The Impact of Information & Communication Technology Adoption on Multinational Firm Boundary Decisions – Chen & Kamal Flashcards
The Impact of Information & Communication Technology Adoption on Multinational Firm Boundary Decisions – Chen & Kamal
What has Information & Communaction Technology achieved?
- innovations in information & communication technologies (ICTs) have reshaped global landscape in which firms operate by enabling to reduce transaction costs
influence complex boundary decisions such as in-house production vs arm’s length exchange = firm’s foreign boundary decision - efficient mix of firm’s in-house & arm’s length production: determined by trading off external & internal coordination costs
The Impact of Information & Communication Technology Adoption on Multinational Firm Boundary Decisions – Chen & Kamal
Firm coordination costs:
consistent of two categories – internal & external coordination costs
The Impact of Information & Communication Technology Adoption on Multinational Firm Boundary Decisions – Chen & Kamal
Internal coordination costs:
economic costs incurred for communications, data transfer, other economic expenditures on managing dependencies between activities within a firm
The Impact of Information & Communication Technology Adoption on Multinational Firm Boundary Decisions – Chen & Kamal
External coordination cots:
: economic costs of locating suppliers, writing contracts, other economic costs of market procurement
The Impact of Information & Communication Technology Adoption on Multinational Firm Boundary Decisions – Chen & Kamal
How can ICT reduce internal costs?
ICT adoption can reduce internal costs & provide management with ability to manage orga more effectively and facilitate increased integration
The Impact of Information & Communication Technology Adoption on Multinational Firm Boundary Decisions – Chen & Kamal
How can ICT reduce external costs?
ICT adoption can directly reduce market transaction costs by providing cost effect means to access and process market information + closer inter-firm links of information sharing and monitoring
reducing external costs
The Impact of Information & Communication Technology Adoption on Multinational Firm Boundary Decisions – Chen & Kamal
how does effect of ICT vary?
net effect of it on firm size varies from situation to situation, depending on cost structure of firm & modes of synergy generated by integration
The Impact of Information & Communication Technology Adoption on Multinational Firm Boundary Decisions – Chen & Kamal
how does effect of ICT vary?
net effect of it on firm size varies from situation to situation, depending on cost structure of firm & modes of synergy generated by integration
The Impact of Information & Communication Technology Adoption on Multinational Firm Boundary Decisions – Chen & Kamal
Complexity of ICTs
- ICT systems vary widely in terms of complexity & sophistication + level of investment firm is required to undertake
The Impact of Information & Communication Technology Adoption on Multinational Firm Boundary Decisions – Chen & Kamal
in order for the ICt to be effective post ex:
- in order to be effective post ex: adoption of firm-specific ICT requires matching investments for co-specialisation with other firm-specific resources (ICT-trained employees) + partnering systems must be compatible
The Impact of Information & Communication Technology Adoption on Multinational Firm Boundary Decisions – Chen & Kamal
Hypothesis 1 and 2:
Hypothesis 1: all else being equal, the more complex the type of ICT adopted, the more likely it is to facilitate increased integration between internal firm units
Hypothesis 2: all else being equal, the higher the degree of electronic codifiability of production process of MNE’s industry, the more likely it is to experience increased outsourcing following ICT adoption
The Impact of Information & Communication Technology Adoption on Multinational Firm Boundary Decisions – Chen & Kamal
ELECTRONIC CODIFIABILITY OF PRODUCTION PROCESS
- industries in which production process is fragmented would benefit from adoption of ICT technologies in location lowest cost producer for each stage in production chain
additional benefit: risk of leaking out crucial proprietary knowledge is minimised if process broken down
The Impact of Information & Communication Technology Adoption on Multinational Firm Boundary Decisions – Chen & Kamal
Survey data and sample
- DATA
3.1 SAMPLE
* 4 confidential micro data sets from US Census Bureau: 1) ASM that includes the CNUS 2) Census of Manufactures 3) LFTTD 4) Longitudinal Business Database LBD
3.2 ICT DATA
* 1999 survey addendum to US Census’s Annual Survey of Manufacturers: CNUS – unique dataset due to wealth of detail on firm’s networking technologies at plant level & its national representativeness as addendum to legally required census survey
rest of methodology rather unimportant in this context
The Impact of Information & Communication Technology Adoption on Multinational Firm Boundary Decisions – Chen & Kamal
results of hypothesis
- more complex forms of ICT adoption that require simultaneous investments in ICT infrastructure encourage more internal firm activities
– highlighted by increased trade between internal firm units relative to arm’s length trade - support of Hypothesis 1
- degree of electronic codifiability in industry dampens impact of ICT adoption on intra-firm trade but increases contracting with external partners due to ability to control extent of intellectual property shared at each stage = increased outsourcing
support of Hypothesis 2
The Impact of Information & Communication Technology Adoption on Multinational Firm Boundary Decisions – Chen & Kamal
lens of transaction cost theory:
choices of arm’s length & intra-firm trade within MNE are not mutually exclusive but rather complementary depending on the organisation itself
