International Transmission of Information and the Business Firm

Abstract

While the transmission costs of information depend, above all, on the geographical distance and the communication channels used, the collection and interpretation costs are influenced primarily by what may be called the cultural distance. Differences in levels of general economic development, in educational levels, in languages and in general culture represent barriers to the international transfer of information. Since the establishment and the operation of subsidiaries in foreign countries require more information and more complex information than the mere exporting and importing of goods, the barriers become correspondingly more important. For this reason firms seem to establish their first subsidiaries in countries with which they have close cultural relations. While a business firm normally wants to capitalize its stock of knowledge through the production and sale of goods, situations may arise in which the sale of information to a foreign firm is the only possible alternative. However, supplying an outside firm with technical information or with production, marketing and management know-how is a more difficult and risky task than supplying information in connection with the export of goods or the operation of a foreign subsidiary.