Geography Reference
In-Depth Information
(SMEs) around large ones. Interestingly, although the behavioural cri-
tique has been so popular in economic geography approaches to location
behaviour,
3
it actually appears to be relatively less problematic for the
types of multiplant MNEs than for almost any other type of firm. The
reason is that MNEs by definition tend to have not only the best informa-
tion resources, but also the best information-gathering resources of all
types of firms. As such, multinational firms ought to be able to engage in
location strategies which most closely mirror optimal location behaviour.
Moreover, as well as relocation, locational adjustment is also a potential
spatial factor adjustment strategy for MNEs. Multinational corporations
reallocate resources within existing multiplant spatial structure specifically
in order to reduce relocation costs. In contrast, such a strategy is rarely
open to SMEs. As such, MNEs are relatively less likely to exhibit the
Alchian follower behaviour than other firms, except where they follow
other multinational firms for the first time into new foreign markets.
However, once an MNE has become established in a new market, then
its information gathering facilities mean that its location behaviour will
follow the profit maximizing principles as far as possible. Although the
'conflicting goals' argument seen above applies largely and particularly to
the case of MNEs, it is still legitimate in a variety of contexts to employ
profit-maximizing models of location behaviour, such as those framed in
the Weber, Hotelling and Salop traditions, in order to consider aspects of
the spatial behaviour of large multinational corporations.
The additional aspect of Alchian-type follower behaviour, as far as
it relates to MNEs, implies that other smaller firms will tend to cluster
around large multiplant and/or multinational firms. If agglomeration
effects operate on the upstream supply chain elements of the MNE firm's
industry, then such clustering will itself maximize the chances of multina-
tional firms benefiting from such externalities. For these reasons, within
the business school and management literatures, where industrial cluster-
ing is observed, a key aspect of a location's attractiveness for a firm is per-
ceived to be its potential for enhancing the competitive advantage (Porter
1985) of the firm (Porter 1990, 1998a, b) from such externalities and
spillovers. Moreover, the implication of the line of thinking based on the
agglomeration arguments outlined earlier, is that clusters, once formed,
have a strong element of irreversibility, and firms therefore have much to
gain from locating in such agglomerations.
As is remarked in Chapter 2, Porter's thinking has recently pervaded all
areas of the international business literature, because it appears to provide
a way in which the 'L' component of the OLI paradigm can be discussed
in more geographical detail. Rather than simply defining it in terms of a
country, L can be now identified in terms of particular clustered locations
