Location Choice of Multinational Firms in CLMV Countries

Abstract

In the present global era, in which firms choose to locate their plants beyond national borders, location characteristics become important for attracting multinational enterprises (MNEs). MNEs have distributed their overseas production plants all over the world and have formed international production/distribution networks. However, the distribution of their overseas affiliates around the world is not necessarily uniform. Only a limited number of locations succeed in attracting a large number of MNEs because MNEs base decisions on their location abroad by taking into consideration several location characteristics, such as market size, extent of infrastructure development, or existence of industrial concentration. As a result, the location choices of MNEs yield large differences in inward foreign direct investment (FDI) among locations. Such a gap might lead to a widening of the gap in economic development among locations, because the entry of MNEs is expected to give birth to various kinds of positive benefits, such as spillover effects, to the location. Therefore, it is crucially important to understand the detailed mechanics of the location of MNE overseas plants.