nations. We will then go one step further to the global level, when, in Section 6,
we will look at the (new) international division of labour and the economic
and social consequences thereof. Finally, in the last section we will discuss the
sources of competitive advantage for multinationals.
2 STATISTICS ON INTERNATIONALIZATION TRENDS
International tradeThe year 2001 saw the first decline in the volume of world trade since 1982,
mostly due to a decline of economic activity in the three major developed
markets (the USA, Japan and the European Union), the bursting of the global
IT bubble and the aftermath of the tragic events of September 11 (WTO, 2002).
However as Figure 1.1 indicates, historical data show that international trade
has become much more important in the last 50 years. The growth in inter-
national trade has consistently surpassed the growth in production. While the
world production in 2001 is seven times as high as in 1950, international trade
is more than 20 times as high.
It is important to note, however, that a lot of international trade could
more properly be called regional trade, covered by major regional trade agree-
ments such as NAFTA (North American Free Trade Agreement), the EU
(European Union) and APEC (Asia Pacific Economic Cooperation): 43% of the
exports within NAFTA, 65% of the exports within the EU and 68% of the
exports within APEC do not leave the region (WTO, 2002). In Section 3 we will
discuss a number of theories which explain the existence of international
trade.
Foreign direct investmentForeign investments of multinational firms are even more important than
international trade for the growth of the world economy. In 2001 the sales of
foreign subsidiaries of multinational companies (MNCs) were nearly twice as
high as world exports, while in 1990 the two were roughly equal. Although,
just like international trade flows, FDI flows have suffered a substantial decline
in 2001, the longer term prospects remain promising, with major MNCs likely
to continue their international expansion (UNCTAD, 2002). The influence of
MNCs is reflected in the increase in the stock of foreign direct investment (FDI)
and the growth in the number of multinationals and their foreign subsidiaries.
As shown in Table 1.1, the total stock of foreign investment has reached almost
$7 trillion. More than 850,000 foreign subsidiaries of about 65,000 parent firms
10 International Human Resource Management