Geography Reference
In-Depth Information
linked to the organizational and technological changes that fundamentally
affected the technical and spatial properties of production systems (Guy
2010). The degree of interrelatedness among the three types of structural
changes is even more evident when the activities of MNEs are taken into
account, as we will do in the next sections.
6.5.2
Organizational Changes and New Modes of Production
One of the major features of the emerging twenty-first century interna-
tional economic order is that of the increasingly important role played
by MNEs. The dominant mode of firm organization is steadily changing
from domestic firms to international firms to global firms. As we saw in
Chapter 1, these recent rapid increases in the weight of MNEs in the global
economy reflect long-term trends towards the increasing openness and
inter-connectivity of places, pointing to one of the major features of glo-
balization already highlighted: namely that the growing economic inter-
dependence between different locations is being increasingly mediated
by multinational enterprises. Indeed, during the 1980s and 1990s, both
the gross product of international production and also the gross sales of
foreign affiliates increased much faster than either global GDP or exports.
In the short-term, however, multinational growth trends are highly
susceptible to the business confidence conditions in the global economy.
Foreign direct investment peaked in 2000, while falling sharply in the
aftermath of the dot.com bust and 9/11. Global FDI inflows halved
(UNCTAD 2003) and FDI flows remained sluggish until 2003‒2004,
after which their growth once again resumed (UNCTAD 2005). Global
FDI grew by 24% in 2004 and by 29% in 2005 (UNCTAD 2006), reaching
over $1.306bn by 2006 (UNCTAD 2007). Meanwhile, during 2005‒2006,
global sales, exports and value-added of the foreign affiliates of MNEs
also grew by 18 per cent, 16 per cent and 12 per cent respectively, faster
than in previous years (UNCTAD 2007).
Part of the reason why FDI flows are so susceptible to short term busi-
ness confidence fluctuations is that they are increasingly dominated by
service industries and mergers and acquisitions (M&As), reflecting the
major changes in the Location (L) advantages pursued nowadays by
MNEs. Indeed, empirical studies have shown that access to core markets,
clustering, and the internalization of localized innovative capabilities
represent the prominent motives underlying M&As in Europe, while
institutional factors, such as the EU integration processes or language
obstacles, are less significant (Zademach and Rodríguez-Pose 2009). In
general, the literature on the spatial effects of M&As have indicated that
M&As have not only deeply transformed the organization of business, but
