Escape FDI and the Varieties of Capitalism: Why History Matters in International Business.

Author:Kobrak, Christopher

1 Introduction

Over 10 years ago, Jones and Khanna prominently called for a (re-)integration of historical perspectives into International Business (IB) in the pages of UBS (Jones and Khanna 2006). They argue that history can complement IB theory by reminding us of what is new and commonplace in FDI research, and by highlighting what resources and path dependencies contribute to or hinder successful cross-border investments. The authors emphasize that many of the most interesting causal questions in International Business are best addressed with rigorous long-term analyses that supplement quantitative techniques (Jones and Khanna 2006). Jones and Khanna contributed to a series of articles and books by business historians and IB theorists who are very conscious of the historical evolution of their principal subject, business, and who advocate an integration of history into business theory (Buckley 2009, 2016; Buckley and Fernandez Perez 2016; Casson 1990; Dunning 1993; Ingram et al. 2012; Jones and Pitelis 2015; Morck and Yeung 2007). Principally, there should be nothing new about integrating history and IB theory. Like other related social disciplines, IB has to rely on the past, as constructing future experiments is difficult, if not impossible. Although IB theorists generally acknowledge the importance of history to their work, they--as much as concerned historians--have not yet found a sturdy bridge with which to integrate history and IB theory. With a few notable exceptions--such as the views of Chandler in strategic and general management as well as Wilkins and Jones in IB--important insights drawn by professional business historians about different periods rarely find their way into IB theory while much of the research outcome still relies on cross-sectional, empirical analyses with data stemming from rather short periods of time (Doz 2011; Hurmerinta-Peltomaki and Nummela 2006; Michailova 2011; see also Sect. 2).

Against this unsatisfactory background, we intend to underline the necessity of a perspective of history in IB research. For this purpose, we will discuss the topic of 'escape FDF as an example of scholarly work, which lacks historical evidence and which has the potential to showcase how historical knowledge might improve IB theory. Assessing the origins of FDIs and their drivers is a widely discussed and controversial topic in IB. For many years, those discussions revolved around economic, value driven internal firm considerations (Dunning and Rugman 1985; Calvet 1981; Faeth 2009; Moon and Roehl 2001). More recently, external, institutional influences have entered discussions. Among these influences on FDI motivation, 'escape FDF is playing a significant role. The term 'escape FDF describes the potential response of a firm to an institutional misalignment between its corporate goals and its country of origin. Scholars are taking corporate flight more seriously as an answer to institutional misalignments between home country and firm goals. Those interpretations of misalignments, however, tend to be narrowly focused on differences between home and host countries, derived from only a single period of time (Witt and Lewin 2007). In order to buttress our general point, we argue that current explanatory patterns of 'escape FDF ignore historical examples from other periods which are not consistent with their results and that they are not adequate as explanations of the political impetus to transfer activities outside of a company's home country. Quite representatively for its field, the example of 'escape FDF highlights just how much history matters in IB.

With 'escape FDF as an example, we intend to make a broad contribution. First, we provide an analysis of the current explanatory pattern of 'escape FDF and highlight certain inconsistencies. Building specifically on Jones and Khanna (2006) as well as Witt and Lewin (2007), we argue that the business environment plays a much greater and varied role for 'escape FDF than acknowledged in IB literature. Second, we present a discussion on the interwar period as an historical example. This 20-year period during the first half of the twentieth century illustrates the multifaceted motivations for 'escape FDF over time. Most of these motivations had little or nothing to do with the current explanatory pattern. In consideration of longer historical frames, it seems doubtful that conclusions concerning 'escape FDI' derived from only one period of time do justice to the diversity of 'escape FDF motivations. Overall, our discussion of 'escape FDF is designed to highlight how IB theorists could profit from examining examples from earlier historical periods. By presenting the interwar period as a specific historical example, we do not only employ business history methodology for the sphere of IB deliberately, but we further show that FDI theory--at the very least in the context of 'escape FDF--has focused too much on somewhat simplified economic considerations.

The core body of this paper is divided into three sections. The first emphasizes the low prevalence of a perspective of history in IB and outlines why this presents an unfavorable status quo. We provide evidence from IB journals of how little cross-fertilization has occurred in the past decade between history and IB. In order to reinforce our position, the second part reviews the matter of 'escape FDF as an example of scholarly work, which tends to rely heavily on dichotomies and insights derived in a quasi-ahistorical manner. In this context, the third section discusses German FDIs to the US during and around the interwar period as a historical counter-factual example to current explanatory patterns of 'escape FDF. Our case shows that the current explanatory pattern neglects detailed insights from larger historical periods. Thereby, it highlights the limits of drawing general theory from just one period. Furthermore, our time-conscious example serves as an illustration of the importance and complexity of environmental factors in explaining FDI-decisions. Thereby, it expands the discussion of 'escape FDF.

2 Dearth of an Interdisciplinary Dialog

Business historians and IB theorists are struggling to find common ground as the historical narrative and methodology contain many features that run counter to the interests of business theorists (see Buckley 2016, for example, for an overview of historical methodology). Although the benefits of historical analysis to international business studies (i.e., its use in stimulating the imagination and providing counter-factual analysis) should not be up to debate, the complexity of the past casts doubt on the breadth of social generalization based on data drawn from different periods or cultures; thus discouraging IB theorists who attempt to implement business history methodology. Furthermore, promotion and publication criteria still hinder scholarly work that amalgamates more than cursory insights from IB theory and historical research despite the interest of some young scholars in pursuing interdisciplinary work and some recruiting of historians for business school faculties.

Regretting the dearth of interdisciplinary dialog, recently many business historians have offered a series of solutions, mostly, but not exclusively, addressed to business historians. In some cases adopting the language of management theory, they bemoan historians' reticence to discuss their own 'theory' and methodology, to address specific management theories, and to produce higher level generalizations. Intended to gain recognition for business historians among management scholars, these discussions tend to gloss over how many differences in research agendas and methodological orientations there are between history and management studies (Fear 2014; Rowlinson et al. 2014).

As for other management scholars, the work of many IB theorists rests on statistical analyses of aggregate data collected over a relatively short period of time and contains little or no historical contextualization (Doz 2011; Hurmerinta-Peltomaki and Nummela 2006; Michailova 2011). This lack of recognition for business history is also manifested in the applied research methodologies in influential IB journals. In order to examine the role of history in IB, we took a closer look at the published articles in two of the most notable IB journals, JIBS and JWB, from 2006 to 2015. We chose to examine these two journals primarily because of their sturdy reputation of being high-quality research outlets in the sphere of IB. (1) This assessment is also reflected by the yearly average number of citations of both journals. JIBS (2015) has an impact factor of 3.620, JWB (2015) has an impact factor of 2.811 (self-disclosure of the publishers). These values are unmatched in the group of high-quality International Business journals, which publish their respective impact factors. With our investigation we intended to identify the number of longitudinal studies that considered a historical context for their analysis. In order to be classified as a longitudinal study, an article had to review the same research variables over a period of at least 2 years--thus allowing for a historical comparison between at least two points in time. If an article was not classified as a longitudinal study, it was either considered to be cross-sectional, i.e., it is built on data from a specific point in time, or to be conceptual, i.e., it is not empirical.

The survey of JIBS articles included 509 articles (see Fig. 1). Only 117 of these articles can be considered as longitudinal studies (there are 35 conceptual as well as 357 cross-sectional studies). Of these 117 articles, only 16 longitudinal studies tried to exam the historical context of the data they were using. Even these efforts at contextualization were thin at best.

A closer examination of publications in JWB yielded similar results (see Fig. 2). Here our survey included 463 articles...

To continue reading