International Business Review 10 (2001) 571596 www.elsevier.

com/locate/ibusrev

The ICT revolution, internationalization of technological activity, and the emerging economies: implications for global marketing
P.M. Rao
*

College of Management, Long Island University/C.W. Post Campus, Brookville, NY 11548, USA

Abstract The paper examines the impact of the information and communications technology (ICT) revolution on internationalization of technological activity with special reference to emerging economies and its implications for global marketing. The issue is examined principally around the transaction cost framework. The evidence from recent literature suggests that ICT applications such as workow systems, groupware systems, e-mail, and data transfer through Internet and videoconferencing may have diluted the traditional market failure arguments for vertical integration of rms technological activity and contributed to internationalization of MNE R&D and the rapid growth of technology alliances. In terms of implications for global marketing, the impact of ICT via the internationalization of MNEs technological activity would have its strongest impact on product development decisions. The trend towards modular designs and the companion platform product strategy in which a rm designs a common core with different versions for different segments is likely to accelerate. Hybrid forms of governance (e.g., alliances) will continue to experience rapid growth in the internationalization of MNE R&D. The paper also suggests that alliances may be important for successful product differentiation in global markets. With respect to emerging economies, the ICT revolution, by making more, better, cheaper and faster exchange of information possible globally, may have the effect of reducing the country-specic risks associated with the development of new products and services. Overall, emerging countries like India and China with signicant competencies and rapidly developing ICT infrastructure, appear to be well positioned to become serious players in the trend towards internationalization of technological activity. 2001 Elsevier Science Ltd. All rights reserved.
Keywords: ICT; Technology transfer; Emerging economies; R&D; Technology alliances

* Tel.: +1-516-299-1543; fax: +1-212-473-3420. E-mail address: pmrao@liu.edu (P.M. Rao).

0969-5931/01/$ - see front matter 2001 Elsevier Science Ltd. All rights reserved. PII: S 0 9 6 9 - 5 9 3 1 ( 0 1 ) 0 0 0 3 3 - 6

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1. Introduction We enter the new millennium with the information and communication technology (ICT) fundamentally transforming the way business is conducted around the world. The Internet, which is at the center of this transformation, has made it possible to globalize space, time, and image at a pace unthinkable only a few years ago. Telecommunications networks now link research, manufacturing, marketing, nance, and distribution globally with voice, data, and video services. Among the key technological trends driving these changes are growing capacity made possible by optical ber and satellite technologies; digitization of telecommunications networks, which allows any type of information (i.e. data, voice, and video) to be sent in compressed form and reconstructed at the receiving end; convergence of telecommunications, data processing, and imaging technologies, which makes it possible to combine voice, data, and images according to the user needs; and ubiquity of mobile and personal communications made possible by advances in wireless technology (Hudson, 1997). However, the high level of diffusion of ICT has thus far been concentrated in the industrialized countries. The disparity in ICT infrastructure that exists between industrialized economies and emerging economies is striking. For example, the average teledensity (main telephone lines per 100 population) in China and India with almost 40% of the worlds population is 5 compared to 66 in North America (ITU, 1999b). Still, such broad indicators of poor ICT infrastructure mask several other facts that appear to be favorable to the developing countries as they enter the new millennium. First, the developing countries have been following a variety of restructuring strategies to increase the pace of ICT infrastructure development. They go under many overlapping labels such as corporatization, introduction of competition, privatization, deregulation, and liberalization. Second, the growth of ICT infrastructure in the urban centers of the emerging economies has been impressive. For example, American rms do not seem to be impeded by the generally poor ICT infrastructure when they hire contractors in Bangalore, India, to develop and transmit software programs. Third, access to telephones and computers is greater than individual ownership in the developing economies. This is, in part, due to lower living standards that force consumers and businesses alike to share the available infrastructure in a quid pro quo manner. Therefore, telephones per capita and computers per capita are not necessarily good indicators of access to critical information. Fourth, in the critical area of internationalization of technological activity, which is the focus of this paper, the ICT revolution appears to favor the developing countries in several ways. For example, the geographic concentration or clusters of R& D activity and indeed foreign direct investment (FDI) in and around few urban centers, where the level of ICT infrastructure has passed the critical mass, could accelerate the transfer of technology and spillovers to the emerging economies. This process

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is further aided by the fact that scientic communities the world over are relatively small and closely knit. Although there exists a substantial body of literature of recent vintage on internationalization of technological activity (literature on international technology alliances and internationalization of R&D activity, for example), very little of it has to do with the impact of ICT on such activity, and even less with emerging economies. A major purpose of this paper is to help ll this gap from the perspective of global marketing. The issues addressed in this paper include: What is the impact of ICT on rm specicity of technological assets such as investments in R&D? If ICT reduces the importance of rm specicity of assets, would it, ceteris paribus, reduce the incentive to internalize such assets through vertical integration as the conventional transaction cost theory would predict? What effect would this have on internationalization of technological activity? What is the role of technology alliances in the transfer of technology from the developed to the emerging economies? It should be noted at the outset that while the term internationalization of technological activity covers numerous aspects of cross-border technology spillovers FDI, trade, patenting, and other means the discussion in this paper is limited to multinational enterprise (MNE) R&D and international technology alliances. The rest of the paper is organized into three sections. The second section provides a conceptual context for example, the transaction cost analysis and the market failure arguments around which the issue of internationalization of technological activity is discussed. An important part of this section is a discussion of how the ICT revolution may call for a re-examination of the traditional explanations concerning internationalization of technological activity. Section 3 presents recent evidence on internationalization of technological activity with reference to the emerging economies. Included in this section is a discussion of internationalization of R&D, the growth of technology-based alliances, the emergence of the independent software industry, and the unbundling of R&D activity. The fourth section provides a summary and draws implications for global marketing strategies, mainly from the standpoint of the developed worlds multinational rms.

2. The conceptual context 2.1. Sources of market failure in innovation The traditional conceptual framework within which externalization of rms technological activity of which internationalization is just one aspect is examined revolves around the market failure problems associated with innovative activity. It is found in one of Arrows earlier works on inventive activity (1962); Williamsons transaction cost theory (1975); and the internalization theory (Caves 1971, 1984; Buckley & Casson, 1976). All of these theories have their origin in Ronald Coases famous question of what determines which activities a rm chooses to do for itself and which it procures from others (Williamson & Winter, 1993); and externalization

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of technological activity presents something of an anomaly in each of them, because all provide strong arguments for vertical integration of R&D. While Coases question goes to the heart of the limits of vertical integration and rm boundary, our discussion here will be limited to the rms technological bound` ary, especially as it concerns internationalization of technological activity vis a vis the emerging economies. The starting point for this is to ask why so much of innovative activity the world over is vertically integrated into the rm rather than outsourced from the market. For example, well over 95% of company-funded R&D in the US is vertically integrated (NSF, 1999). This is an indication that free-standing R&D businesses are difcult to sustain because of the market failure problems associated with innovative activity observed by Arrow (1962), Williamson (1975), Buckley and Casson (1976), among others. There are three principal sources of failure. The rst of these is the problem of appropriability which, when applied to a standalone R&D business, means that it will be unable to internalize the fruits of its innovative activity. This is because innovation is expensive to produce and cheap to copy. Moreover, markets would be vulnerable to opportunism. The value of information to a potential buyer is not known until it is disclosed, but once it is disclosed, he need not pay for it. This is the problem of moral hazard. Williamson (1975, p. 31) suggests that it is opportunism paired with information impactedness that presents the difculty for writing cost-plus R&D contracts. Information impactedness exists when information relevant to the transaction is known to one or more parties but can be transmitted to others only at great cost. The second problem associated with innovative activity is uncertainty. Although uncertainty is present in all economic activities, the output of innovative effort, especially in its early stages, suffers from such uncertainty that it is impossible to write meaningful and enforceable contracts. Williamson argues that it is information impactedness (which is a derived condition from uncertainty) and opportunism that can give rise to a small-numbers problem. The latter arises when the market for innovations is thin and incentives for stand-alone innovator rms are impaired. The third source of market failure is indivisibility, which arises when economies of scale and economies of scope are present in the innovation process. Economies of scale arise from lumpiness of R&D projects, and economies of scope or joint production from technical interconnectedness. The strong presence of economies of scale and scope impedes specialization and therefore market solutions. Vertical integration or internalization of R&D effort combined with large size are viewed as ways of mitigating each of the three sources of market failure in the innovation process. Appropriability is enhanced when R&D is integrated into the production of goods and services. This is especially true when a rm combines vertical integration of R&D into manufacturing with a high degree of horizontal integration at the downstream service level, as was the case with AT&T prior to its 1984 breakup. Opportunism and information impactedness are eliminated in an integrated structure. Vertical integration of R&D and large size reduce uncertainty through pooling (or diversication) across a large number of R&D projects. Uncertainty is also reduced through free ow of information between research, manufacturing, and marketing. Similarly, integrated R&D in a large rm allows exploitation of

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scale and scope economies in R&D and mitigates the indivisibility problem (Nordhaus, 1981). Application of the market failure framework to cross-border technology-transfer issues is only a short conceptual step. Starting with Hymer (1976), many authors have argued that the problem of appropriability associated with proprietary technology is one of the major reasons why rms, ceteris paribus, would rather engage in FDI than use other forms of cross-border involvement such as trade, licensing, joint ventures, and alliances (Caves, 1984; Buckley & Casson, 1976). Indeed, the internalization theory advanced by Buckley and Casson (1976) suggests that the strongest incentives for replacing licensing and other contractual exchanges with FDI occur in markets for knowledge. Moreover, internalization theory views the monopolistic power gained by exploiting rm-specic advantage such as proprietary technology as the MNEs raison detre. Thus, the market failure argument becomes, in part, a theory of the FDI as well as a theory of the MNE. So far the market failure arguments advanced by Arrow have been placed in the context of Williamsons analysis of impediments to market solutions for innovation. However, it should be noted that Williamsons transaction cost framework (TCF) is much broader and deeper than the above discussion suggests. It deals with the sources of market failure as well as organizational failures (e.g., consideration of path dependency, bureaucratic commitment, and venture capital) in the innovation process and allows for hybrid forms of organizations such as alliances. Indeed, Williamsons framework, as it concerns innovation, can be viewed as an antecedent to recent literature on international technology alliances (Dunning, 1997; Boyd & Dunning, 1999; Nooteboom, 1999) and internationalization of R&D (Dunning, 1994; Granstrand, Hakanson, & Sjolander, 1993). 2.2. Asset specicity, coordination costs, and market failure It is simplistic to suggest that Williamsons TCF views the organization of innovative activity as a dichotomous choice between markets and hierarchies. As noted above, TCF allows for hybrid forms of organizations such as joint ventures, alliances, and franchises that fall between markets and hierarchies with respect to incentives, adaptability, and bureaucratic costs (Williamson, 1996, p. 107). In comparison to the market, the hybrid form achieves superior coordination but sacrices market incentives. In comparison to the hierarchy, the hybrid form allows greater incentives but sacrices cooperativeness. The principal dimension on which coordination costs depend is asset specicity, which pertains to the degree to which an asset can be redeployed to alternative uses and by alternative users without sacrice of productive value (Williamson, 1996, p. 59). Thus, assets with a high degree of specicity represent sunk costs that have little value outside of a particular exchange. The greater the degree to which technological assets are specic to a rm (strictly speaking, they must be transaction specic), the stronger the case for hierarchy and vertical integration of a rms technological activity. Put differently, in terms of coordination costs, the hierarchy outperforms the market at very high levels of asset specicity, and at very low levels

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of asset specicity the market outperforms hierarchy with hybrid falling in the middle. In the intermediate range of asset specicity, hybrid outperforms both market and hierarchy. Note that asset specicity could take any one of several forms that include human asset specicity arising from learning-by-doing, or physical asset specicity such as specialized equipment and brand name. A second dimension that affects coordination costs is uncertainty, a source of market failure in innovation. In addition to the state-contingent kind of uncertainty (e.g., random acts of nature), Williamson emphasizes behavioral uncertainty that arises when asset specicity and incomplete contracts are joined (1996, p. 60). Also relevant to the TCF is uncertainty which, according to Koopmans (1957), arises from lack of timely and efcient communication between decision-makers concerning decisions and plans. The TCF distinguishes between two types of indivisibilities. The rst type involves economies of scale associated with physical assets in the familiar sense employed in the innovation process. This means large-scale R&D units that result in lower average cost. However, this type of indivisibility is different from the one that arises from the lumpiness of R&D projects. The lumpiness of a project, by its nature, impedes specialization. The second type of indivisibility has to do with the set-up costs associated with the acquisition of information. Williamson observes that there is a coexistence of the transfer process (which allows rms to specialize) and internal development of R&D activity. He suggests that classical specialization by which initial development and testing is done by independent inventors and small rms, and subsequent management and marketing of successful developments by large rms, might be more efcient. Finally, with respect to the appropriability problem, the issue is that the value of technological assets may be appropriated by competitors, suppliers, and buyers. If such investments cannot be legally protected or if legal protection is ineffective, in terms of coordination costs, hierarchy will outperform the market and hybrid forms. Put differently, a weak appropriability regime increases the coordination costs of the market and hybrid forms relative to hierarchy. As noted earlier, vertical integration of technological activity is undertaken to overcome the appropriability problem (Teece, 1986). It is important to note, however, that vertical integration only mitigates the appropriability problem at best, but does not eliminate it. A weak appropriability regime could increase the costs of coordination within the rm (this point is generally ignored in the TCF) just as easily as it increases the coordination costs of the market and the hybrid forms. This is because internal monitoring costs of protecting proprietary technologies with or without legal protection can be considerable. 2.3. ICT and the organization of technological activity The critical issue here is the impact of ICT revolution on the organization of a rms technological activity. As noted earlier, R&D activity, the world over, is overwhelmingly vertically integrated, as the TCF would predict. That is, hierarchy is preferred over the market and hybrid forms for organizing technological activity. Two questions arise that are central to this paper.

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1. Does ICT shift this preference in favor of the market or the hybrid form or both under certain circumstances? 2. What implications would this shift have for internationalization of technological ` activity vis a vis the emerging economies? The discussion in this and subsequent sections focuses on these two questions. A number of authors have attempted to address the rst question posed above. Among the studies relevant for the purposes of this paper are: Benjamin, Malone, and Yates (1986), Milgrom and Roberts (1992), Clemons, Reddi, and Row (1993), Brynjolfsson, Malone, and Gurbaxani (1988), Brynjolfsson, Malone, Gurbaxani, and Kambil (1994). Garbe (1998) provides an excellent summary of the ndings of these and other studies. The studies employed a variety of methodologies ranging from regression analysis, case analysis, and plain anecdotal evidence. All ve studies focus on the important issue, from the standpoint of TCF, of the impact of ICT on asset specicity. The focus of each of these studies varies with respect to the type of asset examined. Recall that a reduction in asset specicity leads to preference for the market and the hybrid form of governance structure over hierarchy. All ve studies appear to conclude that ICT reduces asset specicity and hence moves the governance structure toward the market and hybrid forms. (Note that ICT is not merely an exogenous variable affecting asset specicity. Ultimately, reduction in asset specicity comes about when economic agents act to exploit to gain competitive advantage.) Clemons et al. (1993) examined information technology (IT) assets themselves and concluded that increasing standardization combined with more exible software and hardware will result in reduction in asset specicity and redeployability of IT assets. The authors also maintain that IT has the ability to lower coordination costs without increasing the transaction risk, leading to more outsourcing but from a reduced set of stable partnerships, and from less vertically integrated rms. Milgrom and Roberts (1992) examined physical assets and concluded that exible manufacturing, which is made possible by computer-integrated production, might reduce their specicity and increase their redeployability. Benjamin et al. (1986) treated time as an asset and concluded that the specicity of information as an input factor will be reduced, since information, by its very nature, is a time-specic resource. IT applications that make this possible include databank and information systems, groupware systems, e-mail, and videoconferencing. Studies by Brynjolfsson et al. (1988, 1994) bear more directly on the central theme of this paper: the impact of ICT on internationalization of technological activity. These studies focus on human capital and conclude that ICT reduces the specicity of geographically locked-in human capital. This is made possible by ICT applications involving workow systems, groupware systems, e-mail, and videoconferencing. In addition, as Jaikumar and Upton (1993) note, many product and process specications in manufacturing have been reduced to computational procedures which are easily transportable right to the production process via the standardized telecom links and reproducible (i.e., every part made by any machine running a particular procedure will be exactly the same). As a result, it has become possible for engineering and design to be effectively supplied by physically and functionally distinct organiza-

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tions from manufacturing units. One important implication of these trends is that some R&D personnel become fungible, and, as a result, cross-border hybrid and market solutions become more attractive. Brynjolfsson et al. (1994) also nd broad evidence that investment in ICT is signicantly associated with subsequent decreases in rm size. This occurs because ICT reduces coordination costs (especially external coordination costs) more than it reduces production costs, thus leading to more outsourcing from a larger number of separate rms. Moreover, the authors suggest that the widespread use of ICT may increase the viability of smaller rms relative to larger ones. This is because the entrepreneur in the information age needs access to knowledge accumulated in the software writers head or in other forms, rather than large sums of money tied up in physical capital. The presumption is that smaller entrepreneurial rms are better able to take advantage of their specialized human capital and adapt to changing conditions in the industry. This too is favorable to cross-border alliances with rms in the emerging economies. What is the impact of ICT on the three classic sources of market failure appropriability, uncertainty, and indivisibility with respect to innovation? Unfortunately, there is little direct empirical evidence on this question. To the extent ICT reduces the specicity of technological assets (some evidence of this was noted earlier) and increases contractibility of transactions, behavioral uncertainty to which Williamson (1996) refers is mitigated. In addition, an obvious and dramatic increase in the timely and efcient communication between geographically dispersed decision-makers should reduce secondary uncertainty referred to by Koopmans (1957) with respect to all transactions including those involving technology. Yet another way ICT may have reduced the uncertainty associated with the innovation process is by improving the quantity and quality of internal as well as external exchange of technical information. With respect to indivisibility, to the extent ICT reduces the lumpiness of R&D projects (i.e., it reduces the average size of the R&D project) and encourages specialization, rms would, ceteris paribus, favor market and hybrid forms of organizing R&D over hierarchy. Another source of indivisibility, as noted earlier, is the technical interconnectedness of R&D projects (e.g., lightguide technology and digital switching). Thus, the emergence of ICT (with its low coordination costs and superior information ows) may have reduced the benets of integrating R&D activity within the rm relative to the market and hybrid alternatives. Finally, with respect to the appropriability problem, in principle ICT can mitigate the problem of spillovers (through encryption and re walls, for example) or accentuate it through free ow of information, a feature inherent in its design. However, in this age of supply chain management and relationship marketing which, in part, have been made feasible by the ICT in terms of time, cost, and effectiveness information sharing with suppliers, customers, and other external partners becomes central to the innovation process. Therefore, ICT is more likely to accentuate the appropriability problem than mitigate it. This discussion suggests that the ICT revolution may have diluted the traditional market failure arguments for vertical integration and contributed to greater externalization of technological activity of the rm. Note, however, that externalization (i.e.,

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a shift toward the market and hybrid forms) of technological activity does not necessarily mean internationalization and vice versa. For example, a multinational rm that launches a program of dispersing its R&D around its foreign subsidiaries is internationalizing its technological activity but not externalizing it. Similarly, the term externalization is generally reserved for a shift away from hierarchy towards hybrid and market forms of governance of technological activity, and does not necessarily involve internationalization. Moreover, neither internationalization nor externalization need necessarily include the emerging economies. 2.4. Marketing literature on TCF While the discussion thus far has drawn mainly upon industrial organization literature, there is a signicant body of marketing literature that attempts to operationalize the TCF from a strategic marketing perspective. The phenomena examined in these studies include the use of in-house sales forces versus manufacturers agents, integrated versus independent channel for foreign market entry, internal versus external procurement of components, and shared versus full-control modes of foreign market entry. An excellent review of this literature through, 1996 can be found in Rindeisch and Heide (1997). A large majority of these studies (27 out of 45 reviewed) attempted to explain a wide range of marketing phenomena with asset specicity as an important and often the only independent variable. One of the chief claims of TCF that a rm when faced with the need to protect specic assets seeks to minimize its transaction costs through vertical integration is broadly supported by these various studies. The ndings of two studies Anderson (1985) and Erramilli and Rao (1993) are particularly relevant to this paper. Andersons nding of a positive relationship between human asset specicity and the use of an in-house sales force has obvious relevance to the use of in-house R&D personnel. A rms human asset specicity in the context of R&D has to do with the extent to which it is necessary for R&D personnel to learn and to develop working relationships within the rm in order to produce commercially successful innovations. The nding by Erramilli and Rao that US service rms favor hybrid or shared-control foreign-entry modes when asset specicity is low, while consistent with the TCF prediction, is moderated by a number of non-transaction cost variables such as rm size, country risk, and the degree of separability between production and consumption. From the standpoint of this paper, the study is signicant for its focus on the relationship between foreign-entry modes and asset specicity as well as on what the authors call idiosyncratic services, of which R&D is one.

3. Internationalization of technological activity There are two strands of research in this area that are relevant to this paper. One of them concerns the behavior of MNEs with respect to organization and location of R&D activity. The literature on this issue provides considerable insight into recent

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trends in the internationalization of R&D activity, which includes the role of ICT. It is found in Granstrand et al. (1993), Dunning (1994), Gassmann and von Zedtnitz (1999), Gerybadze and Reger (1999), and Pearce (1999), among others. While the focus of these various studies is not on the emerging economies, their ndings have important implications for them. Another strand of literature concerns the rapid growth of technology-based international strategic alliances since the early 1980s. Some authors, including this author, view this trend as a form of vertical disintegration of R&D-driven, in part, by the ICT revolution in the developed economies and a shift toward the market and hybrid forms of organizing R&D at home and abroad (Gomes-Casseres, 1996; Dunning, 1997; Duysters, 1996; Duysters & Hagedoorn, 1996; Nooteboom, 1999; Yoshino & Rangan, 1995; Rao, 1999; Vonortas & Saoleas, 1997; Boyd & Dunning, 1999). More important, there is evidence that technology alliances between the developed worlds MNEs and the rms in the emerging economies are becoming increasingly popular. A discussion of these two strands of literature follows. 3.1. Internationalization of R&D The literature in this area is dominated by the activities of MNEs with respect to organization and location of R&D. We begin with three well-known facts about MNE R&D. First, MNE R&D is located overwhelmingly in home countries. The proportion of R&D expenditures of US MNEs accounted for by their foreign afliates is about 12%. This compares with about 30% for European rms and 10% for Japanese rms (Mataloni 1993, 1999; Gerybadze & Reger, 1999). Second, when MNE R&D is located abroad, it seems to follow FDI. Third, since FDI ows are largely between the developed economies, R&D follows a similar pattern. The share of US manufacturing FDI in Europe and Canada in 1997 was 65% and the share of R&D expenditures of nonbank foreign afliates was 80%. By contrast, China, India, the Middle East, and Africa combined accounted for 2.4% of FDI and 2.1% of R&D (Mataloni, 1999). Note that these statistics mask some important country and company differences. Smaller countries of Europe such as Switzerland and Sweden have greater shares of their R&D located abroad, and foreign shares of R& D of companies like IBM and Siemens run as much as a quarter of their total R& D (Dunning, 1997; Gerybadze & Reger, 1999). More important, the foreign share of MNE R&D has been on an upward trend in the triad regions since the late 1980s. A benchmark survey on strategic management of technology practices in 224 R&D-intensive corporations in the US, Western Europe, and Japan reported by Roberts (1995) found that rms from all three triad regions have increased their share of foreign R&D. This is consistent with the US Department of Commerce data, which suggest that the R&D share of nonbank majority-owned foreign afliates of US MNEs has increased from about 9% in 1982 to about 12% in 1997 (Mataloni 1993, 1999). Moreover, the same survey reports a shift in the proportion of rms expected to rely on external sources including cross-border sources for technology. For example, 40% of North American rms (which have always lagged behind Japan and Europe in this respect) reported that

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they would place high reliance on external sources for technology three years from now compared with about 10% today (Roberts, 1995). Chryslers widely reported shift from predominantly internal management of R&D to extensive use of outside partners is a case in point. What are the driving factors behind the internationalization of R&D activity? The traditional argument for internationalization of R&D is to support local production. This takes the form of adaptation of products and processes to local conditions through technical support laboratories. Therefore, the high correlation between FDI shares and foreign R&D shares noted earlier is to be expected. However, the literature since the early 1990s began to discern the emergence of new patterns of R&D internationalization involving a variety of motives and organizational forms. An earlier part of this literature emphasized a trend toward increased international specialization and pluralism of organizational forms (Dunning, 1994); increased division of labor in inventive activity (Arora & Gambardella, 1994); a trend towards convergence of R&D practice, more diversied R&D, and increased networking among R&D labs (Casson, Pearce, & Singh, 1992); and increased importance of foreign R&D and global approaches to innovation (Pearce & Singh, 1992). An excellent summary of this literature is found in Granstrand et al. (1993). More recent literature reveals the strategic capabilities of the MNE foreign-R&D and dynamic interaction effects between R&D, lead marketing, and advanced manufacturing (Gerybadze & Reger, 1999; Pearce, 1999) and new concepts in international R&D organization (Gassmann & von Zedtnitz, 1999; Gerybadze & Reger, 1999). 3.2. Recent literature 3.2.1. Gerybadze and Reger Based on an analysis of 21 leading R&D-intensive MNEs, Gerybadze and Reger (1999) distinguish between four generic types Types A and B and their respective variants of transnational R&D and innovation, all driven by dynamic fast innovation regime. Their essential features and coordination mechanisms are summarized below: Type A rms: These are companies from large countries with dominant R&D center in home country and supplemental R&D activities in other locations (e.g., US biotechnology or semiconductor rms). Decision-making is centralized in the home country. A variant of Type A, Type C, which is also characteristic of companies from large countries, places emphasis on coupling of lead-marketing and R& D in the home country, cross-functional teams in the dominant country, and 1 or 2 R&D center(s) in lead market(s) (e.g., Toshiba in the at panel display market in Japan). Type B rms: These are companies from small and large countries with deciencies in R&D in a particular eld. They have multiple leading-edge R&D centers abroad (e.g., Roche from Switzerland in pharmaceuticals) with global team management and globally integrated technology portfolio. A variant of Type B, Type D, is characteristic of companies from small and large countries with

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lead market deciencies. The emphasis here is on access to foreign lead market, coupling of lead marketing and innovation (e.g., European at panel display manufacturers), and cross-functional integration within lead market. In terms of the degree of complexity each presents for coordination and the cost of coordination (and hence the importance of ICT for each type), type B ranks highest followed by D, C, and A in that order. The authors analysis also revealed that the spatial distribution of learning and R&D-performing activities is quite different from the spatial distribution of coordination and control. The authors conclude that many companies in the sample have adapted a strategy of multiple centers of learning with one dominant center of coordination (p. 268). 3.2.2. Gassmann and von Zedtnitz Another view of recent trends in the international R&D organization was presented by Gassmann and von Zedtnitz (1999) in their study of 33 technology-based MNEs with home bases in Europe, US, and Japan. The authors identied ve major trends in the evolution of international R&D organizations. 1. Localization. Many companies with ethnocentric centralized R&D are realizing the need to be more sensitive to local market needs and moving toward a geocentric model, still centralized, but with external orientation, close cooperation with other sites, and unrestricted ow of information (e.g., Nissan). The key factors in this move are the degree of product differentiation demanded by different regional markets and the availability of all necessary technology in-house. 2. Tapping. When product adaptation through the geocentric centralized model proves inadequate or when foreign technology becomes too important, companies move toward the R&D hub model. Tapping of foreign technology and knowledge through listening posts and joint research centers becomes the main source of know-how (see Fig. 1 for DaimlerBenzs R&D hub model). ICT plays a central role in the success of the hub model by reducing the costs of coordination and information ows between the center and the decentralized units. 3. Competencies. The hub model with its tightly controlled central coordination becomes inadequate in an environment of increasing competencies and technological strengths of decentralized R&D units and gives way to the integrated R&D network model. The focus is on specialization, synergy effects, and organizational learning across many sites connected by means of exible and diverse coordinated mechanisms (e.g., Canon and Schering). An absolute prerequisite to the success of the network model is global ICT infrastructure. 4. Synergy. The need to achieve synergy led many companies to abandon the polycentric decentralized model an extreme form of decentralization with no coor dination mechanisms in favor of the network model (e.g., Nestle, Philips, and Hoechst). The advantage of an integrated network is that it seeks to leverage the competencies of each unit for the benet of all units, and hence the entire company. 5. Costs. Pressure to reduce the costs of R&D are forcing companies to move toward

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Fig. 1. DaimlerBenzs R&D hub model. Note: numbers in circles are head counts. Source: Gassmann and von Zedtnitz (1999).

an integrated network with fewer leading research centers. The goal is to cut costs by reducing duplicate R&D and at the same time exploit scale economies.

3.2.3. Pearce A recent study by Pearce (1999) provides further evidence of an increasing trend toward decentralized international R&D units that are focused on their groups strategic competitiveness rather than simply playing the role of adapting the groups products for local market needs. The study was based on a survey of 180 R&D labs of foreign MNEs located in the UK. The principal conclusions of the study are: increasing involvement of MNE overseas labs in product development rather than adaptation and interdependent position in a groups technology programs; increased importance of host-country technology competencies; and decline of centralizing forces on R&D that is, communication and coordination problems, concerns over protection of technology, and economies of scale became less important. The common theme that appears to run through these various studies is that MNEs international R&D is gradually evolving into a decentralized integrated network type model with emphasis on specialization, exploitation of local competencies, synergy, strategic partnerships, and interdependence. Such a model demands exible and diverse coordinating mechanisms in which ICT not only plays a central role, but also contributes to the evolution of the model itself. This is because ICT reduces

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coordination costs. Over the past 20 years, ICT costs have declined by a factor of 10 or more for large systems and by more than a factor of 100 for smaller systems. According to one estimate, the difference in ICT cost between the systems of 20 years ago and the systems of today for the same task is greater than the difference in labor costs between the US and China (Westland & Clark, 1999). As a result, ICT is becoming an important tool to reduce costs and improve quality of production even in emerging economies like China and India. Moreover, ICT applications involving workow systems, groupware systems, email, data transfer through the Internet, and videoconferencing have revolutionized the way scientists conduct research around the world. With ICT, vast quantities of scientic data and digital information can be handled more easily, quickly, and cheaply than before. The links between geographically dispersed scientists and the frequency and volume of communication have experienced a phenomenal growth (OECD, 1998). Thus, there should be little doubt that a shift toward a decentralized integrated network type model, which the ICT revolution may have helped bring about, would make countries like China and India with signicant technological competencies serious candidates for increased MNE tapping. 3.3. International technology alliances International technology alliances represent yet another form of internationalization of technological activity, which is quite consistent with the trend toward decentralized R&D under the integrated network type of organization discussed above. Although this paper, following the TCF tradition, views technology alliances from a vertical perspective, many of them involve horizontal relationships between rms sometimes among competing rms in the same line of business. (The author thanks the anonymous referee who pointed out the lack of reference to horizontal relationships in an earlier draft.) Horizontal relationships can take the form of cross-licensing, technology sharing, production joint venture, and the like. However, as in the case of vertical relationships, the issue, from the standpoint of this paper, is whether ICT reduces the level of human asset specicity involved in the transfer of technology. The rapid growth of international interrm technology alliances since the early 1980s which parallels the ICT revolution has been the subject of a growing body of academic literature. It constitutes yet another piece of convincing evidence on growing internationalization of technological activity. Studies by Hagedoorn (1993), Duysters (1996), Vonortas and Saoleas (1997) and, more recently, Oxley (1999) are but a few of the many that provide the most extensive documentation and analysis to date on international technology alliances. The rst three studies and the Oxley study rely on what is known as the MERIT CATI database developed by the Maastricht Economic Research Institute on Innovation and Technology (MERIT) on Co-operative Agreements and Technology Indicators (CATI) and focus on alliances in ICT and other high-technology industries. The study by Vonortas and Saoleas (discussed in the next section) uses a rich

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database called ITSA, for Information Technology Strategic Alliances, and focuses on ICT alliances with the developing country rms. For purposes of this paper, three ndings from the DuystersHagedoorn studies are worth noting: the importance of technological complementarity and reduction in innovation time span as two of the most important motives for all technology alliances; a shift away from traditional joint-venture equity type long-duration alliances towards contractual non-equity-type with short duration; and the dominance of international technology alliances by the leading rms in the ICT industry, especially software and telecommunications sectors. The study by Oxley (1999) goes beyond describing the characteristics of alliances and empirically tests several transaction-cost-related hypotheses concerning crossborder technology alliances. Utilizing a sample of 727 technology transfer alliances in 27 countries (in which each alliance involved one US-based rm allied with a rm in another country), the author estimated two binomial logit appropriability models of alliance governance. The models test the effect of a number of hypothesis-related independent variables (e.g., strength of intellectual property protection) and control variables to account for differences in institutional environment (e.g., cultural distance) on governance form. The principal ndings of the study are: (i) The simple appropriability model, without the control variables, provides strong support for the transaction cost hypotheses. US rms, all else being equal, are more likely to organize an alliance as an equity joint venture when the host countrys intellectual property protection is weak. (ii) Product design and mixed design and production alliances because of the difculties in writing contracts are more likely to be organized as equity joint ventures than are pure production or marketing alliances. (iii) Changes in the scope of activities in an alliance that is, moving from an alliance covering only a single technology to one involving multiple technologies increases the likelihood of an equity joint venture. (iv) None of the control variables intended to capture the effect of cross-country differences in institutional environment (e.g., cultural distance, societal trust) on the choice between contractbased alliances and equity joint ventures are statistically signicant. From the standpoint of this paper, Oxleys ndings need to be evaluated in terms of the impact of ICT on the appropriability problem, on product design, and on rms ability to manage alliances involving multiple technologies. All else being equal, if ICT accentuates the appropriability problem, as suggested earlier, rms have one more reason to prefer the joint venture form of alliances over the contractual type. On the other hand, if the impact of ICT on product design is to make it more divisible, preference for joint ventures may be reduced. Similarly, if ICT reduces the complexity and cost of managing alliances involving multiple technologies, the TCF prediction which favors joint ventures is diluted. How does the rapid increase in the internationalization of R&D and technology alliances square with the TCF and internalization theories? Reduction in asset specicity brought about by the ICT revolution suggested by Brynjolfsson et al. (1994) and others combined with dramatic decline in coordination costs would explain the trend towards rapid growth of international technology alliances within the TCF. In

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addition, Williamson (1996, p. 118) recognizes the need for hybrid forms of organization such as temporary alliances when the issue is timely entry. In terms of internalization theory, the prevalence of short duration contractual nonequity alliances is an anomaly. On the other hand, internationalization of MNE R& D through foreign afliates is an extension of intrarm transactions and consistent with internalization theory. However, all forms of international technology transactions, be it MNE afliate R&D or alliances, involve technology transfer. Finally, it is important to note that TCF is not the only mechanism by which one can explain the growth of technology alliances. If technological complementarity and reduction in innovation time span are important motives for alliances, interpartner learning literature may have more to offer than the TCF (Hamel, 1991; Nooteboom, 1999). The options approach suggested by Dixit and Pindyck (1995) and others offers another explanation of alliances. Given the irreversibility and uncertainty associated with most R&D investments, technology alliances would be viewed as value-creating options. Yet another view of the alliance phenomena which has drawn considerable attention in the literature was advanced by Zajac and Olsen (1993). The authors examine interorganizational strategies from a transnational value perspective and suggest that expected joint gains from hybrid forms of governance often outweigh transaction cost considerations. Still other explanations include: radical changes in the structure of the ICT industry combined with the emergence of stand-alone software industry (Rao, 1999); deepening of industry convergence and positioning strategies of individual rms (Gomes-Casseres, 1996); dispersion of technology (Ohmae, 1989); and entrepreneurial globalization (Yoshino & Rangan, 1995). 3.4. Technology alliances with developing country rms Much of the evidence on international technology alliances and internationalization of R&D presented thus far has to do with the industrialized economies of the West and Japan. A World Bank study by Vonortas and Saoleas (1997) provides the most comprehensive data to date on ICT alliances with developing country rms. Although the aggregate data provided by the study refer to developing countries, country-level data include many emerging economies like India and China. The studys ndings, summarized below, challenge the widely held view that interrm technology partnering is largely a phenomenon of the developed economies. Interrm alliances in ICT with developing country rms have been growing faster than worldwide ICT alliances. As a result, developing countries share of ICT alliances has increased from 7% in 1984 to 13% in 1994 (Fig. 2). The large majority of alliances with developing country rms involve creation, exchange, or transfer of technological knowledge. The share of alliances by developing country rms with explicit technological content has experienced a sharp increase and was found to be higher than the average worldwide 81% versus 71% in 1994 (Fig. 3). Moreover, agreements involving cooperative R&D have been increasing. ICT alliance records appear to roughly resemble the relative industrial strength of each country.

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Fig. 2. Share of ICT alliances with technological content, selected years. Source: Vonortas and Saoleas (1997).

Fig. 3. Developing countries share of ICT alliance records worldwide, selected years. Source: Vonortas and Saoleas (1997).

Asian rms have the dominant share (61%) of developing country ICT alliances over the 19841994 period (i.e., including countries of Eastern Europe and former Soviet Union). The most alliance-active ICT rms from industrialized countries have been large MNEs, especially in telecommunications and computers.

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Bearing in mind that technology alliances account for a very small fraction of total cross-border technology transfers, the above evidence clearly indicates that internationalization of technological activity is no longer conned to the developed world. Moreover, the emergence of large MNEs from the industrialized countries as the most alliance-active rms in search of technology development sites in the developing world is consistent with the changing organizational forms of international R&D activity discussed earlier. 3.5. ICT infrastructure in the emerging economies A key question concerning the ability of rms in the emerging economies to participate in the internationalization of technological activity has to do with the availability of a threshold-level ICT infrastructure, which many developing countries lack. ` However, this paper takes a more optimistic view of this issue vis a vis the emerging economies like India and China. This is because broad indicators of poor ICT infrastructure (e.g., average teledensity) relative to industrialized countries do not tell the full story. As noted in the Introduction, one need only ask why rms from the industrialized world do not seem to be impeded by the generally poor ICT infrastructure when they hire contractors in Bangalore, India (recall the DaimlerBenz example shown in Fig. 1) to develop and transmit software programs. Some key indicators of ICT infrastructure noted as follows help explain the reasons. 3.5.1. Overall teledensity versus largest city teledensity ICT infrastructure in few urban centers of emerging economies where rms technological talents are concentrated is what counts most for emerging country rms to become players and for developed country rms to engage in international technological activity. For example, largest city teledensity (main lines per 100 inhabitants) for India is seven times that of its overall teledensity (Table 1). 3.5.2. Cellular substitution In the developing countries, mobile cellular is often used as a substitute rather than a supplement to xed-line networks. Therefore, the relevant indicator is not so
Table 1 Overall area/country teledensity versus largest city teledensity, 1996a Area/country Oceania Europe Americas (excluding USA) Asia China India Africa
a

Overall teledensity 37.6 30.3 9.9 6.0 4.5 1.5 1.8

Largest city teledensity 45.7 49.1 18.2 20.8 19.0 10.4 5.1

Note: Teledensity refers to number of mainlines per 100 inhabitants. Source: ITU (1998).

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Table 2 Cellular mobile subscribers by area/country, 1998a Per 100 inhabitants 21.3 13.2 12.1 3.1 1.9 0.1 0.5 Percent of total telephone Percent digital subscribers 34.6 26.1 27.2 29.5 21.4 5.2 16.7 70.9 91.0 22.1 87.2 72.3 100.0 90.6 Cagr (%19951998) 32.5 63.4 33.9 67.2 87.3 149.8 73.1

Area/country

Oceania Europe Americas (excluding USA) Asia China India Africa

a

Source: ITU (1999b).

much the density but rather the substitution rate that is, the ratio of mobile cellular subscribers to total telephone subscribers. A high ratio like 21% for China suggests that many subscribers have no alternative for telephone service owing to long waiting lists for xed-line or lower connection charges for cellular service. Between 1995 and 1998, the average annual rate of growth for cellular service in India was 150% (Table 2). At that rate it will not be long before access to telephone service reaches present levels of many industrialized countries. 3.5.3. Information technology indicators As with overall teledensity data, Internet host density (Internet hosts per 10 000 inhabitants) in India and China is 1% of Europe, although personal computer (PC) density compares slightly better. However, Internet density in India and China has been growing at an average annual rate close to 100%. At that rate, it would take just 7 years for Indias Internet density to rise from 0.78 today to 200, or 30% above Frances level at the start of 1999 (Tables 3 and 4). Note that part of the Internet
Table 3 Selected information technology indicators by area/country, 1999a Internet host density per 10 000 inhabitants 363.10 132.90 362.10 9.10 0.84 0.78 2.40 Internet users per 10 000 inhabitants 1236.50 488.50 886.70 87.20 16.70 5.10 21.80

Area/country

Internet hosts (000)

PCs per 100 inhabitants

Oceania Europe Americas (excluding USA) Asia China India Africa

a

1056 10571 28523 3167 106 74 144

38.40 13.90 20.80 2.20 0.89 0.27 0.81

Sources: ITU (1999b) and ITU (1999a).

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Table 4 Internet host density per 10 000 inhabitants, selected areas/countries, 19941998a Area/country Asia China India Americas (excluding USA) Europe Africa Oceania World
a

Average annual rate of growth (%) 102.7 95.2 96.4 79.3 76.3 69.5 58.7 78.2

Source: ITU (1999b).

infrastructure problem is mitigated by the fact that much of the developing countries Internet trafc is routed through the US, even when communication is between neighboring nations. This is because connection cost to the US is signicantly less than that for intraregional connections. Moreover, much of the content and infrastructure reside in the US. For example, the US is home for 94 of the top 100 Websites in the world (ITU, 1999a). Thus, while the current ICT infrastructure of emerging economies like China and India is far from ready for large-scale e-commerce, judging from the rapid growth of alliances, it appears to pass the threshold level for many developed countries MNEs to engage them as partners in the production of new technologies. The availability of low-cost, high-skilled specialized talent in countries like India and China appears to be central to this process. DaimlerBenzs Research Center India was established in Bangalore in order to take advantage of the regions high software productivity. DaimlerBenz not only expects to use this center to provide input for its Internet multimedia on wheels prototype car, but also considers Bangalore as a bridgehead for gaining access to local subsidiaries and the Indian industry (Gassmann & von Zedtnitz, 1999). 3.6. The case of the Indian software industry The success story of Indias software industry documented by two recent studies (Arora, Arunachalam, Asundi, & Fernandez, 1999; OECD, 2000) supports the rather optimistic view of the prospects for emerging economies presented above. The rapid growth of the industry (over 50% per year in the past 6 years) driven by exports to the industrialized countries of the West 80% to the US and Europe attests to the increasing outsourcing of software development by the MNEs. Virtually all leading ICT MNEs of the West have established or are establishing software development centers in India in collaboration with local partners. It is important to note that not all outsourcing is executed offshore. Somewhere between one-third and two-thirds of the work is done offshore in India and the rest is performed onsite. As the TCF would predict, development transactions involving low-level design

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and coding (i.e., transactions with a high degree of codied knowledge and low asset specicity) are most outsourced; and those involving earlier stages of development, systems requirements, and high-level design (i.e., transactions with a high degree of tacit knowledge and high asset specicity) are least outsourced (OECD, 2000). This paper argues that ICT has, among other things, the property of accelerating crossborder technology alliances by reducing the specicity of geographically lockedin human assets. Finally, the results of a survey of Indian software export rms by Arora et al. (1999) support the view presented in this paper that while communication infrastructure is expensive and limited, it is ranked fth among the major problems behind manpower shortage, employee attrition, marketing access, and visas.

4. Summary and implications 4.1. Summary A major purpose of this paper has been to examine the impact of the ICT revolution on internationalization of technological activity with special reference to emerging economies and its implications for global marketing. This issue was examined around the market failure issues associated with innovation developed by Arrow (1962), Williamson (1975) in his TCF, and Caves (1971) and Buckley and Casson (1976) in their internalization theory. TCF occupies a central place in this analysis because internationalization of technological activity in the form of alliances and other external transactions depends importantly on ICTs ability to reduce asset specicity and coordination costs. Available evidence, especially Brynjolfsson et al. (1988, 1994), suggests that ICT applications such as workow systems, groupware systems, e-mail and data transfer through the Internet, and videoconferencing have helped reduce rm specicity of assets and coordination costs. More important, ICT reduced the specicity of geographically locked in human capital, thus making R&D personnel fungible. As a result, cross-border hybrid and market solutions (e.g., technology alliances and contract R&D, respectively) became more attractive. In short, the evidence suggests that ICT may have diluted the traditional market failure arguments for vertical integration of R&D and contributed to greater externalization of technological activity of the rm. While MNE R&D is still overwhelmingly located in home countries, its foreign share has been rising in the triad regions since the late 1980s. Recent literature suggests that MNEs international R&D is gradually evolving into a decentralized integrated network-type model driven in part by ICT, with emphasis on competencies, synergy, strategic partnerships, and interdependence. Such a model demands exible and diverse coordinating mechanisms in which ICT not only plays a central role, but also contributes to the evolution of the model itself. There should be little doubt that a shift towards a decentralized network-type model of MNE R&D would make countries, like China and India, with signicant technological competencies serious candidates for increased MNE tapping. The rapid growth of cross-border technology alliances led by large MNEs in

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the ICT sector of the developed world since the early 1980s represents another form of internationalization of technological activity. While the principal motives behind alliances are technological complementarity, reduction in innovation time span, and market access, the principal driving force is ICT itself which reduced the cost of coordinating alliances and made R&D activity more divisible. More recent empirical research on cross-border technology alliances (Oxley, 1999) suggests that the choice of a particular form of alliance (e.g., contractual agreements versus equity joint ventures) depends on the severity of the appropriability problem and the difculty in writing contracts, as the TCF would predict. Thus, when alliances involve countries with weak intellectual property protection and when they involve product design, as opposed to pure production of marketing agreements, US rms prefer the joint venture mode to contractual agreements. What is new in the alliance literature is the nding that, led by large MNEs, interrm alliances in the ICT with the developing country rms have been growing faster than worldwide ICT alliances; their technological content has been increasing faster than the average worldwide; and agreements involving cooperative R&D have been increasing. These trends challenge the widely held view that interrm technology partnering is largely a phenomenon of the developed economies. 4.2. Implications for global marketing The greatest impact of ICT via the internationalization of MNE technological activity would be on product development decisions. The two forms of internationalization that is, decentralization of MNE R&D and rapid growth of technology alliances need not have similar impacts on development decisions. A decentralized globally integrated network-type model to which the MNE R&D appears to be evolving would improve the traditional product adaptation role of overseas labs as well as increase their involvement in the global product development process. More important, the ICT revolution, because it makes R&D activity more divisible, is likely to accelerate the trend towards modular product designs. Modular designs offer great strategic exibility and enable a rm to rapidly create product variations in response to changing markets and technologies (Sanchez & Mahoney, 1996). Moreover, specialization being central to modular designs (e.g., modular programming in software design), they complement the trend towards a globally decentralized network model of MNE R&D. From the standpoint of global product strategy, modular design becomes a necessary condition for a platform strategy in which a rm designs a common core with different versions for different segments (John, Weiss, & Dutta, 1999). However, it does not necessarily follow that the traditional approach to product strategy that is, producing an optimal design, given the costs and needs of the chosen target will be replaced. What ICT does is create greater exibility in global product strategy. It is just as likely to facilitate the implementation of a global product strategy which requires intermarket segmentation as a customization strategy. All of this depends critically on continued dramatic declines in the costs of coordinating decentralized R&D and greater integration of

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marketing with R&D in terms of global product decisions. Given the complementary relationship between R&D and promotion, internationalization of R&D requires internationalization of marketing as well. This is especially true of high-technology rms which suffer most from the appropriability problem. International technology alliances, on the other hand, present a different set of issues and implications for global marketing. Unlike the MNEs overseas R&D, they are not an extension of intrarm transactions, although they can be when they are of a long-term type with elements of quasi-integration. However, they too can be important to product strategy. Indeed, one scholar suggests that alliances are central to product differentiation (Nooteboom, 1999). In an environment of uncertain markets and technology, it is difcult to achieve successful product differentiation without alliances. If the analysis presented above is correct, hybrid forms of governance of a rms technological activity will continue to experience rapid growth as asset specicity is reduced and as R&D activity is unbundled and globally dispersed. Thus, the inverse relationship between asset specicity and propensity for shared-control modes of foreign entry established by Erramilli and Rao (1993) becomes stronger as rms operate, within and without, in an increasingly ICT-intensive environment. Internationalization of technological activity through alliances also represents a form of technology trading to which marketing scholars need pay more attention. The trend towards greater outsourcing of R&D (e.g., software) suggests that it has become more divisible, and one needs to focus as much on strategies for the marketing of technologies as on the marketing of nal products and services. In this connection, the conceptual framework for marketing in technology intensive markets developed by John et al. (1999), especially the concept of vertical positioning of various marketable components of a rms know-how, offers promise. The ICT revolution, by making more, better, cheaper, and faster exchange of information possible globally, will produce many benets to the emerging economies well positioned to take advantage of it. Technology alliances between the developed worlds rms and the emerging-country rms will continue to experience rapid growth. Internationalization of MNE R&D will extend to many more emerging economies as local scientic talent develops and ICT infrastructure improves. Transfer of technology becomes a two-way street between the developed-country rms and the emerging-country rms. Country-specic risks associated with information imperfections are likely to diminish. As a result, hurdle rates required to justify investment in the emerging economies would be lower than they would otherwise be. Thus, it appears that, overall, emerging economies like India and China with signicant technological competencies, rapidly developing ICT infrastructure and the beginnings of a credible regime of intellectual property protection are well positioned to become serious players in the trend towards internationalization of technological activity. Finally, this paper highlights an inverse relationship between ICT and asset specicity; and between internationalization of technological activity and asset specicity. This implies a positive relationship between ICT and internationalization of technological activity. While the relationship between ICT and asset specicity has been examined empirically, the other relationships have not been. Future research in this

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area could focus on developing a simultaneous equation model based on these relationships.

Acknowledgements The author thanks the anonymous reviewers and co-editors of the special issue, Ajay Manrai and Lalita Manrai, for their helpful comments and suggestions. Thanks are also due to Leonel Lucero, a doctoral candidate at Fordham University, for his excellent research assistance. Partial support provided by the C.W. Post Research Committee is gratefully acknowledged.

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P.M. Rao is a Professor and Chair of Marketing Department at the College of Management, Long Island University/C.W. Post Campus. He received his Ph.D. from the Stern School of Business, New York University. Dr Rao has had extensive telecommunications experience with AT&T, and has published in such journals as Telecommunications Policy, R&D Management, and Industrial Marketing Management, and in such proceedings as those of the World Marketing Congress, the Association of Marketing Theory and Practice, the International Telecommunications Society, and the Decision Sciences Institute. His research focus is on business strategy issues concerning rms in high-technology industries.