In earlier chapters, we painted broad pictures of the issues in the world system, in multinationals' headquarters and in national government. By standing back far enough from the action, we could see some patterns in recent behaviour. But, as when looking at an impressionist painting, the image blurs as one approaches the canvas. So, too, when observing activity at the grass-roots level, the sense of order dissipates. Local managers are pulled in different directions by the multiple forces acting on them. Their behaviour is conditioned by the demands of their corporate masters and of the local bureaucracy; and by the need to build robust human systems capable of harnessing and developing local skills and resources. What patterns of behaviour as exist are to be seen more at the level of the individual firm than within industries. In this chapter, we examine the interplay of the first two influences, leaving the human side of the argument to the next chapter.

Among the many ways by which corporate strategy affects local managers, two stand out as being of prime importance. The first arises from the shifts towards global strategy that raise the costs of staying in the business. Because, as we showed in chapter 3, seemingly similar firms hold contrasting views on how risks and opportunities are measured, they respond differently to the growing need to focus on ‘core’ activities. Many industry leaders are now finding they have to shed activities that made sense in earlier years of expansive diversification.

The upheavals of the international political economy during the last decade have altered, irreversibly we believe, the relationships among states and multinational enterprises. Growing interdependence – that much abused word – now means that the rivalry between states and the rivalry between firms for a secure place in the world economy has become much fiercer, far more intense. As a result, firms have become more involved with governments and governments have come to recognise their increased dependence on the scarce resources controlled by firms. This mutual interdependence of states and firms throughout the world is the subject of this book; even though the detailed material is drawn from just three countries – Brazil, Kenya, Malaysia – we believe it raises new and universal questions just as relevant in Eastern Europe, the Soviet Union or China as in the third world.

We start our questioning with six general propositions. The first is that states are now competing more for the means to create wealth within their territory than for power over more territory. Where they used to compete for power as a means to wealth, they now compete more for wealth as a means to power – but more for the power to maintain internal order and social cohesion than for the power to conduct foreign conquest or to defend themselves against attack. The implication is that national choices of industrial policy and efficiency in economic management are beginning to override choices of foreign or defence policy as the primary influences on how resources are allocated.

The accelerating pace of structural change thrusting multinationals more squarely centre-stage in world affairs means that the economics of competition in many industries have been altered fundamentally, and probably irreversibly. What is loosely termed ‘global competition’ is the outcome of how individual firms have reacted over time to the changing balance of opportunity and threat. The opportunities have been pervasive, given the declining regulatory and technical obstacles to the internationalisation of firms' activities. But so too have been the threats, for not all were able to respond adequately to the new standards set by the leaders. The actions taken by both leaders and followers have, at each turn of the wheel of fortune, helped to create the next round of change. Though most enterprises in developing countries have been by-standers in many rounds, more are now coming forward to play their part for the future. That a Taiwanese enterprise, the Evergreen Marine Corporation, has emerged as the world's largest container shipper reflects the new opportunities, even for latecomers in established industries.

This chapter explores why external change in the international political economy has had the uneven impact on industries we showed in the previous chapter. Some reasons are not hard to find. For example, electronics has transformed many industries, but left others like agriculture relatively unmarked. If during the last twenty years, the costs of automobiles had declined as fast as those for memory capacity in computers, today a Rolls-Royce would cost 50 cents (van Tulder and Junne, 1988). Equally, regulatory change transformed financial services, but had lesser impact on chemicals.

The new diplomacy we sketched in chapter 1 has three critical and intertwined ingredients: the bargaining among states for power and influence, the competition among firms contesting the world market and the specific bargaining between states and firms for the use or creation of wealth-producing resources. All three are critically influenced by and in turn influence the world structures of security, finance and knowledge (Cox, 1987; Strange, 1988). The changes in these structures during the last few decades have altered the ground rules for everyone. Structural change has not, however, had a uniform effect on either firms or countries. Though the experience of structural change is common to all, the consequences have been sharply different for both countries and firms.

To make the point, consider the striking contrast during the period 1973–85 ‘between the serious economic setbacks suffered by the newly oil-rich Mexico and the notable strides made by the oil-poor and oil-hungry Brazil’ (Hirschman, 1986). While Mexico's political weakness was excused and its economy helped out by the US, Brazil's relationship with Washington steadily deteriorated and its policies came under American attack. Hirschman's explanation, influenced by the radical Brazilian economist, Antonio Barros de Castro, lay in the fortunate coincidence for Brazil of the 1983 devaluation with the moment when prior investments in heavy industry and infrastructure planned by the military government in the 1970s came to fruition (Lowenthal, 1987). Growth resumed strongly after the hiccup of the debt shock, and expanded industrial exports combined with harsh decisions to reduce imports financed enough of the debt service to maintain trade credit.