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The MIT Industrial Performance Center and Cambridge University’s Center for Business Research are engaged in a major new research program on the process of globalization and its implications for productivity growth, innovation and the creation of good jobs.

Globalization refers to the set of changes in the international economy that are tending towards the creation of a single world market for capital, goods, and services. In each of these dimensions, globalization raises new challenges for sustaining innovation, growth, societal well being, and broad political legitimacy.

The Globalization Project focuses on two aspects of these developments: the fragmentation of the production systems of firms in the advanced economies, and the relocation of parts of these enterprises to other societies. Using the opportunities provided by new communication and transportation technologies, as well as the internationalization of capital markets, many firms are breaking off parts of their productive activities and relocating them in foreign countries.

What is relocated may range from the low-skilled, low-cost parts of the business to the most technologically advanced research and development laboratories. Why firms choose to move, and what they choose to move, is influenced by factors such as the search for lower labor and land costs, the desire to move closer to valuable assets like the research institutions and consumers of another country, and the requirements imposed by host governments for selling and operating in their societies.

While the basic process of globalization has been much studied, its effects on individual firms and on their home societies have not. To investigate these questions, the IPC-CBR research team is tracking the course and consequences of globalization in several industries, including:

• Pharmaceuticals/Bio-technology
  
• Publishing
  
• Textiles and apparel

The interdisciplinary research team, with the help of an international network of collaborating researchers, is studying the strategies, plants and laboratories of leading firms in each of these industries with home bases in the United States and in Europe. By comparing the different ways in which firms in these countries and industries are relocating their productive activities abroad, the research will shed new light on how alternative globalization strategies will affect future innovation, growth, job content and skills, and societal learning.

We expect the results to be of interest to researchers, to corporate and public decision-makers, and to the public:

• Corporate leaders are searching for a better understanding of the fundamental relationships between foreign location decisions and their firm's performance. They want to know how and where to locate the critical activities of the company; and what kinds of effects these decisions will have on the firm's long-term innovation capabilities, on its human resources, and on its profitability and market share.
  
• Political leaders are aware of public concern over the loss of jobs and the loss of competitive advantage in both traditional and more advanced sectors to countries like India and China, which have low labor costs and significant pools of well-educated workers and technicians. But presently they and their advisors lack the theoretical and empirical bases from which to evaluate this risk, and conversely lack an alternative framework with which to evaluate the opportunities that globalization may present for strengthening home-based competencies.