Location of International Business Activities

Integrating Ideas from Research in International Business, Strategic Management and Economic Geography

Academy of International Business ., J. Cantwell

• Publisher: Palgrave Macmillan
• Year: 2014
• Print ISBN: 9781137472304
• eBook ISBN: 9781137472311
• Topic: Business
• Subtopic: Business General
• Index: Business

In recent years an extensive range of new research has been revisiting the topic of the location of international business activities, from a variety of different perspectives and background interests. This work has been inspired in part by two apparently quite different but actually related contemporary trends: on the one hand, an emergence or revitalization of clusters of activities co-located in or around selected global city regions or fast growing metropolitan areas; and on the other hand, an increased global dispersion of activities conducted within the value chains managed or coordinated by many large multinational enterprises and their business partners. The former trend has given rise to discussions of how the elite of the cultural-cognitive economy of the 21st century (in Allen Scott's terminology) or the creative class (Richard Florida's term) are now being drawn or brought back to major urban centers; while the latter trend is associated with debates over outsourcing, and the economic and social consequences of shifts in the ownership and location of distinct nodes of value chains once production systems become more fragmented and the component parts of such systems become more geographically dispersed. An increased interest in the subject of international business location has been shown by scholars in Strategic Management, in Economic Geography, and in Regional Science, as well as in our own interdisciplinary field of International Business Studies. However, as is often the case in academic research communities, these bodies of scholarship have tended to develop at something of a distance from one another, each conversing internally more than they have with one another. Location of International Business Activities aims to promote a greater conversation between those interested in the topic of Location from various different backgrounds or starting points. The articles are taken from a special issue on the theme of the Multinational in Geographic Space which was published by The Journal of International Business Studies in 2013.

1

Introduction

John Cantwell

Rutgers University, Newark, NJ, USA

In recent years an extensive range of new research has been revisiting the topic of the location of international business activities from a variety of different perspectives and background interests. This work has been inspired in part by two apparently quite different but actually related contemporary trends: on the one hand, an emergence or revitalization of clusters of activities co-located in and around selected global city regions or fast growing metropolitan areas; and on the other hand, an increased global dispersion of activities conducted within the value chains managed or coordinated by many large multinational enterprises (MNEs) and their business partners.

The former trend has given rise to discussions of how the elite of the cultural-cognitive economy of the 21st century (in Allen Scott’s [2012] terminology) or the creative class (Richard Florida’s [2002] term) are now being drawn or brought back to major urban centers; while the latter trend is associated with debates over outsourcing, and the economic and social consequences of shifts in the ownership and location of distinct nodes of value chains once production systems become more fragmented and the component parts of such systems become more geographically dispersed.

An increased interest in the subject of international business location has been shown by scholars in Strategic Management, in Economic Geography, and in Regional Science, as well as in our own interdisciplinary field of International Business Studies. However, as is often the case in academic research communities, these bodies of scholarship have tended to develop at something of a distance from one another, each conversing internally more than they have with one another. For an earlier attempt to bring together especially the Economic Geography and International Business literatures on location see Iammarino and McCann (2013).

To help encourage a more direct exchange between these communities with a common interest in international business location, we recently ran a (JIBS) special issue on the theme of the Multinational in Geographic Space. To further help to promote a greater conversation between those interested in the topic of location from various different backgrounds or starting points, we are pleased to offer this special collection of JIBS articles that concern issues in the location of international business activities.

Each of the more recent strands of literature on the location of international business activities has been motivated in large part by trends in the real-world. The common empirical grounds for the inspiration of work in some distinct but allied disciplines provides us with the basis for establishing connections between the various conceptualizations that have been developed by scholars from different backgrounds or perspectives. The most important underlying trend in international business has been the gradual shift from natural resource-seeking foreign direct investment (FDI) in the 19th century toward local market-seeking FDI for most of the 20th century, and then towards internationally integrated knowledge-seeking FDI from around the 1980s onwards (Dunning and Lundan, 2008). This terminology of the types of FDI that have been growing fastest at different historical junctures serves to illustrate the gradual changes, which we have observed in the role of location in international business. The location was once seen mainly as a source of natural resources, then as a source of markets, and now as a source of technological knowledge and novel ideas for business development. What is more, both the extent and the form of interdependence between locations has been transformed to the point at which it is difficult to consider a given location in isolation, without fully taking into account its relationships with other locations. A marked increase in scholarly interest in international knowledge linkages between locations reflects our analytical attempts to bring together the internationally integrated aspects with the knowledge-seeking aspects of much contemporary FDI; as well as to bring together the phenomena of specialized clusters or global cities on the one hand, and the dispersion of specific global value chain activities across such locational poles or centers by international corporate networks on the other.

These interconnected phenomena have led to changes in the questions typically asked about the drivers and effects of international business activities, and in particular with respect to location attention has begun to shift from asking purely about what makes a given place attractive relative to any other place, to asking how locations are associated with others from a regional or global perspective. Thus, the classical questions examined in the international business literature concerned the determinants or impacts of outward FDI to [a] foreign location[s] from a specific home country, or the determinants or impacts of inward FDI from other locations to a specific host country. Or they asked about how these determinants or impacts of inward FDI varied, including an assessment of the relative attractiveness of places, when comparing across different host locations. These questions supposed that MNEs, as the primary agents engaged in FDI, responded to the exogenously given characteristics of locations, among other factors. Alternatively, they examined how some affected variables, such as home country trade or employment in the case of outward FDI, or host country domestic firm productivity levels in the case of inward FDI, responded to some pattern of variation in FDI, across industries, firms, or over time. Even process-based theories, such as the internationalization process model (Johanson and Vahlne, 1977), considered the learning of MNEs over time as a process of assimilating experience of some exogenously given host country-specific characteristics of foreign markets. Processes of progressive interaction between MNEs and locations were not much considered. While in principle the framework of the eclectic paradigm might be turned to the examination of such interaction between the ownership advantages of firms and location advantages of places (see e.g., Cantwell, 1991 or Cantwell, Dunning and Lundan, 2010), this approach was not common.

Instead, today there is a growing awareness that increased locational specialization, or the specificity of locations, has been reinforced by the evolution of competence-creating subsidiaries, whose development depends upon them becoming insiders in a local system of innovation (Cantwell and Mudambi, 2011). Both the specialized positioning of individual locations, and their greater connectedness to knowledge development in other locations, has also been influenced by the rising complexity of knowledge, and the capacity of MNEs to actively utilize their international networks to combine knowledge drawn from geographically dispersed sources (Kotabe et al., 2007; Cantwell and Zhang, 2011). Thus, the international business field has shifted from a focus on the home or host country impacts of FDI, or on the determinants of FDI, toward a focus on the organization of cross-border networks by MNEs. This represents in part the real-world evolution of the internationalization of business from its earlier forms to its more mature contemporary forms.

Moreover, new issues have emerged as a result of the evolution of international business activities, and older and formerly accepted conceptual terminology has had to be adjusted accordingly. What was once termed “reverse technology transfer,” which very terminology supposed that knowledge transfers from subsidiary to parent was somehow unusual or exceptional, has steadily been giving way to more open kinds of analysis of patterns of knowledge exchanges or ties in international business networks. This has raised some new questions for international business theory, such as what constitutes the “glue” that holds together the MNE in a more organizationally decentralized environment – and what theoretical extensions are required of our conventional understandings to accommodate these newer explanations?

There has been a growing awareness of the inadequacy of the received treatment of knowledge spillovers as unidirectional in a single “pipeline,” from MNE parent to subsidiary through technology transfer, and then further diffusion (both of an intentional and unintentional kind) to other local firms co-located with the subsidiary (Marin and Bell, 2006). Competence-creating subsidiaries must become locally embedded, and so they both transmit and receive (absorb) more knowledge from other actors (Andersson and Forsgren, 2000; Cantwell and Mudambi, 2005). Yet in what has become known as “dual network embeddedness” as subsidiaries become more locally competence-creating they need to increase the intensity of their knowledge exchanges not just with other local actors but also with their parent company internationally (Marin and Bell, 2010; Cantwell and Piscitello, 2014). The MNE has now become a device for combining and associating dispersed locational capabilities, and so spillovers must be analyzed in a two-way interactive setting. The building of MNE subsidiary combinatorial capabilities for complex knowledge development is more likely to be achieved when it is supported by inter-organizational knowledge exchanges (Lamin and Dunlap, 2011; Marin and Giuliani, 2011). With the spread of ever more open and informal international business network structures, the glue that binds them together is reciprocity in knowledge sharing (Cantwell, 2013).

As well as the usage of some new or adapted terminology in this subject area, some of the older established theoretical categories have re-emerged in a new guise to fit the changed context. As production systems have become fragmented or modularized, global value chains may be more finely sliced and component stages locationally dispersed, as witnessed by a steady rise in the share of intermediate products in international trade (UNCTAD, 2013). So the process of vertical specialization based on the holdings of diverse capabilities within the value chain is still very much a driver of the organization of MNE cross-border networks (Richardson, 1972; Monteverde and Teece, 1982). Any given phase of production may be performed in one or in multiple sites – and where the latter occurs under common ownership we have the well-known phenomenon of horizontal FDI in a horizontal multi-plant MNE (Caves, 1982). The difference with the standard view of horizontal FDI is that this refers to the geographic dispersion of a given stage of production, rather than to the dispersion of facilities for the servicing of final product markets. So while there may be some blurring of traditional conceptual categories as they were typically interpreted – since in global value chains a given FDI commitment (or a subcontractor, etc.) may combine both horizontal and vertical elements – it remains useful to conceptually distinguish these aspects of a value chain.

The JIBS articles included in this volume can be grouped into four sets, which make respectively four kinds of contributions to the scholarly rethinking that has accompanied the evolution of international business activities just discussed. First, the traditional analysis of locational attraction of FDI is qualified and extended in the articles by Schotter and Beamish (Chapter 7), which examines the role of the individual managerial hassle factor in constraining locational choice, and by Coeurderoy and Murray (Chapter 8), which calls attention to the increasing consideration now given to role of institutional aspects of locational determinants, with particular reference to the local regulatory regime. Second, while most international business studies have considered location purely at a country level, a more general conceptualization of the appropriate level of analysis of location or place is proposed in the articles by Beugelsdijk and Mudambi (Chapter 2), which allows for a diversity of spatial categories whether sub-national or cross-national regions, and by Goerzen, Asmussen and Nielsen (Chapter 6), which examines how the liability of foreignness effect may be offset in the context of internationally connected global cities. Third, relating the recent revitalization of interest in local clusters to international business activities, the article by Leamer and Storper (Chapter 4) argues that agglomeration effects may be even more important with the globalization of business in the context provided by the Internet, while the article by Fernhaber, Gilbert and McDougall (Chapter 5) discusses the relationship between clusters and the outward internationalization of new international entrepreneurial ventures. Finally, the various implications of the increasing relevance and complexity of the interaction between firms and locations internationally is discussed in the articles by Dunning (Chapter 3), which looks at how the greater international mobility of activities is a product of firm-location interaction, and by Cantwell (Chapter 9), which explores the changing role of location in the context of the interplay between the innovative activities of firms and local systems of innovation.

References

Andersson, U., & Forsgren, M. 2000. In search of centre of excellence: Network embeddedness and subsidiary roles in multinational corporations, Management International Review, 40(4): 329–350.

Cantwell, J. A. 1991. A survey of theories of international production. In C.N. Pitelis and R. Sugden (Eds), The Nature of the Transnational Firm, London: Routledge.

Cantwell, J. A. 2013. Blurred boundaries between firms, and new boundaries within (large multinational) firms: The impact of decentralized networks for innovation, Seoul Journal of Economics, 26(1): 1–32.

Cantwell, J. A., Dunning, J. H., & Lundan, S. M. 2010. An evolutionary approach to understanding international business activity: The co-evolution of MNEs and the institutional environment, Journal of International Business Studies, 41(4): 567–586.

Cantwell, J. A., & Mudambi, R. 2005. MNE competence-creating subsidiary mandates, Strategic Management Journal, 26(12): 1109–1128.

Cantwell, J. A., & Mudambi, R. 2011. Physical attraction and the geography of knowledge sourcing in multinational enterprises, Global Strategy Journal, 1(3–4): 206–232.

Cantwell, J. A., & Piscitello, L. 2014. Historical changes in the determinants of the composition of innovative activity in MNC subunits, Industrial and Corporate Change, 23(3): 633–660.

Cantwell, J. A., & Zhang, F. 2011. Technological complexity and the evolving structure of MNC subsidiary knowledge accumulation, Economia e Politica Industriale, 38(4): 5–33.

Caves, R. E. 1982. Multinational Enterprise and Economic Analysis, Cambridge and New York: Cambridge University Press.

Dunning, J. H., & Lundan, S. M. 2008. Multinational Enterprises and the Global Economy, Cheltenham: Edward Elgar.

Florida, R. 2002. The Rise of the Creative Class: And How It's Transforming Work, Leisure, Community and Everyday Life, New York: Perseus Book Group.

Iammarino, S., & McCann, P. 2013. Multinationals and Economic Geography: Location, Technology and Innovation, Cheltenham: Edward Elgar.

Johanson, J., & Vahlne, J. E. 1977. Internationalization process of firm – model of knowledge development and increasing foreign market commitments, Journal of International Business Studies, 8(1): 23–32.

Kotabe, M., Dunlap-Hinckler, D., Parente, R., & Mishra, H. 2007. Determinants of cross-national knowledge transfer and its effect on firm innovation, Journal of International Business Studies, 38(2): 259–282.

Lamin, A., & Dunlap, D. 2011. Complex technologies in emerging economies: Exploring the role of organizational relationships, Journal of International Management, 17(3): 211–228.

Marin, A., & Bell, M. 2006. Technology spillovers from foreign direct investment (FDI): The active role of MNC subsidiaries in Argentina in the 1990s, Journal of...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of Figures and Tables
• 1 Introduction
• 2 MNEs as Border-Crossing Multi-location Enterprises: The Role of Discontinuities in Geographic Space
• 3 Location and the Multinational Enterprise: A Neglected Factor?
• 4 The Economic Geography of the Internet Age
• 5 International Entrepreneurship and Geographic Location: An Empirical Examination of New Venture Internationalization
• 6 Global Cities and Multinational Enterprise Location Strategy
• 7 The Hassle Factor: An Explanation for Managerial Locational Shunning
• 8 Regulatory Environments and the Location Decision: Evidence from the Early Foreign Market Entries of New-Technology-based Firms
• 9 Location and the Multinational Enterprise
• Index