Multinational Enterprise Location Research Articles

Migration and the location of MNE activities: Evidence from Italian provinces

AbstractWe investigate the migration‐inward foreign direct investment (FDI) nexus in narrow geographies. A novel two‐stage empirical strategy allows us to investigate the role of migration as a determinant of multinational enterprises (MNEs) location choices and unpick heterogeneity in foreign investors' preferences towards the presence of migrants in the host location. This allows us to shed light on the relative importance of the underlying mechanisms linking migration and inward FDI. Relying on 1113 greenfield investments by 895 MNEs in Italian NUTS3 regions over 2003–2015, we find that immigrants from the country of origin of the investor exert a positive but highly heterogeneous effect on MNE location choices. Investors are more sensitive to the presence of migrants from their country of origin when they lack experience in the destination country (first‐time investors) and when their investments concern market‐access or business‐services (downstream) activities. This is consistent with the view that migrants act as information brokers that bridge the fixed costs of international business activities.

Articles: Multinational enterprises and the welfare state

This paper presents an empirical analysis on the extent to which a country’s welfare spending influences foreign direct investment (FDI) decisions, particularly as they relate to relocations. We argue, and subsequently empirically test, that higher welfare spending by governments attracts foreign investment. Moreover, multinational enterprises (MNEs) located in high welfare spending countries have a lower likelihood of relocating to foreign markets compared with MNEs in countries with lower levels of welfare spending. Using data for MNEs in 27 OECD countries, our results show that MNE location decisions are positively related to welfare spending. These findings appear to be more pronounced for MNEs operating in high-tech rather than in low-tech manufacturing industries. Our results suggest that high welfare spending does deter FDI in the case of host developing economies, but that these effects are small. We suggest that this is a result of firms being more hesitant to invest in developing countries where they will be expected to contribute to welfare. This suggests that a degree of trust between firms and host country governments is required on institution building and the delivery of welfare. Our results suggest that the conventional wisdom of firms avoiding or relocating away from locations due to the associated additional costs of high welfare spending is questionable, but that firms need to be confident on the efficacy of this welfare expenditure.

Strategy or Gluttony? The Allocation of Ownership Rights to Strategic Assets within the Firm

The creation and appropriation of value from strategic assets are at the heart of strategy. Despite extensive research on how and where value is created within multinational enterprises (MNEs), and the performance benefits from strategic assets, relatively little is known about the allocation of ownership rights within firms to strategic assets. Although MNEs can exploit international differences and allocate strategic asset ownership rights to income shielding locations, it often comes at the cost of shifting control and responsibility from value-creating subsidiaries. This study examines firms’ trade-offs in allocating ownership rights to strategic assets using a hand-collected confidential dataset on 102 MNEs on the types and locations of their strategic assets. The findings indicate that MNEs select locations based on tax and their need for coordination and regional expertise. We find evidence that MNEs are significantly likely to locate ownership of their strategic assets in regional hubs of expertise. However, MNEs with codifiable strategic assets are more likely to have ownership separated from value-creating activities and located in tax havens. The results also provide insight into when firms are not likely to engage in tax avoidance. When strategic assets are more difficult to monitor and control, firms are less likely to separate ownership from value-creating activities. As such, these findings imply that tax competition is not simply a “race to the bottom” in that there are factors that inhibit firms from fully capitalizing on tax policies. From a policy perspective, this research provides insight into the policies that can attract MNE location choice. The results suggest that, for policymakers, creating a hub of expertise might be a powerful tool for attracting MNE strategic assets.

International connectivity and the location of multinational enterprises' knowledge‐intensive activities: Evidence from US metropolitan areas

AbstractResearch summaryInternational connectivity is a multidimensional construct that plays a pivotal role in attracting the activities of multinational enterprises (MNEs) by facilitating intra‐firm coordination and access to external resources. We conceptualize how the different dimensions of international connectivity determine the location of MNEs' knowledge‐intensive activities, with a focus on Research and Development (R&D) laboratories and Headquarter units (HQ). By analyzing 3,101 greenfield investments of MNEs in US Metropolitan Statistical Areas, we show that R&D activities are attracted toward areas connected to the rest of the world by international networks of inventors. Moreover, we find that infrastructures which ensure the mobility of people across borders, and greater connectivity through advanced producer services are key location factors for HQ activities.Managerial summaryThe choice of where multinational enterprises (MNEs) locate their knowledge‐intensive activities is a crucial decision for managers, with important implications for policymakers. It has become increasingly clear that MNEs value the extent to which individual locations are connected globally. We study this international connectivity and highlight that it is a multidimensional construct spanning knowledge, infrastructure, and producer service networks. This study shows that not every dimension of international connectivity is equally important for MNEs in locating different knowledge‐intensive activities. Research and Development laboratories are attracted toward areas connected worldwide by international networks of inventors. Moreover, headquarter units are more likely to be established in locations featuring greater connectivity through the mobility of people and advanced producer services.

Can tax competition boost demand? Causes and consequences of the global race to the bottom in corporate tax rates

Corporate tax rates have been consistently falling around the world for decades now. This paper aims to explain the causes and consequences of this ‘global race to the bottom’. In particular, the author wishes to test the hypothesis that this race to the bottom is driven by demand-boosting corporate tax competition, where, contrary to traditional Kaleckian theory, lower corporate taxes may positively affect demand through increased investment due to multinational enterprises (MNEs) that seek higher net profits through (re)locating in low-tax jurisdictions. In order to do so, the author builds a general theory of the effect of average effective corporate tax rates (AECTRs) on MNE location. This theory is used to justify the addition of a tax-sensitive foreign direct investment channel in the investment function of a canonical Kaleckian model. As a result, this paper determines the conditions under which a country may be ‘tax-competition-led’, where lowering AECTRs increases demand through increased MNE investment and in spite of the negative effect on government expenditure given a balanced budget. The findings of this paper are that it is possible for an economy to be tax-competition-led, though it is unlikely in many cases given the existence of a coordination problem that lessens or nullifies the effect of lowering AECTRs when many countries do so simultaneously. The author refers to this problem as the ‘paradox of tax competition’, since, like other fallacies of composition commonly identified in Post-Keynesian thought, this is a phenomenon where the benefits of one country acting alone are reduced or eliminated if other countries act the same way at the same time. Based on this model, crude but nonetheless informative estimates are given that indicate that the race to the bottom has had a negative effect on demand in the vast majority of OECD countries. In this sense, the author finds that the persistence of policymakers to continue to compete on corporate taxes ‘imprudent’. Model-consistent policy recommendations are offered, chief among which are tax coordination or, failing that, technical changes in how individual countries collect corporation tax.

Skepticism toward globalization, technological knowledge flows, and the emergence of a new global system

AbstractResearch SummaryThis article examines the potential effect of anti‐globalization on a key attribute of multinational enterprises (MNEs)—the ability to transfer efficiently complex firm‐specific technological knowledge internationally. Anti‐globalization policies can suppress the transfer of complex technological knowledge by limiting the international transfer of intellectual property, restricting the free movement of scientists and engineers or by disharmonizing regulations across nations. Such suppression is shown to significantly change the global system in terms of the location of value‐adding activities, their organizational firm boundaries and the origin of MNEs. The model predicts that after a “shock” of anti‐globalization policies, which significantly increases international technological knowledge flow costs, a smaller number of firm and MNE location and control configurations emerges, and domestic firms become more dominant.Managerial SummaryAnti‐globalization policies threaten a key feature of multinational enterprises (MNEs)—the ability to transfer efficiently complex technological knowledge across political borders. They do so through limitations on the international transfer of intellectual property, restrictions on the free movement of scientists and engineers as well as through dis‐harmonization of regulations across nations. We present a model that shows that such limitations are likely to change the global system making it much more similar to the one that existed pre‐WW1 and WW2. The emerging global system is predicted to include a large proportion of domestic firms engaging in international trade and MNEs that locate only a small number of value chain activities abroad.

Location and survival of MNEs' subsidiaries: Agglomeration and heterogeneity of firms

AbstractResearch summaryOur study provides a quasi–replication of Shaver and Flyer (2000), which was among the first studies that challenged the positive role of agglomeration in determining companies' location choice and performances, thus changing the way management scholars view companies' attitude towards agglomeration forces. We employ the same research design, specification and tests, and a different population, to discuss the generalizability of the original study. Building on the framework of Shaver and Flyer (2000), our findings offer intriguing new empirical evidence highlighting the importance of the differential between entering foreign firms and host country firms as a crucial condition in understanding agglomeration forces and adverse selection mechanisms.Managerial summaryOur exercise confirms that agglomeration forces act differently on stronger versus weaker multinational enterprises (MNEs). However, we find that stronger MNEs tend to avoid location in highly specialized areas when they are afraid of knowledge leakages towards host country–based rivals that have enough absorptive capacity to benefit and improve their competitive advantages. Managerial implications are quite relevant. Indeed, when MNEs avoid co–location in highly specialized areas, they also limit their own access to local knowledge and other agglomeration economies, such as supply networks and qualified workforce. Thus, MNEs managers need to design and implement devices that, on the one hand prevent local leakages of their knowledge and, on the other, do not hinder their access to local unique knowledge and resources.

Connectivity and the Location of MNEs Across the Value Chain. Evidence from US Metropolitan Areas

Multinational enterprises (MNEs) need to efficiently orchestrate a geographically fragmented network of cross-national operations. Among the different spatial features determining MNEs location cho...

The role of multinational enterprises in global valuation

PurposeThe research proposition of this paper is that multinational enterprises (MNEs) were important in the process of growth and divergence that took place in the world in the nineteenth and twentieth centuries. The rate of growth of GDP per capita was unprecedented, but it was coupled with an increasing gap between the developed and the developing countries. MNEs are even more important in the growth and convergence process that started at the beginning of the twenty-first century where the gap is closing. Global sourcing is the strategy that has led to closing the gap while high growth continues. The paper aims to discuss these issues.Design/methodology/approachThe study is based on macroeconomics general equilibrium model in an imperfect market and on looking at the inventive process as the driving process of the development and the location of MNEs. Using a financial economics model of assets and liabilities, it is shown that MNEs affect the geopolitical distribution of income and wealth through expanding their liabilities. The methodology is a combination of applying economic model and using historical and current data to motivate the use of the model and to validate the models and the conclusions derived from them.FindingsMNEs and major global companies before the name MNE was used were shaped by major macroeconomic processes like the inventive process and the same time they were the prime movers of the two major economic processes of the last 200 years: growth and divergence and growth and convergence. The ideas-led growth model shows why MNEs are becoming larger. As MNEs became bigger they start to import inputs through value maximizing strategy of global sourcing. This led to transfer of value to suppliers in emerging markets that grow over time and eventually it led to new MNEs from emerging markets large countries like China and from smaller countries in Asia and elsewhere. The growth convergence process and the resulting changes in the geopolitical distribution of MNEs is assisted by rapid changes in technology that reduces transactions cost. The continuation of rapid changes in transactions costs is likely to change the current structure, strategy and the location of MNEs and may reverse the growth convergence process once more.Originality/valueThe study begins with aggregate macroeconomic processes and relates them to the development of MNEs and in particular to the development of MNEs from emerging markets. It highlights the importance of global value chains and global sourcing in the process of growth and divergence and the turning of the “Wheel for Fortune” toward China and India as it has been prior to the sixteenth century.

A Two-pillar Location Decision Framework for MNEs’ FDI

In this study, we contribute to the literature on multinational enterprise (MNE) location decisions with a more comprehensive two- pillar location framework. We propose adding a socio-economic dimension (i.e., a location’s amenities such as public education and healthcare provisions) to the dominant current integrated location decision model, which mainly focuses on a traditional economic dimension (i.e., location factors such as market size and skilled labor cost). We exemplify this theoretical framework by examining U.S.- based high-tech MNEs’ location decisions regarding their R&D activities at the regional level within China. The results largely support our proposed theoretical framework that socio-economic factors are equally significant in influencing MNE location decisions as traditional economic factors. Detailed discussion and contributions of this study are provided.

Crossing Regional Boundaries: World Cities as Springboards and Gateways for MNE Location Choices (WITHDRAWN)

This study examines the roles played by world cities in the location decisions of multinational enterprises (MNEs) in the context of a semi-globalized world. The economic integration and interdepen...

A Geopolitical Perspective into the Opposition to Globalizing State‐Owned Enterprises in Target States

Plain language summaryGeopolitical concerns are one of the important factors influencing multinational enterprise (MNE) location choices. This is particularly true for globalizing state‐owned enterprises (SOEs) because of their direct ties with governments. Because of geopolitical concerns, SOEs may face a strong level of opposition in foreign countries which neighbor SOEs’ home countries, have different religious beliefs and political regimes from SOEs’ home countries or countries do not lack resources that SOEs can provide. Such opposition is particularly strong in countries where domestic politicians find it in their interests to arouse nationalistic feelings and oppose foreign SOEs’ investments. This study highlights the importance of considering geopolitical factors in MNE location choices.Technical summaryThe emergence of globalizing state‐owned enterprises (SOEs) requires revisiting the assumption that multinational enterprises (MNEs) are focused on economic not political objectives because SOEs tend to be perceived as political entities as well. We develop a geopolitical perspective into how geographic distance, religious similarity, and political regime similarity between two nation states, as well as resource complementarity between globalizing SOEs and target states, explain the level of opposition that globalizing SOEs face in target states. We also investigate how the salience of nationalist politics moderates the influence of these geopolitical factors on the level of opposition that globalizing SOEs face. This theoretical model developed in this study sheds new light on understanding the role of geopolitics in affecting MNEs’ location choices. Copyright © 2016 Strategic Management Society.

Location of International Business Activities: Integrating Ideas from Research in International Business, Strategic Management and Economic Geography

Introduction John Cantwell 1. MNEs as Border-Crossing Multi-Location Enterprises: The Role of Discontinuities in Geographic Space Sioerd Beugelsdijk and Ram Mudambi 2. Location and the Multinational Enterprise: a Neglected Factor? John H. Dunning 3. The Economic Geography of the Internet Age Edward E. Leamer and Michael Storper 4. International Entrepreneurship and Geographic Location: an Empirical Examination of New Venture Internationalization Stephnmie A. Fernhaber, Btree Anitra Gilbert and Patricia P. McDougall 5. Global Cities and Multinational Enterprise Location Strategy Anthony Goerzen, Christian Geisler Asmussen and Bo Bernhard Nielsen 6. The Hassal Factor: an Explanation for Managerial Locational Shunning Andreas Schotter and Paul W. Beamish 7. Regulatory Environments and the Location Decision: Evidence from the Early Foreign Market Entries of New-technology-based Firms Regis Coruderoy and Gordon Murray 8. Location and the Multinational Enterprise John Cantwell

Firm rivalry, knowledge accumulation, and MNE location choices

The international business (IB) literature has mostly emphasized the impact of location and firm characteristics on location choices. However, industries with a significant presence of multinational enterprises (MNEs) are oligopolistic in nature, which suggests that rivalry among firms plays an important role in firms’ dynamic decision-making processes. This paper explores how rivalry and differential knowledge accumulation among competitors affect MNEs’ geographic expansion across time and markets. Specifically, we build a model in which two competing firms with different capabilities simultaneously decide a sequence of market entries. Following previous research, we allow the possibility that certain markets are closer (a better fit) to one firm than to the other, and that certain knowledge is more transferable across markets (less market specific). We then solve the model computationally, and identify three equilibrium strategies – avoid, collocate, and stronger-chases-weaker – depending on the initial relative firm capabilities, market attractiveness, market–firm fit, and knowledge transferability. By explicitly incorporating firm rivalry across multiple markets, our model offers a comprehensive approach to understanding the drivers behind MNEs’ sequential location choices, and offers alternative explanations for some important empirical observations in IB, such as bunching and second-mover advantage in market entries.

Global cities and multinational enterprise location strategy

We combine the concept of location derived by economic geographers with theories of the multinational enterprise (MNE) and the liability of foreignness developed by international business scholars, to examine the factors that propel MNEs toward, or away from, “global cities”. We argue that three distinctive characteristics of global cities – global interconnectedness, cosmopolitanism, and abundance of advanced producer services – help MNEs overcome the costs of doing business abroad, and we identify the contingencies under which these characteristics combine with firm attributes to exert their strongest influence. Consistent with these arguments, our analysis of a large sample of MNE location decisions using a multilevel multinomial model suggests not only that MNEs have a strong propensity to locate within global cities, but also that these choices are associated with a nuanced interplay of firm- and subsidiary-level factors, including investment motives, proprietary capabilities, and business strategy. Our study provides important insights for international business scholars by shedding new light on MNE location choices and also contributes to our understanding of economic geography by examining the heterogeneous strategies and capabilities of MNEs – the primary agents of economic globalization – that shape the nature of global cities.

Institutional and transaction cost determinants of Turkish MNEs' location choice

PurposeDrawing on institutional and transaction cost theories, the purpose of this paper is to examine the location choice for a sample of 522 foreign affiliates of Turkish multinational enterprises (MNEs).Design/methodology/approachBinary logistic regressions are conducted to test a number of hypotheses on the functional relationships between the hypothesized effect of variables and location choice of Turkish MNEs based on a secondary data drawn from official sources.FindingsIn general, the findings provide support for the majority of the study's hypotheses and tend to confirm the theoretical perspectives adopted. The level of political constraints, the level of knowledge infrastructure in the host country market, subsidiary density, industry R&D intensity and subsidiary size are found to have the expected impact on the Turkish MNE's location choice among geographic alternatives. No support is found for the impact of ownership mode of subsidiary and the group affiliation on Turkish MNEs' location choice for their subsidiaries.Research limitations/implicationsThe paper focuses on Turkish MNEs and the findings may not be generalizable to other emerging country (EC) MNEs. Also, the classification of geographic location into developed versus emerging countries may be too crude.Practical implicationsIn general, the paper posits that Turkish MNEs have a motive of strategic asset seeking to enhance their global competitiveness when they enter developed countries, whereas they simply attempt to exploit their firm‐specific advantages or competencies when they access emerging countries.Originality/valueGiven the increasing number of EC MNEs entering other emerging and developed markets, this paper adds to the understanding of the determinants of location strategies of Turkish MNEs by identifying key regional characteristics that lead Turkish MNEs to select particular locations, among the several geographic alternatives.

Does It Matter Where Countries Are? Proximity to Knowledge, Markets and Resources, and MNE Location Choices

We suggest that the proximity of a country to other countries is a factor that affects its choice as a multinational enterprise (MNE) location. We introduce the concept of a country's proximity to the global distribution of knowledge, markets, and resources, and frame this concept as a function of both geographic distance and the worldwide spatial distribution of these factors. We test our location model on a data set comprising 138,050 investments undertaken by U.S. MNEs worldwide. Our findings show that the proximity of a country to the rest of the world has a positive impact on MNEs choosing that country as a location. Proximity to the world's knowledge and markets are stronger drivers of location choice than is proximity to the world's resources, after accounting for the country's own endowments. Larger firms are able to benefit more from remote locations than smaller firms are.

The foreign investment decision process

This chapter examines globalisation in terms of conflicts between markets and economic management and suggested that the differential pace of globalisation across markets presents a number of challenges to policy makers in local, national and regional governments and in international institutions. The paper focuses on the relationship between the evolving strategies of multinational enterprises (MNEs), the changing economic geography of the world economy and globalisation. The first section charts the conflicts between markets and government policies as markets integrate across national borders. Markets are globalised by the actions of MNEs. The drivers of deliberate process, the location and ownership strategies of MNEs are examined in the second section. The third section, makes economic geography more important than ever. Finally, the article examines protests against globalisation that leads to the concluding research agenda. The management of space and time by MNEs should be in the forefront of the analysis of globalisation.