityandpracticesarepartlytheresultof differences educational,political,andsocialdimensionsof nations.The implicationsof these comparativedifferenceson international firm behaviorhave become increasinglyclear.It is now recognizedthatthe abilityof firmsto compete, andhowtheycompete,in foreignenvironments is notonlya productof those butis conditionedby thesocietalcontextfromwhichthefirms environments, spring. Vernon[1966, 1979]alsonotedthatfirmsinnovatein responseto thedemand of theirhomemarket.He drewattentionto the fact thatthe characteristics behaviorof potentialdemand-satisfying firmsis partly (anddemand-creating) conditionedby demandconditionsin theirhomecountries.His productcycle contribution was a way of demonstrating thatdemandconditionsin countries arenotnecessarily identical,andhavebehavior-modifying effects.Morerecently, Kogut[1986]notedthatinternational exchangeopportunities andtheconditions underwhichthey areto be consummatedaresimultaneouslydeterminedby supplyconditionsin thehomecountry,andby supplyanddemandconditions in hostcountries. The pointraisedby these examplesis thatconceptuallythe environmental boundariesof international businessmustbe bothbroadandflexible. They mustbe sufficientlybroadto includethe knownenvironmental dimensions thatimpacton, andcondition,thebehaviorof thesocialactorsincludedas a resultof thepolity-economydimension.However,as the above examples indicate,therelevantdimensionsof nationalenvironments arestillindefinite. usedto definetheenvironmental Thus,theboundaries domainof international businessshouldnotbe assumedfixed. Notwithstandingthis problem, the criterion for inclusion of relevant environmental dimensionsis thattheyaffectthe international behaviorof the social actors.Thatis, they mustcontributeto a fullerunderstanding of (1) international economicactivities,and(2) theexerciseof powerand/orcontrol overtheseactivities. The thirddimensionviews superstructuirevariables,such as sentimentand behavior,asdetermined by theunderlying substructural patternof dominance. UsingBenson'swords:[1975, pp. 229 and235] Interorganizational relationsatthelevelof sentimentsandinteractions areviewedas existingin anequilibrium framework.Fourcomponents of interorganizational equilibriumaredomainconsensus,ideological consensus, positive evaluation, and work coordination. These componentstendto vary togetherand, thus, to becomebalancedat

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STUDIES, SPRING 1989 OFINTERNATIONAL BUSINESS JOURNAL varying equilibriumlevels. The equilibriumcomponentsare limited, however,by theirdependenceupon the political-economicsubstructure.

Domain consensus, whetherexplicitly statedor assumed, is always the result of the interactionof economic, social, and politicalconsiderations,negotiation, and the exercise of economic and/orpolitical power by one or more social actors. When used at the intercountrylevel, domain consensus defines the extentto which a groupof countriesandtheirenterprisesaregrantedpermission to enter into the national exchange process of anothercountry or group of countries(e.g., Arabboycott, the CanadianForeignInvestmentReview Act). At the firm level, domain consensus defines which social actors are granted permission to enter into an exchange process of anothersocial actor. This mightinvolveindependentactors(e.g., suppliersandbuyers,distributionchannel members), or actorswho are subpartsof the firm (e.g., subsidiaries).Thus, domain consensus contributessignificantly to such things as the level and intensity of competitionfor the exchange, and the initial (if not subsequent) behaviorof the social actors involved. Ideological consensusrefersto the agreementamongthe exchangeparticipants concerningthe natureand appropriatenessof the approachesto be used when satisfyinga specific exchangeor arrayof exchanges(i.e., degreeof agreement concerningthe stability, fairness, and predictabilityof relationships,and the effectivenessand efficiency of the interorganizational arrangements).A nationlevel exampleis U.S.-Chinarelations.More industry-specificexamplesinclude the regulationof advertisingin the U.S., the EuropeanCommunity,andmany Third World countries. Less obvious examples, but still importantfrom an internationalexchangeperspective,arethe assumptionsunderpinningattempts by governmentto stimulateinnovationusing industrypolicy (e.g., concentration vs. perfectcompetition),and to managecompetition(e.g., competitionserves the public's interestvs. competitionis neutral[Kantzenbach1986]). Positiveevaluationrefersto thejudgmentby theexchangeparticipants concerning the rules governingthe exchange process (e.g., the criteriaupon which "fair competition" and "fair trade" are measured). It also includes reciprocal assessmentsby membersof one organizationconcerningthe value of the work done by membersof the otherorganizations. Work coordination refers to the patterns of exchanges, cooperation, and coordination agreed to by the internationalexchange social actors. At the nationallevel, examplesincludelocal contentregulations,capitalizationissues, andso on. At the firm level it involves questionsconcerningwho will do what work (e.g., which subsidiariesare to be involved, which suppliers will be used, which advertisingagencies will be used). The threedimensionsof the political economy paradigm,and theirtheoretical implications,providean expandedand unifyingthemefor gaininga theoretically richerunderstandingof internationalbusiness. For example, they can be used to establish the conceptualdomain of internationalbusiness, the phenomena to be included, and their relationships. The frameworkis integrative in the sense thata numberof diverse concernsof internationalbusiness researchare

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broughttogetherin a unifyingfashion. In addition, the frameworkcan be used cross-sectionallyor longitudinally,and for differentlevels of aggregation(e.g., nation-states,industry,and firm). To briefly summarizethe points made: The featurethatdistinguishesnationalandinternationalsocial actors is not solely the economic resourcesthey own, control,or influence, but also the power they exercise over these resources concerning their national or internationaluse on both sides of the exchange situations. That is, social actors who may not possess productive capacity, but who exert control or influence over the international use of this capacity also need to be considered endogenous to the internationalexchange process. The environmentalboundaries of internationalbusiness must be sufficiently broadas to incorporatethose environmentaldimensions that impact on, and condition, the behavior of the social actors includedas a resultof point1. Thus, to be included,the environmental dimensionsmustnot only contributeto an understandingof economic activity, but also to an understandingof the exercise of power and/ or control over these activities, as both pertain to international exchange. The issues of centralimportancein the studyof internationalbusiness include the clarification of the conditions, criteria, and rules and their relationships,imposedby the social actorson both sides of the exchange, and the factors that influence their expression. By defininginternationalbusinessin exchangeterms,bothsides of the exchange are recognized. Also, the fact thatthe process of economic exchange may be relation-driven,not always efficiency-driven, is not ignored. Moreover, the modifying effects of the exchange, its sociopolitically influencedprocess, and its conditionson firm behaviorand managementpracticesare addressed.For example, the currentdebate between those who stress efficiency and those who stress power as explanationsof MNE behavioris fundamentallyderived from the differingperspectivesassociatedwith the microeconomicand political economy paradigms[Van de Ven and Astley 1981, p. 446].7 In conclusion, it is suggested that the boundariesfor internationaleconomic exchange, and the phenomenato be included, shouldbe defined in economic, social, and political terms. Internationalbusiness, as a field of theoretical inquiry,shouldencompassall social, industrial,market,andgovernmentactivities (economic and political) that lead to, or directly influence in some way, internationalexchange. IMPLICATIONS FOR INTERNATIONAL BUSINESS RESEARCH

The threedimensionsof the proposedinternationalexchangeframework(polityeconomy, external-intermal,and substructure-superstructure)and the four componentsof interorganizationalequilibrium(domainconsensus, ideological

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consensus, positive evaluation, and work coordination) contain implications for internationalbusiness researchand researchdesign. First, the framework links economic structuresand processes with sociopolitical phenomena.That is, internationalbusiness is viewed as a social system consisting of a number of identifiablesocialactorslinkedby a systemof structuredexchanges.Moreover, the social actorsand theirrelationshipsare treatedas dynamic, adapting,and internallydifferentiated(e.g., technically,economically, socially, politically). For example, changes in economic processes are linked to the structureand goals of social units and the influenceof power holders, such as governments andnationalinterestgroups.Thus,thequestionsof centralinterestto international business researchersneed to be expandedto include questionsconcernedwith definingthesocialactorsin termsof theirexchangerelationsovertime. Important dimensionsarenationalandfirm-levelauthorityandcontrolpatterns,distribution of resources, rewardsand power, and conflict and conflict management.The externaland internalforces which bringaboutchange in these dimensionsare also of interest. Second, the frameworkassumes reciprocal causality (e.g., interactionand consensus). For example, the initial selection and definitionof the exchange structuredefining the social actorsand theirexchange relationsis proactively andcreatively "enacted" [Weick 1969]. Examplesincludethe creationof the EuropeanCommunity,andJapan'sandSouthKorea'srecentindustrialization. Subsequentmodificationsto the exchangestructurearethe resultof incremental, but cumulativeadjustmentsby the social actors. Reciprocalcausalityhas two implicationsfor internationalbusiness researchers.First, it reinforcesthe need to formulatethe researchquestions in dyadic terms. It is not sufficient, for example, to assumethatcomparativeadvantagecauses internationalexchange. The sociopolitical dimensions of the advantagealso need to be addressed. Second, the researchdesign musteitherlet both "causes" and "effects" vary togetherwithout imputingany directionof causality a priori, or provide for of correlationaldataanalyseswhen makingcausal dual-directioninterpretations p. 593]. 1984, inferences [Bourgeois CONCLUSIONS

There does not appearto an overwhelmingconsensus, particularlyin recent years, amongscholarsconcerningwhat is the conceptualdomainof international business. While some scholars focus on firm behavior, others are interested in the emergenceof global industries,andstill othersareinterestedin questions concernedwith conflict and power. One is tempted to refer to these trends as a divergence of interestswith the potentialityfor fragmenting(atworst), or departmentalizing(at best), the field of internationalbusiness along lines representedby the business andeconomic disciplines. To use an analogybased on organizationalstructuring,should the internationaldivision (internationalbusiness) be absorbedback into the body of the firm along global productlines (business disciplines)?It is quite clear thatthe potential for this to happenis real since the business disciplines now

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have internationalunits which are making considerableefforts to understand the phenomenon (at least within their domain). However, as this paper has tried to suggest, there is an underlyingtheme to all our activities that cannot be replicatedby individualbusinessdisciplines:an explicitandunifyinginterest in the internationalexchangeprocessas it affectsfirmbehaviorandmanagement practices. Moreover, the internationalexchange process has the potentiality for becoming a foundationupon which internationalbusiness theory can be built. Ithasbeenarguedherethatexchange,andits attendantsociopoliticallyinfluenced process,is centrally,intimately,andinextricablya partof internationalbusiness. It is, in other words, the essence of internationalbusiness. Thus, it could act as the muchneededunifyingthemefor scholarsfromthevarioussocial sciences, especially the business disciplines. It certainlywould bring some orderto the diverse concepts and explanatoryprinciplespreviously proposed, and would provideanalyticalboundariesandlinkagesthatwould permitthe accumulation of complementaryfindings.

NOTES 1. This paragraphis a summaryof the majordifferences in the conceptualizationof exchange by several social sciences and discussed by Bagozzi [1979]. 2. For example, Alfred Marshall [1920, p. 76] noted many years ago that there is a tendency to view activity as giving rise to new wants, ratherthannew wants giving rise to activity. That is, he believed that the cause-effectrelationshipwas misstated.It is, of course, possible thatwants andactivitiesareinteractive. 3. Forexample, in 1966, the BritishInstituteof Marketingchangedits definitionof marketingto "Assessing and convertingcustomerpurchasepower into effective demandfor a specific product. . . so as to achieve the profit targetor otherobjectives set by a company" [Rodgers 1969]. 4. For political and security reasons stemming form its wars with the U.S.S.R. in the first half of this century, Finlandis requiredto tradewith Easternbloc countries. At the same time, it needs to tradewith Westerncountriesfor products,technology, and so on, and to sell surplusesin such things as oil from the U.S.S.R. and other indigenouslyproduLced productsfor foreign currencies. 5. The ideathatgovernmentsattemptto influencemarketsto achievewiderwelfaregoals hasbeenestablished. Also, it is now widely accepted that they are also actors in the marketprocess attemptingto make the marketwork better. As an example, see Aggarwal [19851. Governmentin many situationscan be either an exogenous influence, an endogenous influence, or both. The dual role played by governmentis quite apparentin de le Torre [1984] and Toyne [1984]. 6. A more completediscussionof the differencesbetweenthe anglo-saxonandEuropeanschools of thought on entrepreneurship,can be found in De Jong [19861. 7. See Van de Ven andJoyce [1981, pp. 347-4061 for an interestingdialoguebetweenPerrow,Williamson, and Chandler.Empiricalsupportfor Perrow'spositioncan be found in Bergsten, Horst, and Moran[1978, pp. 239-48]. They concluded that U.S. MNEs add significantly to their domestic marketpower through theirforeign investments.

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