Location Paradox

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Two perspectives can be distinguished throughout the literature on internationalization of the firm, which disagree about the importance of location. One perspective posits the convergence of business models and the global integration of firms around the world, which, following Prahalad and Doz (1987), we will refer to as the global integration view. The other perspective is far more skeptical about the extent to which firms are heading towards one business model and denies that the global integration of firms is indeed the only, or dominant, model. Instead it points to the importance of localized networks of production and supply and we will refer to it as the local responsiveness view (Prahalad & Doz, 1987).

The global integration view has gained strong impetus over the last 20 years. Levitt (1983) was one of the first authors to discuss the concept and the consequences of globalization. Levitt drew upon examples of global brands like Coca Cola to support his argument and went on to suggest that consumer homogeneity would increase over time whilst firm strategy would be adapted to meet this change. Another concept that is used in the globalization view is the borderless world (Ohmae, 1990). Ohmae (1990: 10) claimed that for many firms nationality had already disappeared as a relevant business characteristic by 1990 and that it would soon after disappear for an ever increasing number of firms. Since then, the term globalization has been very pervasive in business magazines as well as academic journals (e.g., Karimi & Konsynski, 1991). Proponents of globalization point to steep decreases in transportation and international communication costs and benefits of scale and spillovers from one country to the other. The evolving liberalization of international trade regimes makes it easier to do business across borders. Furthermore, some of the larger firms have started to coordinate their manufacturing capacity allowing them to move internal supplies from one country to the other if their products are interchangeable.

The local responsiveness view is supported by many authors as well. Rugman (2000) analyzes a host of data on various aspects of globalization and concludes that regional development is a more important process than globalization, so going global is not always possible or beneficial. As firms globalize their activities, they lose connections to local actors, while these local connections can be fruitful avenues for achieving innovation or building joint infrastructures (Grabher, 1993). The local responsiveness view can be traced back as far as Marshall's (1919) concept of industrial districts. Marshall maintains that firms can obtain benefits from locating close to one another through scale economies gained from specialized supplies. Transportation costs can be lowered dramatically if a firm and its customer are in each other's proximity and a pooled market for advanced labor develops nearby. Others (e.g., Grabher, 1993) have pointed at the more efficient common use of public resources like universities, knowledge sharing among competing firms in the same area, and spillover effects from competition. The local responsiveness view suggests that instead of or at least complementary to an integration of supplies across borders, it is possible to build an integrated network of external suppliers within close range (Grabher, 1993).

Whether or not the global integration and local responsiveness views are mutually exclusive is still being debated (Bartlett & Ghoshal, 1989). It is suggested that a corporation that is managed as a transnational (Bartlett & Ghoshal, 1989) tries to achieve both global integration and local responsiveness and if it succeeds, it has in a way overcome the location paradox. A similar point has been made by Porter (1998). However, empirical examination has shown that achieving local responsiveness and global integration simultaneously is an ardent task that may require an innovative deployment of management tools. In this article we will examine the effectiveness of one set of tools, namely information technology, as applied in international sourcing strategy.

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