The Geography of Multinational Firms

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Sign up. More Contact us Publish with us Subscribe. Print Save Cite Email Share. Show Less You do not have access to this content. This book analyses how foreign direct investors choose their locations, whilst exploring the forces which shape international economic geography. Two further aspects are that, first, advantage can only occur if there is some kind of interaction. There can be agglomeration centers that do not interact with each other and do not have any cluster-type properties.

Second, cluster location generates costs as well as benefits. This means that firms located in clusters will be those that believe that there is a lot of gain to be made and little to lose.

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Firms that feel otherwise will not locate in a cluster. That means that cluster dynamics are not simplistic and are strongly conditioned by market structure. Therefore, market structure has to be taken into consideration in any theory of clusters. Clusters are not all the same. Any one cluster is going to have varying characteristics but they can typically be defined as predominantly being either "pure agglomeration," "industrial complex," or "social network" clusters.

A pure agglomeration is one in which the market structure is fundamentally competitive; interfirm relations are fragmented and unstable; membership is open; access is simply rental payments, but location is necessary to reap the advantages; the notion of space is predominantly urban; and the dynamics are stochastic. One example is a competitive urban economy.

Multinational Corporations Advantages & Disavantages

An industrial complex structure is related to the idea of flagship firms where there are some large firms with stable trading arrangements; a closed membership system; internal investment and location are essential; the notion of space is local but not necessarily urban; and the dynamics are going to be planned and strategic. One example here is in manufacturing. A social network is based on the sociological perspective. Interfirm relations are based on trust, loyalty, and are non-opportunistic; membership is partially open; access is based on history and location is necessary but not sufficient; and the dynamics are going to be mixed.

Our view of knowledge is that knowledge has both public-good and private-good aspects.

Paper Information

The public-good aspect is the idea that outflows of knowledge are good because knowledge itself is a public good. The more outflows of knowledge occur in a particular area, the more attractive it is for knowledge-seeking firms to locate in that area. This aspect is going to dominate for competitive firms. The private-good aspects are going to dominate for oligopolistic industries, because the cost is very high.

Large multinationals are unlikely to benefit from either pure agglomeration or social network clusters, and there is likely to be adverse selection. The main message is that in order to understand the dynamics of multinationals and clusters, it is extremely important to understand these twin views of knowledge: knowledge as a private good for oligopolies and knowledge as a public good for competitive firms. Therefore, clusters and multinational foreign direct investment FDI do not necessarily go together.

The motivation of multinationals is to prevent outflows of knowledge. This has to be understood for good policy to be put together.

The Geography of Multinational Firms

The important message of the paper is that a cluster by itself does not necessarily bring advantages for a large firm. The cluster provides multinational firms with the traditional, industrial complex type of interactions, but not necessarily with knowledge-intensive interactions. Thus, the benefit of locating in a cluster should not be overestimated. The question then is how firms can move from the traditional cluster presence to the more active, knowledge-intensive innovation mode.

For this, in addition to the international business and economic geography paradigms, the strategic management paradigm may elaborate on the mechanism to leverage innovation within clusters. There are several points I would like to clarify.. First, once a firm is located in a cluster, what will be the next step for the firm to leverage its locational advantages? Second, to what extent can a firm enjoy the advantage of being inside a cluster through alliances, as compared with greenfield arrangement?

Also, can a firm without ownership advantages according to Dunning's framework enjoy the benefit of being inside a cluster as well? Last, what are the advantages for multinationals to bridging different clusters located throughout the world?

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  5. Q: Is there also a model where you incorporate intercompany service and goods flows to analyze business location decisions, in addition to the knowledge flows? A: By focusing on knowledge, we do not mean to say that goods flows do not occur. We are trying to say that location tends to be driven by value-creation. Multinational value-creation tends to be strongly correlated with knowledge. Goods flows occur, but that side of the business tends to be more on the commodities end. There is not a lot of value being created there and it is being driven more by cost considerations. Asakawa: Just to clarify, is it correct to assume that a multinational firm located in a traditional cluster cannot expect to extract benefits from the location in the same way as a small player?

    A: What we are pointing to is that location in the knowledge context for large multinationals is driven by cost-benefit calculations. The cost-benefit calculus is that by locating the core activity in a chaotic setting with no protection, there is a lot to lose and very little to gain. How does the leakage occur? A lot of the knowledge-transfer occurs through the labor market. Fundamentally, when a person changes jobs, she or he takes that knowledge to the other company.

    Firms do not want this knowledge mobility to happen in the core activity. In this way, employees remain within the complex and go to one of the firm's suppliers or buyers or an associated firm. Therefore, knowledge does not escape. For a small start-up, this is not an issue. With regard to cluster location, a forthcoming paper this year will look at biotechs.

    The Geography of Multinationals

    Pharmaceutical companies are very interested in biotechs because they are a source of cutting-edge innovation and growth that is lacking at large pharmaceutical companies. When biotechs discover something useful, pharmaceutical companies go and buy it. To date there exists little in the way of systematic evidence that foreign subsidiaries assimilate knowledge originating in the host countries in which they are located - much less that this knowledge is actually being utilized, either locally by the subsidiary or elsewhere within the multinational firm.

    This study seeks to advance this debate through an empirical investigation of the subsidiary-environment interface in the context of technological innovation. Three research questions are addressed: 1. Where, geographically, do foreign subsidiaries derive their scientific and technical ideas from during the process of technological innovation? To what extent and under what conditions do other parts of the multinational firm derive a learning benefit from a foreign subsidiary's capacity to assimilate knowledge in its local environment?

    The Geography of NGO Activism against Multinational Corporations - Paris School of Economics

    New insights often come from new data and the development of new methods to use those data. In this study, I take advantage of a unique source of subsidiary-level innovation data derived from U. Briefly, for every patent issued to U. Most importantly, this patent database contains detailed information on the reference "citations" to prior patents listed on every subsidiary patent record.

    These citations represent the technological antecedents of the patented invention. In the empirical analysis, I use the geographic information contained in these citations to draw inferences about the extent and conditions under which innovating subsidiaries are drawing upon home or host country sources of science and technology, and the extent to which this knowledge is eventually diffused to other parts of the multinational network. The patent citation methodology is modeled on the pioneering work of Jaffe, Tratjenberg and Henderson This study is explicitly inter-disciplinary in its theoretical orientation.

    The Geography of Multinational Firms The Geography of Multinational Firms
    The Geography of Multinational Firms The Geography of Multinational Firms
    The Geography of Multinational Firms The Geography of Multinational Firms
    The Geography of Multinational Firms The Geography of Multinational Firms
    The Geography of Multinational Firms The Geography of Multinational Firms
    The Geography of Multinational Firms The Geography of Multinational Firms
    The Geography of Multinational Firms The Geography of Multinational Firms
    The Geography of Multinational Firms The Geography of Multinational Firms
    The Geography of Multinational Firms

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