Geography Reference
In-Depth Information
3.
Firm location behaviour in theory:
extensions to multiplant and
multinational firms
3.1 INTRODUCTION
As we saw in Chapter 2, issues of geography and location are only
included in traditional models of multinational investment and behaviour
at a very cursory level, with locations being defined primarily in terms
of countries in international economics, and via the inclusion of loca-
tion 'L' in Dunning's eclectic OLI paradigm. In both of these traditions
in general, the various specific local aspects of geography and location
which affect and are affected by the presence of MNE investment are
not explicitly discussed. However, whenever MNEs make investment
decisions, they need to consider exactly
where
such investments are to be
located, and the level of geographical specificity that MNE firms need to
consider for such purposes is always much more detailed than simply in
which country they should invest. The reason is that project investment
returns and firm profitability can vary enormously over even very short
distances within an individual national economy. As such, firms must
consider first where to invest in terms of which country to invest in, but
also at which particular location within that country should the invest-
ment be situated.
This argument implies that MNE investment decisions tend to exhibit
a
hierarchical
structure, depicted in Figure 3.1, in which the first level of
the location decision of MNE tends to be in terms of which country, A, B,
or C, to invest in. Once this has been decided, the second level choice of
location within the individual country must be made, denoted as
L
A1
,
L
A2
,
and so on. Both stages of the hierarchical location strategy are essential
in order for the MNE to choose the optimal location for each investment
project. However, traditionally, only the first level of decision-making
- namely the national or country level - has been the level of analysis
incorporated into the economics and international business literature, as
represented by the 'L' in the OLI paradigm. Until very recently, the lower
level of analysis - namely the sub-national geographical level - was mainly
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