world scale. In 1970 intrafirm trade was estimated to account for around 20 percent of world trade. By 2000 the share was over 40 percent. Multinationals were the drivers of world trade growth.
As the integration of international production by multinationals proceeded, organizational forms evolved. Although in many industries giant corporations were created by mergers, boundaries of firms also became more porous, as they had been in the first global economy. During the 1970s and 1980s many large US and European-owned M-form corporations suffered from growing managerial diseconomies caused by size and diversification. Large corporations, although spending large sums on R & D, experienced growing problems achieving successful innovation (Christensen 1997). The result was a general trend towards divestment of 'non-core' businesses, outsourcing of many value-added activities once performed within corporate borders, and the formation of many alliances with other firms, which acted as suppliers and customers, or as partners in innovation. The new global economy was complex. Large corporations were powerhouses of innovation spending and market power. Yet the economy could also be seen as a 'worldwide web of interfirm connections' (Mathews 2002).
It remained less evident that the global economy had spawned a multitude of 'global firms'. Trade flows remained more regional than global. Only a handful of large multinationals really operated on a 'global scale'. In most instances, firms continued to generate a high proportion of their revenues from their home regions. A study of the 500 largest companies in the world in 2000 identified 380 for whom the geographical distribution of sales existed. Defining 'global' as a firm having 20 percent of its sales in each three parts of the Triad, but less than 50 percent in any one region, Rugman and D'Cruz (2000) could only find nine 'global firms'. These were mostly in the computer, telecom, and high-tech sectors, such as IBM, Sony, and Intel, but included Coca-Cola. In the new global economy, one study concluded, the multinational was a 'national corporation with international operations' (Hu 1992). As global competition intensified, geography and location remained central to corporate strategy.
Globalization has a long history. However, the flows of people, trade, and capital across borders has not been a linear one, but one with major ebbs and flows. The process accelerated rapidly in the nineteenth century as technological change resulted in sharply falling transport and communication costs. The spread of modern economic growth following the Industrial Revolution created a worldwide search for markets and raw materials. Imperialism forcibly overcame resistance to the spread of global capitalism. By 1914 a remarkably integrated global economy was in place. Entrepreneurs and firms were the drivers of this integration. Chapters 3 , and 5 will examine in closer detail how their strategies were pursued in different sectors, Chapters 6 and 7 will show how they built organizations which could manage operations over distance.
Beginning with World War I, the first global economy was progressively destroyed by political and economic shocks. Much European FDI was eliminated through wartime sequestration and the Russian Revolution. Barriers to the mobility of people were erected which have never been removed. Barriers to investment and trade grew to dramatic heights. Multinationals proved flexible. Many existing organizations remained intact, although there was not a great deal of new investment during the 1930s and 1940s. Multinationals responded