Geography Reference
In-Depth Information
location decision problem. As such, international geography and sub-
national geography are really different spatial dimensions of the same
investment decision.
In this chapter we begin to consider these questions in detail. Our frame-
work for analysing these issues will be built around three stages. The first
stage explains ways by which we can begin to understand the relationships
between firm location behaviour, factor costs, and firm profitability. We
will discuss these issues from the perspective of four types of firm location
models: the Weber production-location model and its related but more
sophisticated logistics- costs model, and also the market area location-
competition Hotelling and the Salop models. Under certain conditions,
the Weber model and the logistics-costs models will allow us to identify
the optimal location for a firm's investment project. In addition, this
approach will also help identify the conditions under which a firm will
also change the geographical location of its investments. Thus, in terms
of the Behrman-Dunning classification seen in Chapter 2, the Weber and
logistics-costs frameworks can be seen as broadly representative of the
resource or asset seeking approach to MNE location behaviour, and in
particular of those MNEs defined as general- asset seekers , whereby firms
take advantage of location-specific input factors.
The second stage of our analysis is that of the market area models, of
which the Hotelling and Salop models are the most important. These
analyses are broadly consistent with the market seeking type of MNE
location behaviour, in that they allow us to identify the ways in which
firms use location as a means of capturing market demand. Although
none of these models is specifically related to MNEs or MPDEs, taken
together, the Weber, logistics-costs, Hotelling and Salop models allow us
to understand location decision-making behaviour in terms of corporate
investment strategy.
The third stage of our analysis is to briefly reconsider the various
models in the light of the issues raised by the problematic interrelation-
ships between locational competition and price competition. This will
then provide the base for a more detailed examination of how uncer-
tainty and access to knowledge and information sources critically shape
firms location behaviour, often encouraging firms to cluster together
in space. Uncertainty and imperfect information issues will themselves
imply that firm locational decision-making will display particular char-
acteristics, which overlay and somewhat modify the insights gained
from the basic Weber, logistics-costs, Hotelling and Salop-type models,
allowing for a much richer understanding of the nature and spatial
configuration of modern multiplant (MPDE) and multinational (MNE)
firms. 1
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