Geography Reference
In-Depth Information
have also reshaped the locational patterns of corporate control and man-
agement, increasingly concentrated in large metropolitan areas (Taylor
2000; Duranton and Puga 2003; Rodríguez-Pose and Zademach 2006).
Although varying significantly across industries, agglomeration econo-
mies, metropolitan connectivity, urban concentration, and to a lesser
extent also geographical proximity, act all as the driving factors of the link
between M&As and industrial and spatial structures (Rodríguez-Pose and
Zademach 2006). In the words of Rodríguez-Pose and Zademach (2006,
p. 306): 'Corporate takeovers and mergers constitute a key expression of
the information-based and globalized economy of the late twentieth and
early twenty first centuries'.
Part of the reason for the increasing importance of M&As in FDI flows
lies in the relative growth of the service sector. During the last decade
of the twentieth century and the first decade of the twenty-first century,
the service sector has been the fastest growing component of the global
economy (World Bank 2007). M&As are the major mode of international
market entry for all forms of service sector FDI. By the end of the 1990s
service industries accounted for over 60 per cent of all international
mergers and acquisitions, with the EU alone accounting for 60 per cent
of all service sector international M&As (UNCTAD 2004). In 1970 serv-
ices accounted for one quarter of global inward FDI, by 1990 for almost
one half (UNCTAD 2004, 2007), whereas by 2005 services accounted
for almost two thirds of the total (UNCTAD 2007). At the same time,
manufacturing's share of global FDI inflows fell from 41 per cent in 1990
to approximately 30 per cent in 2005 (UNCTAD 2007), whilst the share
of primary industries is little more than 6 per cent (UNCTAD 2004). The
rapid rise in the importance of service sector FDI has also been accom-
panied by significant structural changes within the sector. In 1990, 65 per
cent of stocks and 59 per cent of flows of global service sector FDI was in
trade and finance, whereas by 2002 these shares had fallen to 47 per cent
and 35 per cent respectively (UNCTAD 2004), following the rapid growth
of foreign investment in infrastructure, power generations and telecom-
munications industries (UNCTAD 2007).
While, as we have noted, FDI is highly contingent on the levels of
international business confidence, most notable here is the fact that
the numbers of mergers and acquisitions are very sensitive indeed to
global business confidence.
6
Record numbers and values of M&As were
achieved in 2000, but fell sharply after the worldwide collapse of business
confidence in 2001 (UNCTAD 2003). The value of cross-border M&As
dramatically increased in the period 2004‒2007, at the end of which they
accounted for two-thirds of all FDI inflows (UNCTAD 2007). Over the
next few years, it is likely that the growth of FDI will be somewhat reduced
