GLOBAL FINANCE

alliances which they organize together to reduce R&D risks and
costs in general, it works best when the partners have different sets
of expertise. Between 1980 and 1994 there were almost 3000 interna-
tional alliances formed between firms in the US, Japan, and Europe in
information technology businesses and about 1300 in biotechnology
during the same period. These two sectors have been the main focus
for such alliances in recent years, with new materials research coming
a distant third. The most common alliances are between US firms,
followed by those between US and European companies.

While many people argue that MNCs help in the ``technology

transfer'' between countries, the overall picture is very mixed. To
the extent that an MNC has an ``ownership advantage'' in technological
knowledge, it may be unwilling to share it with other firms, particularly
those in foreign countries.

THE FINANCING OF MNCS

Since the 1970s, there has been a gradual deregulation of stock markets
across the world and barriers to the free movement of capital have
been dropping. This has had the effect of reducing the cost of capital
for many firms, enabling them to invest more for growth and undertake
more mergers and acquisitions.

Companies that are forced to finance their operations in an illiquid

domestic market are likely to suffer from a limited availability of
capital and, often, a higher cost of capital many companies in smaller
countries are in this position, as are small private firms everywhere
who do not have easy access to stock and bond markets. Capital
markets in many countries are ``segmented,'' meaning that the required
rate of return on stocks and bonds in that market are different from
comparable rates in developed markets such as the US and London.

Causes of segmentation include regulatory controls, lack of ``trans-

parency'' of information, insider trading, political risk, and cronyism
for example, during the Suharto regime in Indonesia which collapsed
in 1997, firms that did not reward the Suharto family were unlikely to
enjoy favorable treatment from local banks or regulators.

Since the 1980s, many companies have been able to escape the

limitations of their home capital markets to access finance globally.
This involves a much higher level of information disclosure, and the