Geography Reference
In-Depth Information
uncertainty, larger firms will generally have the information and financial
resources to make more considered location decisions than small firms.
In other words, large firms' location decisions will be more akin to those
described by the Weber and Hotelling models, given that they will gener-
ally have sufficient resources to evaluate the cost and revenue implications
of their potential location choices. These large firms will attempt to make
rational and optimal decisions, and the results of their location choices
can be largely analysed by the types of classical and neoclassical models
described above. On the other hand, small firms will generally be located
where their founders were initially resident. There will have been no explicit
initial location decision as such, when the firm began operating. Yet, over
time, competition between firms will be partly a result of spatial differ-
ences in costs and revenues, and the relationship between profitability and
location will eventually become a decision-making issue. In subsequent
location decisions, many small firms will tend to choose locations close to
the major market leaders for the reasons outlined by Alchian. Imitation
therefore also takes place in terms of spatial behaviour. For firms which
are risk-averse, as we see from the Hotelling and Salop models, this is
also a particularly good strategy for three reasons. Firstly, locating close
to competitors ensures that an individual firm's market share is no lower
than that of an equivalent firm; secondly, clustering allied with variety also
limits the problems associated with price wars; and thirdly, such clustering
behaviour can facilitate all sorts of additional benefits from externalities.
As we will discuss further in Chapter 5, the clustering of many small firms
around large ones is therefore a very common observation.
3.8
PATTERNS OF MULTIPLANT AND MNE
SPATIAL AND ORGANIZATIONAL
STRUCTURES
As we have already mentioned, the location behaviour of MNEs is more
complex than individual single-plant firms because much of the geograph-
ical relocation of activities within MNEs consists of locational adjustment,
in which the reallocation of activities and resources occurs within an exist-
ing spatial configuration of establishments, with little or no discernable
external changes (Healey and Watts 1987). This is particularly complex to
model because the largest component of geographical changes in foreign
investment takes place via mergers and acquisitions rather than 'green-
field' investments, thus following the locational patterns of
efficiency
,
spe-
cific-
or
strategic- asset seeking
MNEs. This is particularly important, for
example, in the case of financial service industries (Cohen 1998; Leyshon
