Multinational Location Strategy: Volume 6

This paper explores how the emergence of the “new regionalism” and a surge in direct investment relate to each other and to the theory of international trade. Reform in the East and South—the most significant economic event of our era—plays a central role. Countries anxious to implement economic reform establish preferential trading arrangements with industrial countries intended to induce direct investments by firms supplying products to their partners. This does not imply that direct investment will consist mainly of flows between geographic neighbors. Multilateral liberalization is crucial, and this implies globalization: firms will be competing with each other on a worldwide basis. The paper's combination of theories results in predictions very much different from the traditional view of direct investment motivated by a desire to circumvent trade barriers.

In the literature on U.S. foreign direct investment (FDI) into the European Community, a consensus has emerged that U.S. multinational enterprises (MNEs) have been in the vanguard of corporate integration in Europe. This research on Japanese FDI has found evidence that Japanese MNEs have also adopted an integrated strategy in their servicing of the European market, although the UK appears to be the one country that has attracted a disproportionate amount of FDI. Nevertheless, it appears that Japanese firms have, like their U.S. counterparts, been responsive to the development of a pan-European market. Accordingly, it can be concluded that Japanese firms have contributed directly to the economic integration of Europe via their FDI.

This paper investigates why Japanese investors in the United States tend to locate foreign affiliates near concentrations of U.S. and Japanese establishments in their own industry. We hypothesize that the tendency to agglomerate varies according to attributes of industries, and our empirical analysis relates various industry characteristics to the probability that a Japanese investor will locate a plant in proximity to similar firms. Our results provide evidence that agglomerative forces are stronger in natural resources industries and industries that use their own sector's output intensively. We also find that Japanese manufacturers with high transport costs displayed greater tendencies to cluster, perhaps around geographically concentrated downstream purchasers of their products.

The location choices of foreign direct investment within the European Union are increasingly seen as “location tournaments” between countries willing to attract firms. The spatial organization of these multinational firms has become a very sensitive topic. Within this context, we study the location choices of Japanese firms in Europe during the period 1984–1993. Added to the classical location advantages that may determine the choice of an investor, various state policy variables are considered. The attractiveness of countries might also be submitted to agglomeration effects with the clustering of Japanese firms generating self-reinforcing positive externalities. We test, in a conditional logit model, for this effect and for its temporal dimension: do Japanese firms tend to choose the same countries and the same dates of entry? We find evidence of both spatial and temporal agglomeration in the location behavior of Japanese firms in Europe. We also try to determine the influence of competetion intensity on the proximity choices of firms.

Within a context of increasing competition between countries willing to attract foreign firms for regional development and employment creation prospects, spatial location issues have become a sensitive topic. One of the most noteworthy phenomena in economic geography is the concentration of industrial activities in specific regions despite globalization strategies of the firms. Location theory has provided various explanations of spatial agglomeration. Recent theoretical analysis suggest that different firms within an industry tend to choose similar locations because proximity generates positive externalities. While industrial clustering has been noted at least since A. Marshall, current models shed new light on agglomeration effects. As in recent theoretical and empirical work, we argue that agglomeration economies tend to push firms to cluster together in a self-reinforcing way.Few empirical studies on foreign direct investment have been undertaken at the regional level. Our paper focuses on the location decisions of French multinationals in manufacturing sectors. We use a new database that covers more than 2,000 establishments across 94 regions in the European Union. We use a panel data model to test the regional determinants of location choices. Along with the classical locational advantages, we introduce various variables that capture agglomeration effects. Moreover, transport costs proxies and public policy variables are also considered.

The paper proposes a new research design and framework to analyze the pattern of competition in the global market. Using revealed measures of comparative advantage and firm-specific advantages the competitive position of EU manufacturing industries is analyzed in relation to the structural characteristics of the industries. The framework is applied to examine the pattern of international alliances formed in the EU during the 1980s. In addition to shedding new light on the competitive position of European firms, the study offers some new perspectives for further research.

The Scottish electronics cluster is dominated by U.S. and Japanese multinational enterprises (MNEs). To what extent have these MNEs developed local key supplier and other business network linkages? In this chapter this issue is explored using the Rugman and D'Cruz “five partners/flagship” model of international competitiveness.

This paper aims at evaluating the scope of the bargaining power theory which considers direct investment restrictions—particularly regarding capital ownership—as the result of a bargaining process between the MNE and the host country. Three points are specifically studied: the conflict between the host country and the MNE about the conditions of location; the bargaining power features as they are studied in econometric tests and in monographies; and the bargaining dynamics between the MNE and the host country. What does remain of the “obsolete theory” thesis developed by Vernon which is taken up today within the framework of game theory?

The attraction of foreign direct investment has been an important strategic objective for successive UK governments for the past four decades. Within this, Scotland has pioneered in many of the methodological, process, and policy initiatives associated with investment attraction and development. This chapter assesses the evolution of investment strategy in that country and examines the patterns of activity which have emerged. These are evaluated, against the policy goals which were established for foreign investment in Scotland, and various important policy directions for the future are explored.