Geography Reference
In-Depth Information
if successful, will then be replicated or adapted elsewhere. Much of the
emphasis of these international business theories is focussed on the process
of learning, by which the MNE establishes the initial prototype overseas
facility and then monitors how successful the new venture is. Part of the
role of the new establishment is therefore to facilitate a process of learning
by trial and error, in which the firm uses the new establishment as a plat-
form on which it can build capabilities related to the market it has entered.
The location decision is therefore in part also a reconnaissance exercise,
a fact-finding mission, in which part of the role of the establishment is to
act as a 'listening post', a radar designed to pick up local knowledge, and
to develop local knowledge assets. However, none of these arguments
help to explain
where
either the prototype establishment will be located,
or where the subsequent additional establishments will be located, other
than describing their locations as simply being in other countries. Under
various circumstances, the Weber, Hotelling and Salop models and their
various associated analytical developments (McCann and Mudambi 2004,
2005) can be used to deal with exactly these issues. These model frame-
works predict that the internationalization process whereby firms estab-
lish an initial platform investment project will itself lead to incremental
changes in both the optimum location of the investment and also the
optimum spatial organization of its input and output linkages. As such,
the Weber, Hotelling and Salop frameworks implicitly underlie a specific
process of incremental learning, which focuses on the evolution of the
optimum location of both the establishment and the spatial organization
of its input supply and output market locations.
The process of incremental learning has implications in terms of the
organizational and decision-making structure of the firm. As more
complex geographical arrangements naturally evolve as a firm expands
into new international markets, it may well also be the case that the
decision-making logic of the firm may itself evolve so as to better
control the emerging geographical structure. The relationship between
firm organizational structures and decision-making processes is a highly
complex issue in its own right, and largely beyond the realms of this
topic. However, using diagrams we can indicate how various alternative
organizational and decision-making structures may be related to questions
of multiplant and multinational geography. In these organizational dia-
grams, the thickness of the arrow lines represents the relative significance
and dominance of the flows of knowledge and information, and the direc-
tion of the arrows represents the direction of decision-making authority
and control. As such, the direction of the thick arrow lines indicates the
relative importance of each location as a decision-making centre, and the
relative ordering of subsidiarity between the establishments.
