Ray Vernon: A Personal Memoir
Alan M. Rugman

I expect, like most people, I first met Ray Vernon through his writing. I read his 1966 article on the product cycle and his 1971 Sovereignty at Bay while writing my doctoral thesis but it was not until 1978 when I was asked to review Storm over the Multinationals for the Economic Journal, that I really took Ray’s thinking on board. I think that this review, written before I ever met Ray personally, says it all:

VERNON (Raymond). Storm over the Multinationals. The Real Issues. London: Macmillan Press, 1977. Pp. vii + 260. £10.00

Professor Vernon has done the economics profession a valuable service in writing a readable book on the multinational enterprise (MNE). His intelligent synthesis of recent academic research on the MNE can be placed in the hands of motivated students lacking formal training in economic theory. In the past such readers may have stumbled upon misconceived works such as that by Barnet and Müller, but now an orthodox explanation of the MNE and associated policy issues has been produced by Vernon. The first half of the book examines the typical organisational structure of an MNE. The large size, geographical diversity, centralised management control and oligopolistic nature of the MNE are all aspects of its desire for stable earnings. The potential market power of the MNE is held in check by the spectre of entropy, a process which constrains the MNE to search constantly for new product lines and markets. The innovations made by the MNE generally require large quantities of capital and organisational skills. These are available in the home nation at low relative cost and explain why most research is done by the parent firm rather than by its overseas subsidiaries. The remainder of the book reviews the current policy conflicts between the MNE and developing nations. In these chapters Vernon presents new insights into the process of technology transfer and the appropriate pricing policy for an MNE. He is critical of the study by Vaitsos with its "exotic estimates" of transfer pricing. There is no hard evidence of excessive profits being earned by MNEs. Since governments of host nations have the power to impose their own tax policy on the MNE ultimate power resides with the nation state. This study deserves a wide readership.

ALAN M. RUGMAN

Reproduced from The Economic Journal 88 (June 1978) p. 404.

Writing for publication can focus the mind. Twenty-one years later the inspiration found in Ray’s book is still vivid, and as relevant today as then.

The remarkable clarity of Ray’s analysis comes through in all of his publications. In the 1966 article the logic of the product cycle model is embedded within the institutional norms of the time, namely the dominance of U.S.-based foreign direct investment and the worldwide spread of technology through U.S. multinational enterprises (MNEs). Despite its title the 1971 book does not depict the MNE as the new ruler of the world, but rather discusses the changing patterns of MNE-government relationships and the ways in which the balance between MNEs and nation states can be upset. This, again, is the theme of Ray’s most recent book, his 1998 In the Hurricane’s Eye.

I first met Ray in April 1979, at a conference at Harvard Business School on state-owned enterprises (SOEs) which he organized jointly with Yair Aharoni. He rather startled me by stating that he would work on SOEs for the next ten years, and that a better name for them was state-owned businesses, but that the abbreviation as SOBs would be somewhat inappropriate, even in the 1970s.

I next saw Ray in April 1983 at a conference in Washington D.C. on intra-industry direct foreign investment, sponsored by the NSF. He discussed a paper by John Dunning and made some encouraging remarks about my own research. But it was not until I was a visiting scholar at Harvard’s Centre for International Affairs in 1985/86 that I received the full benefit of Ray’s warmth, insights, pointed anecdotes and ever-present good humour, which I think he reserved for those he thought of as serious students of international business. To be so regarded by Ray was to be a member of an exclusive club. On a broader stage, Ray was famous for his seminar on multinationals at Harvard Business School and also helped to establish the CFIA, before moving to his third high profile appointment at Harvard, at the Kennedy School.

On subsequent visits to Cambridge it was always an open door with Ray, including an invitation to speak on NAFTA at his Kennedy School Seminar in 1993. Also in 1993, my friend and colleague, Lorraine Eden, managed to have Ray and his wife visit Ottawa, for her conference on Multinationals in North America.

I last saw Ray in Vienna at the AIB Conference in October 1998, where he journed to speak at a special panel we organized on globalization. He participated fully in the conference, offering all of us one last opportunity to enjoy conversations with this giant of the field of international business. Ray has left us but his work lives on.

This eulogy was first published in AIB Newsletter, 1999-Q3.

Raymond Vernon, died on August 26, 1999 due to complications from cancer. He was 85.

Last Updated: July 2007


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