THE INTERNATIONAL FIRM 445 eting literature suggests new products typically of the modern economic problem..."was the follow a cycle known as trickle-down or two-stage division of labor within the factory between those marketing.An innovation is first adopted by a who plan and organize economic activity and small group of individuals who act as opinion those who work for them.In the modern corpora- leaders and is then copied by others via the dem- tion the hierarchical structure of command and onstration effect.In this process,the rich get authority has been greatly elaborated from the more votes than everyone else,first of all because simple division between owners and workers in they have more money,second of all because they the Marshallian firm,but the tensions and have discretionary income and can afford to be conficts of autocracy remain.They take on par- experimental,and,third,because they have high ticular importance in the multinational corpora- status and are more likely to be copied.The prin- tion where problems of nationalism and problems ciple of consumer sovereignty cannot easily be of authoritarianism intertwine. applied to this process since,at most,only the Multinational corporations are torn in two di- special group in the first stage of the marketing rections.On the one hand,they must adapt to lo- process has something approaching a free choice. cal circumstances in each country.This calls for The rest have only the choice between conform- decentralized decision making.On the other hand, ing or being isolated. they must coordinate their activities in various In the international economy, trickle-down parts of the world and stimulate the flow of ideas marketing takes the form of the international from one part of their empire to another.This demonstration effect.Products are first intro- calls for centralized controls.They must therefore duced in the United States or Europe and then develop an organizational structure to balance the spread to other countries.Multinational corpora- need to coordinate and integrate operations with tions speed up this process by making it easier to the need to adapt to a patchwork quilt of lan- transfer new products and marketing methods to guages,laws,and customs.One solution is divi- less advanced countries.One of the key motives sion of labor based on nationality.Day-to-day for direct investment,cited by corporations,is to management in each country is left to nationals gain control over marketing facilities in order to of that country who are intimately familiar with facilitate the spread of their products.If firms local conditions and practices and best suited to were denied control over communication and mar- deal with local problems and local government. keting facilities in the foreign countries and we had These nationals remain rooted in one spot,but a regime of national firms (private or socialized) above them is a layer of people who move around rather than multinational firms,the pattern of from country to country,as bees among flowers, output would almost certainly be quite different transmitting information from one subsidiary to than the one that is now observed.There would another and from the lower levels to the general be more centers of innovation,and probably more office at the apex of the corporate structure.In variety of choices offered to the consumers,as the nature of things,these people,for the most each country developed products suited to its par- part,will be citizens of the country of the parent ticular characteristics.Products from one country corporation,just as we now find that the top ex- would spread to other countries either through ecutives of most of the major corporations in the trade or imitation but the movement would be United States are drawn from a relatively small coordinated by market competition rather than homogeneous cultural group quite distinct from the planning decisions of top management in a the population of the United States as a whole. few corporations whose interest it is to foreclose This creates two types of problems.In the first competition,to restrict the choices offered,and to place,there is the internal problem of creating in- insure the survival of their own organizations.It centives for foreigners whose access to the top is difficult to speak with professional certainty in corporate positions will be necessarily limited. this badly neglected field,but it does not appear The second problem is far more important and is to be socially efficient to allow corporations to in the nature of an external diseconomy.The sub- monopolize information on new possibilities cre- sidiaries of multinational corporations are fre- ated by science. quently amongst the largest corporations in their country of operations and their top executives play an influential role in the political,social,and IV.The International Hierarchy of Decision Making cultural life of the country.Yet these people, Marshall,like Marx,thought that the "chief 1 Alfred Marshall.Principles of Economics (Mac- fact in the form of modern civilization,the kernel millan,1961),pp.7475.THE INTERNATIONAL FIRM 445 eting literature suggests new products typically follow a cycle known as trickle-down or two-stage marketing. An innovation is first adopted by a small group of individuals who act as opinion leaders and is then copied by others via the dem￾onstration effect. In this process, the rich get more votes than everyone else, first of all because they have more money, second of all because they have discretionary income and can afford to be experimental, and, third, because they have high status and are more likely to be copied. The prin￾ciple of consumer sovereignty cannot easily be applied to this process since, at most, only the special group in the first stage of the marketing process has something approaching a free choice. The rest have only the choice between conform￾ing or being isolated. In the international economy, trickle-down marketing takes the form of the international demonstration effect. Products are first intro￾duced in the United States or Europe and then spread to other countries. Multinational corpora￾tions speed up this process by making it easier to transfer new products and marketing methods to less advanced countries. One of the key motives for direct investment, cited by corporations, is to gain control over marketing facilities in order to facilitate the spread of their products. If firms were denied control over communication and mar￾keting facilities in the foreign countries and we had a regime of national firms (private or socialized) rather than multinational firms, the pattern of output would almost certainly be quite different than the one that is now observed. There would be more centers of innovation, and probably more variety of choices offered to the consumers, as each country developed products suited to its par￾ticular characteristics. Products from one country would spread to other countries either through trade or imitation but the movement would be coordinated by market competition rather than the planning decisions of top management in a few corporations whose interest it is to foreclose competition, to restrict the choices offered, and to insure the survival of their own organizations. It is difficult to speak with professional certainty in this badly neglected field, but it does not appear to be socially efficient to allow corporations to monopolize information on new possibilities cre￾ated by science. IV. The International Hierarchy of Decision Making Marshall like Marx, thought that the "chief fact in the form of modern civilization, the kernel of the modem economic problem . . ."' was the division of labor within the factory between those who plan and organize economic activity and those who work for them. In the modern corpora￾tion the hierarchical structure of command and authority has been greatly elaborated from the simple division between owners and workers in the Marshallian firm, but the tensions and conflicts of autocracy remain. They take on par￾ticular importance in the multinational corpora￾tion where problems of nationalism and problems of authoritarianism intertwine. Multinational corporations are torn in two di￾rections. On the one hand, they must adapt to lo￾cal circumstances in each country. This calls for decentralized decision making. On the other hand, they must coordinate their activities in various parts of the world and stimulate the flow of ideas from one part of their empire to another. This calls for centralized controls. They must therefore develop an organizational structure to balance the need to coordinate and integrate operations with the need to adapt to a patchwork quilt of lan￾guages, laws, and customs. One solution is divi￾sion of labor based on nationality. Day-to-day management in each country is left to nationals of that country who are intimately familiar with local conditions and practices and best suited to deal with local problems and local government. These nationals remain rooted in one spot, but above them is a layer of people who move around from country to country, as bees among flowers, transmitting information from one subsidiary to another and from the lower levels to the general office at the apex of the corporate structure. In the nature of things, these people, for the most part, will be citizens of the country of the parent corporation, just as we now find that the top ex￾ecutives of most of the major corporations in the United States are drawn from a relatively small homogeneous cultural group quite distinct from the population of the United States as a whole. This creates two types of problems. In the first place, there is the internal problem of creating in￾centives for foreigners whose access to the top corporate positions will be necessarily limited. The second problem is far more important and is in the nature of an external diseconomy. The sub￾sidiaries of multinational corporations are fre￾quently amongst the largest corporations in their country of operations and their top executives play an influential role in the political, social, and cultural life of the country. Yet these people. ' Alfred Marshall. Principles of Economics (Mac￾millan, 1961), pp. 74-75