2 management - School of International Business and ...

145 The Puzzle of Globalization
process of multinationalization of companies has been also supported by external technological and
political changes. New ICTs have facilitated the de-localization of economic interactions. The much
propagated »death of distance«has stimulated MNCs to organize the company around global net-
works of production, distribution and management. Besides new ICTs lower trade and investment
barriers, widening and deepening of regional integration areas, improved logistics, harmonization of
business practices are supporting the geographical dispersion of MNCs operational activities. The
disproportionate growth of global merchandise trade compared to the global GDP growth mainly
results from the expansion of MNCs intra-firm trade due to the global fragmentation of their value
chains (Figure 9). Instead of producing parts and components in foreign subsidiaries MNCs can
also choose the offshore outsourcing option. These two choices are closely related to the question
of the boundaries of the firm. Even though there are no reliable data on the share of intra-firm trade
on global trade (approximately 35 percent according to estimations; data are available only through
firm surveys), there are studies analyzing the determinants [e.g. Corcos, 2009]. Empirical evidence
suggest that »intra-firm trade is high for products with low levels of contractability sourced from
countries with weak governance, for skill-intensive products from skill-scarce countries, and for
capital-intensive products from capital-abundant countries«[Bernard et al., 2010, p 1]. OECD data
for a few countries show large differences in their shares of IFT on their total trade; furthermore, the
shares also differ considerably between industries [Lanz and Miroudot, 2011]
Figure 9 | Foreign Direct Investment and Intra-Firm Trade