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Purpose – This paper examines the role of location‐specific (L) advantages in the spatial distribution of multinational enterprise (MNE) R&D activity. The meaning of L advantages is revisited. In addition to L advantages that are industry‐specific, the paper emphasises that there is an important category of L advantages, referred to as collocation advantages. Design/methodology/approach – Using the OLI framework, this paper highlights that the innovation activities of MNEs are about interaction of these variables, and the essential process of internalising L advantages to enhance and create firm‐specific advantages. Findings – Collocation advantages derive from spatial proximity to specific unaffiliated firms, which may be suppliers, competitors, or customers. It is also argued that L advantages are not always public goods, because they may not be available to all firms at a similar or marginal cost. These costs are associated with access and internalisation of L advantages, and – especially in the case of R&D – are attendant with the complexities of embeddedness. Originality/value – The centralisation/decentralisation, spatial separation/collocation debates in R&D location have been mistakenly viewed as a paradox facing firms, instead of as a trade‐off that firms must make.
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Location and collocation
advantages in international
innovation
Rajneesh Narula
Henley Business School, University of Reading, Reading, UK, and
Grazia D. Santangelo
Facolta
`di Scienze Politiche, University of Catania, Catania, Italy
Abstract
Purpose This paper examines the role of location-specific (L) advantages in the spatial distribution
of multinational enterprise (MNE) R&D activity. The meaning of L advantages is revisited. In addition
to L advantages that are industry-specific, the paper emphasises that there is an important category of
L advantages, referred to as collocation advantages.
Design/methodology/approach – Using the OLI framework, this paper highlights that the
innovation activities of MNEs are about interaction of these variables, and the essential process of
internalising L advantages to enhance and create firm-specific advantages.
Findings Collocation advantages derive from spatial proximity to specific unaffiliated firms, which
may be suppliers, competitors, or customers. It is also argued that L advantages are not always public
goods, because they may not be available to all firms at a similar or marginal cost. These costs are
associated with access and internalisation of L advantages, and especially in the case of R&D are
attendant with the complexities of embeddedness.
Originality/value – The centralisation/decentralisation, spatial separation/collocation debates in
R&D location have been mistakenly viewed as a paradox facing firms, instead of as a trade-off that
firms must make.
Keywords Foreign direct investment, Multinational enterprises, Eclectic paradigm, Collocation,
Country-specific advantages, Innovation, International business
Paper type Research paper
Introduction
Understanding the reasons why economic activity prefers to locate in certain physical
spaces (and not in others) has formed the basis of much enquiry since at least the
Enlightenment, and continues to do so. Although the jargon in such enquiry has
evolved through the centuries, concern with national competitiveness has driven much
of this effort, and connected to competitiveness, the propensity to trade, and the
ensuing issues of balance of payments and national debt. Nonetheless, the location and
agglomeration of economic activity – until about 50 years ago – worked on the
assumption that both capital and labour were location-bound, because firms and
individuals showed little propensity to mobility. Thus, competitiveness was primarily
shaped by the attributes of the location, and as locations evolved in the nature of their
inherent strengths and weaknesses, the kind of economic activity based there also
fluctuated. This had obvious ramifications for the nature and extent of trade, and the
conditions that permitted one region or country to be more successful than others.
The evolution of the modern MNE[1] changed this with the growing level and
intensity of foreign direct investment (FDI), intra-firm trade, and complex sets of
The current issue and full text archive of this journal is available at
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Multinational Business Review
Vol. 20 No. 1, 2012
pp. 6-25
qEmerald Group Publishing Limited
1525-383X
DOI 10.1108/15253831211217161
linkages amongst and between spatially dispersed economic actors. Mostly, this has
gradually decoupled but only to an extent the severely linear relationship between
the competitiveness of firms in a given location with the competitiveness of the location
itself. That is to say, where capital and firms were physically static, the
competitiveness of countries explained the competitiveness of firms located there,
but rarely ever vice versa (Vernon, 1966). The firm, as understood in this context, was
“generic”, in that it was neither multinational, nor multi-plant, and was by itself
organisationally and geographically a singularity, no different from other firms
(Beugelsdijk et al., 2010).
However, the MNE has become a complex organism, with an ability to spatially
reorganise its activities (and across borders) – and with growing ease – to take
advantage of differences in the quality, availability, and price of location-bound assets,
both within countries and across countries, and these multiple engagements are
dynamic in the sense that they are continuously evolving (Dunning, 1977, 1980). The
more complex the MNE is spatially and organisationally, the greater is the need to
interpret its inter-dependence with multiple locations and multiple contexts, each with
differing degrees of embeddedness (Meyer et al., 2011). In short, locational
characteristics (location (L) advantages) and the operations of the MNE (ownership
(O) advantages) are concatenated, implying that they are inextricably linked together,
yet are not the same object. The MNE has the potential to shape the characteristics of
the location, as much as it is shaped by its milieu (Cantwell, 1995).
This multi-level complexity means that the study of location is no mere academic
exploration to explain the success and failure of nations and its industries with the
hindsight afforded to us by history, for its own sake. Firms must make locational
choices, and “wrong” choices can be costly because they also imply other opportunities
forgone. Firms are resource-constrained and have cognitive boundaries that shape
what they can and cannot do, and this makes location decisions strategic in nature, and
insinuates a micro-aspect to the study and understanding of location. Similarly,
governments are able to shape their policies to determine their locational
attractiveness, as firms and individuals have a growing degree of flexibility in
selecting where (and where not) to locate, and perhaps more importantly, what aspects
of their value-adding activities to concentrate in which particular locations. This brings
out the macro-level significance of the study of location.
Engaging in high value adding activities implies higher competence levels (or in
other words, greater O advantages) of MNE subsidiaries, which require L advantages
that are non-generic in nature and are often associated with agglomeration effects,
clusters, and the presence of highly specialized skills (Lall and Pietrobelli, 2002). Firms
are constrained in their choice of location for high competence subsidiaries by the L
advantages of the host location. For instance, R&D activities tend to be concentrated in
few locations, because the appropriate specialized resources are associated with only
few locations. The embeddedness of firms is often a function of the duration of the
MNEs’ presence, since firms tend to build incrementally (Ha
˚kanson and Nobel, 2001;
Rabbiosi and Santangelo, 2011). MNEs most often rely on L advantages that already
exist in the host economy, and deepening of embeddedness occurs generally in
response to improvements of the domestic technological capacity. However, while the
scope of activities undertaken by a subsidiary can be modified more or less instantly,
developing competence levels takes time (Cantwell and Mudambi, 2005; Nobel and
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Birkinshaw, 1998). MNE investments in high value-added activities (often associated
with high competence levels) have the tendency to be “sticky”. Firms demonstrate
greater inertia when it comes to relocating R&D activities. This reflects the high costs
and considerable time required to develop linkages with the host country actors and
institutions (Narula, 2002).
The complex interdependence between O and L advantages presents the MNE with
a number of trade-offs when taking strategic decisions regarding the location of R&D.
Firstly, MNEs need to decide whether to centralize or decentralize. Secondly, MNEs
need to decide whether to spatially separate from or collocate with their rivals. Neither
of these trade-offs are either/or decisions, nor are they diametrically opposed to each
other. However, as is often the case in the nature of trade-offs, the choice is shaped by
constraints most often associated with cognitive limits to resources, the bounded
rationality of firms, and the uncertainty inherent in innovation.
This paper addresses this topic in five sections. The next section discusses L and O
advantages, providing a classification of and some novel insights into the interaction
between the two. Section three focuses on innovation and location and explains the
relevance of the concept of and relationships between L and O advantages for R&D
activity. The last two sections are concerned with the trade-off between centralization
and decentralization, and spatial separation and collocation of R&D activity,
respectively.
Location and ownership advantages an updated set of definitions
The essence of locational behaviour of MNEs (as well as other economic actors) reflects
the interaction between O and L advantages (Cantwell, 1995; Dunning, 2008).
Ownership advantages are firm-specific in nature, and the competitiveness of firms
is associated with the strength (or weakness) of their O advantages. In this instance, “O
advantages” refers to firm-specific assets that are essential in the generation of
economic rent and/or market share retention/creation (Narula, 2010). There are two
primary types of O advantages (Dunning and Lundan, 2008). The first type are
associated with assets, in the sense of the ownership of physical equipment, intellectual
property, or privileged access to tangible and intangible resources (which also include
knowledge possessed by employees). Such assets include knowledge of how and where
resources may be accessed in any give location, the costs of acquiring such assets in
one location relative to alternative locations, the knowledge to organise multi-location
operations, etc. These are asset-type O advantages (Oa). A second class of O
advantages are transaction-type O advantages (Ot). These derive from the knowledge
to create efficient internal hierarchies (or internal markets) within the boundaries of the
firm, and the ability to efficiently utilise external markets. Ot assets form a necessary
and (sometimes) sufficient basis for a firm to remain competitive (Narula, 2003). Ot
advantages also include the knowledge of institutions, because familiarity of
institutions plays an important part in reducing the coordination costs, shirking costs,
and other transaction costs (Narula, 2010; Santangelo and Meyer, 2011). However, they
are rarely in themselves a source of rent generation.
It is important to distinguish between the O advantages of the MNE at large, and
those associated with individual establishments or subsidiaries (Rugman and Verbeke,
2001). Much of the early literature on O advantages took a macro perspective, and
given the nature of the typical MNE and its centralised management structure, at that
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time it was a reasonable assumption that the O advantages of the MNE were in
principle available to and accessible by all subsidiaries. This, however, is increasingly
hard to justify. The O advantages of the parent are not necessarily available to all its
subsidiaries, and to each individual operating unit, and vice versa.
L advantages are about the characteristics of specific locations, and are location
bound. Although it is increasingly popular to use country-specific assets as a synonym
for L advantages (Rugman and Verbeke, 1992), the term “L advantages” allows us to
clearly distinguish between the various units of analysis, such as the country, national
sub-regional, or supra-national regions[2]. It is well known that even within countries,
regions compete for FDI by offering more attractive institutional frameworks
(Hogenbirk, 2002; Meyer and Nguyen, 2005; Narula and Dunning, 2010; Santangelo,
2000, 2002). Supra-national regions also exist such as the European Union (EU)
that provide an additional layer of policies, regulations, and laws. An MNE may
engage with all three levels of L advantage. For instance, consider an MNE with a
production site in Maastricht, The Netherlands. The MNE will need to consider the L
advantages of The Netherlands at large, the Limburg province, and the EU,
respectively, in addition to the special status of Maastricht as part of the Meuse-Rhine
Euregio, which addresses aspects peculiar to the contiguous multi-country border
region of Germany, Belgium, and The Netherlands.
L advantages are a set of characteristics associated with a location, and are in
principle accessible and applicable to all firms equally that are physically or legally
established in that location. The qualifier “in principle” is used here for three reasons.
First, full information about L advantages associated with a specific location may not
be readily available. Second, even where information is available, there may be costs
associated with accessing this knowledge. This knowledge may be available to
incumbents (whether domestic or foreign), by virtue of their existing activities on that
location, and acquired through experience. Third, these L advantages may be made
available differentially by the actions of governments that seek to restrict (or
encourage) the activities of a particular group of actors by introducing barriers to their
use of certain L advantages. These may be for commercial reasons, or for strategic
reasons such as national defence, or reflect the influence of interest groups who are able
to influence government policy. These represent a subset of the “liability of
foreignness”, when L advantages are available to local and foreign firms at differential
costs (Zaheer, 1995).
Note that when location-bound assets are in the private domain (i.e. they are
internalised by others), they are no longer L advantages but constitute O advantages,
since they assist rent generation/market share retention by specific actors to the
exclusion of other economic actors. Location advantages can be said to be “public”
because they are not private goods, but not always in the sense of being “public goods”
because they may not always be used without (some) detriment to their value to
subsequent users. This aspect of L advantages will be discussed at length later.
A classification of L and O advantages
L advantages come in all shapes and sizes, and it is hard to make general statements
and lists of all possible L advantages. This is because the L advantages relevant to a
particular circumstance vary by a variety of MNE and affiliate-specific factors, such as
the motive of the investment; the spatial, logistical, and strategic relationships with
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other operations, both within the same MNE and outside the MNEs with other
independent firms. It is important to understand that L advantages are about relevant
complementary assets outside the boundaries of the MNE (or other firm actors) that are
location bound. This is discussed later, when the concept of collocation L advantages is
introduced.
Figure 1 classifies L advantages into three broad categories at the country,
industry, and firm level. For each of these categories, specific types of L advantages
and related sources are identified and examples are provided. As discussed below,
these categories have a certain degree of overlap.
Country-level L advantages. Country-level L advantages are “contextual” in nature,
in the sense that they provide the broad background of a location. They reflect the
socio-economic and political environment that is relevant to any location. They remain
macro and “generic” because they are public or quasi-public goods, and are relevant to
Figure 1.
A classification of L
advantages)
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all firms regardless of size, nationality, industry, or geographical unit of analysis. Some
are exogenous, in the sense that they are independent of economic stage of
development, and are the natural assets of the location, such as population, climate,
accessibility, etc. Others are created assets but remain generic in the sense that they are
expected to exist in all nation states, although there are countries where the
government is unable to provide these basic infrastructure, legal and financial
infrastructure, and regulation and policy frameworks. The last category represents
knowledge infrastructure L advantages. “Knowledge infrastructure” as used here is
“generic, multi-user and indivisible” and consists of public research institutes,
universities, organisations for standards, intellectual property protection, etc. that
enables and promotes science and technology development (Smith, 1997). For obvious
reasons, this can also be categorised as an industry-level L advantage, since such
assets may be specifically geared to a particular set of industries.
Industry-associated L advantages. In making an investment decision, MNEs seek
specific, industry- and market-related complementary assets, referred to here as
industry-associated L advantages. It is not enough, for instance, for an IT firm that is
seeking to establish software design facilities that there is a large supply of low-wage
university graduates, but that there is a large supply of IT graduates. Neither demand
conditions nor market structure can be analysed using country-level L advantages. For
a market-seeking investor, income distribution and the size of the specific market
cannot be gauged from generic L advantages, such as population. A luxury watch
manufacturer will be interested in knowing the market for other luxury goods, and
opportunities for distributing its goods through channels specific to luxury goods, and
the competition within that specific sector. Industry policy may also be seen to be
industry specific, by definition. A location that is home to a cluster of firms in a similar
industry is likely to have access to a number of suppliers in support and related
sectors. Governments may also provide specific incentives and policies to promote a
specific sector, which may make a location more attractive for a specific industry, and
not for others.
This paper defines an important sub-category of L advantages: collocation L
advantages. Where important competitors in the same industry are collocated, there is
an opportunity to get appropriately skilled and experienced potential workers, and the
possibility of knowledge spillovers through mobile employees. In short, these are L
advantages that derive from the presence of other actors in the same industry that are
collocated. These include the essence of other collocated firm’s O advantages, which
contribute to the competitiveness of the location.
Firm-associated L advantages. Although O advantages per se do not generate L
advantages, the presence or absence of specific firms in a milieu can act as important
inducements to collocate. The physical location of a lead firm within a global
production network acts as a powerful L advantage to its key suppliers. Others may
seek specific L advantages to improve knowledge spillovers by being proximate to a
market or industry leader. In this sense, L advantages overlap with O advantages, and
differ from industry-associated L advantages.
Informal institutions deserve special mention as an L advantage. Informal
institutions (which may or may not be linked to current formal institutions) are
routines, habits, and procedures that are in common use and that shape the manner in
which economic actors in a given location interact in practice. Formal institutions may
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prescribe one set of actions, but economic actors may utilise other institutions that are
de facto, and not de jure. Knowledge of such institutions is also, in principle, available
to all firms that seek to acquire this, but because informal institutions are largely tacit,
physical proximity is crucial in their acquisition. In other words, they require some
degree of embeddedness to acquire. Embeddedness in a location provides membership
to a “club” of complex relationships with suppliers, customers, and knowledge
infrastructure through formal and informal institutions that have taken years to evolve
a stock of knowledge that is only available to members by virtue of their constant
interaction (Forsgren et al., 2005). These are “goods” associated with these networks
that are only available to those that are collocated, because they have evolved under
the same informal institutions. Thus, they are quasi-public goods, in which firms
located there have invested to acquire knowledge of these institutions (Narula amd
Santangelo, 2009). Knowledge of institutions can indeed represent O advantages, but
only where markets are closed. This is why some authors (e.g. Dunning and Lundan,
2008) have classified them as O advantages, while others regard them to be L
advantages (Narula, 2010).
It is worth highlighting the difference between location-bound O advantages and
those that are non-location-bound (Rugman and Verbeke, 2001). Location-bound O
advantages allow the firm to be able to generate profits from these assets, but only in
a specific location. This may be due to government-induced incentives, such as
privileged access to specific natural resources, capital, or specific infrastructure. In
other cases, market entry may be restricted, providing the firm with a monopoly or a
pseudo-monopoly, and consequent opportunities to generate rent (e.g. telecoms
licenses, petroleum drilling rights). Location-bound O advantages may also derive
from specific (non-government) L advantages that the firm is able to access only in
the given location, the use of which requires physical presence in that specific
location. Many MNEs are amongst the largest in their home markets, and are
themselves part of large industrial groups (sometimes with cross-holdings and
common ownership) with interests in several industries. They may derive
location-bound O advantages from privileged access to intra-group transactions
and intermediate goods within the same family of firms, but these advantages are not
necessarily available when they move abroad (Narula and Nguyen, 2011). These
advantages may also derive from knowledge of institutions, and from being an
“insider”. By virtue of their size and importance in the home economy, MNEs may
have close relationships with state-owned organisations, ministries, and policy
makers. They are thus able to influence domestic policy, as they adapt the associated
knowledge infrastructure to their own needs. In many cases, these have evolved
around and with the MNE’s own domestic activities, often over a long period of time.
Such linkages confer the basis to generate economic rent for incumbents, and are a
cost to new entrants or those less entrenched in the domestic milieu (Cantwell and
Mudambi, 2011). These advantages are not transferable to foreign markets, and
establishing “membership” in business and innovation networks in new locations is
not costless (Narula, 2002).
Non-location-bound O advantages derive from skills, technology, or other
knowledge that the firm possesses to the exclusion of other economic actors
operating in the same location. Such O advantages also tend to be a function of the
home country. Firms typically build their original resource endowments in their home
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country, and this original resource endowment drives their international growth
(Narula and Nguyen, 2011; Tan and Meyer, 2010).
Interaction between L and O advantages
There are circumstances where the differentiation between O and L advantages can be
challenging, partly because of the interaction and concatenation of O and L
advantages. Initial O advantages of any MNE derive from the L advantages of the
home country, and as the work pioneered by Rugman and Verbeke (2003) has shown,
many MNEs continue to show a strong bias towards their home regions. For firms that
are beginning to internationalise, the dependence on the home country is especially
strong (Narula, 1996; Narula and Nguyen, 2011). However, there is a certain degree of
obfuscation that derives from taking an MNE-level perspective on L and O advantages,
which requires the aggregation of individual operations. The O advantages of MNEs
once they become embedded in new locations abroad are influenced by multiple sets
of L advantages, and create the challenge of multiple embeddedness (Meyer et al.,
2011).
The MNE in any given location has to interact frequently with other actors in each
host country, and additionally when it has multiple establishments, with multiple
locations within the host country. Each interaction has the potential to change the
knowledge base of all the participants, and by extension, the O advantages of the
various participants. Where the domestic actors are locationally bound, this implies
changes in the L advantages of the host country as well. Such interactions vary in
intensity, depending upon a variety of factors. In general, the greater the scope and
competence of an MNE subsidiary in a given location, the greater the degree of
embeddedness in the host location, and the greater the interaction with other actors in
that location (Holm and Pedersen, 2000). This implies managing a portfolio of
subsidiary-level activities in multiple, heterogeneous, local contexts and plays an
important role in defining its O advantages (Figueiredo, 2011). Figure 2 illustrates the
complexities of this concept.
In particular, the O advantages of any given subsidiary (subsidiary A in Figure 2)
are shaped by:
.The parent firm. Since the O advantages of the parent firm are a function of the
home-country L advantages, by extension, the O advantages of subsidiary A are
also greatly influenced by these L advantages.
.The extent to which the parent and the particular subsidiary are integrated. At
the one extreme, a free-standing MNE may function as a completely autonomous
set of subsidiaries with little or no intra-MNE interaction, and the O advantages
of the subsidiary and the parent are independent sets. At the other extreme, the
MNE may be completely integrated such that the O advantages of subsidiary A
are a complete subset of the parent MNE.
.The extent to which subsidiary A is embedded in the host country. This reflects
a variety of factors. The quality of the linkages are associated with the scope and
competence level of the subsidiary (Santangelo, 2009), and these in turn are
co-determined by a variety of factors (for an extensive discussion, see Narula and
Bellak, 2009). These include MNE internal factors, such as their
internationalization strategy, the role of the location in their global portfolio of
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subsidiaries, and the motivation of the investment, in addition to the available
location-specific resources that can be used for that purpose (Benito et al., 2003).
.The relative strength of the association with other subsidiaries. Specific
subsidiaries may function within a regional structure, along functional lines, or
within a specific integrated product or supply chain. In such instances, the
relationship with subsidiary B may be much more intensive than within the
parent firm. As such, the O advantages of subsidiary A may be influenced to a
greater extent by the O advantages of subsidiary B, and the L advantages
associated with location B.
The subsidiary has to balance the forces that require local responsiveness to its host
milieu with those that emanate from the parent MNE that may require the subsidiaries’
integration within the MNE’s overall structure. Given that many larger MNEs are a
complex aggregation of a large number constituent subsidiaries, such multiple
embeddedness generates trade-offs between external and internal embeddedness, since
each subsidiary must reconcile the interests of its parent with those of its local business
interests.
This implies from the perspective of the interaction of the more global MNE
that its portfolio of O advantages are a complex blend of those derived from multiple
contexts (Meyer et al., 2011), and therefore a complex set of L advantages of different
locations. In each location, the MNE absorbs and adapts its O advantages in response
to the L advantages available, and through linkages with collocated firms adapts as
well to the O advantages of these unaffiliated firms. Note that by joining an
Figure 2.
Multinational enterprises
and local context
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agglomeration, the MNE itself become part of an agglomeration, and therefore
enhances the L advantages of the host location for other firms.
Innovation and location
The literature on motivation of R&D activities is reasonably well developed, and
therefore this paper focuses instead on the broad dichotomy of asset-augmenting and
asset-exploiting R&D motivations (Dunning and Narula, 1995; Kuemmerle, 1999), and
its relationship with motivation of more general FDI activities of MNEs (Dunning,
1993). It is important in this context to note that in certain industries and sectors, R&D
performs a subordinate and supportive role to “mainstream” activities, such as
production and sales, while in others, R&D is a primary input to these activities
(Figure 3a and b). For instance, in sectors such as software and pharmaceuticals, R&D
is a primary input to the firm’s primary function, while in sectors such as paper
products, R&D is supportive. In addition, increasingly firms are engaged in
rationalising their activities globally, so as to maximise the link with specific
value-adding activities and locations that have specific competitive and comparative
advantages. This has led to a tendency amongst MNEs to “break-up” their value
chains and locate specific aspects in particular locations for purposes of maximum
efficiency (Mudambi, 2008). As such, few locations host all parts of the value chain of
one product for any given MNE, leading to an agglomeration of specific types of
activities in particular locations. Prior to economic liberalisation, MNEs responded to
investment opportunities primarily by establishing truncated miniature replicas of
their facilities at home, although the extent to which they were truncated varied
considerably between countries (Papanastassiou and Pearce, 1999). The extent of
truncation was determined by a number of factors, but by far the most important
determinant of truncation and thereby the scope of activities and competence level of
the subsidiary – were associated with market size, and capacity and capability of
domestic industry (Dunning and Narula, 2004).
Figure 3.
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MNEs may seek to engage in R&D in response to specific L advantages because R&D
is more demand oriented. This may reflect, for instance, large markets, or scarce
natural resources that are location-bound. These promote the outward spread of
production, sales, and other value adding activities where MNEs attempt to exploit
their existing assets and competences in conjunction with these L advantages. In such
cases, innovation is undertaken in order to adapt existing products and services to
local stimuli. Such R&D facilities tend to be relatively low knowledge-intensive, and
remain somewhat footloose. These types of R&D facilities are more integrated with the
parent firm, and are focused on responding to market needs. They are relatively less
dependent on the knowledge asset L advantages of the host country (Figure 1). Such
asset-exploiting activities are subordinate to the MNE’s market-seeking FDI activities,
in that R&D follows (perhaps reluctantly) the location of other aspects in the value
chain. In such instances, the MNE’s R&D activities are primarily determined by the
same L advantages that shape their other activities, although not at the same intensity
or timing.
An important set of L advantages for R&D activity are associated with the
interaction between the knowledge infrastructure-related L advantages of locations,
and the L advantages that derive from the O advantages of firms already based in
these locations (e.g. collocation L advantages). These in turn are strongly associated
with L advantages that derive from knowledge of institutions. Note that the
institutions themselves are L advantages, while the knowledge of these institutions is
an O advantage. These particular L advantages play a pre-eminent role in shaping the
location of innovation in three sets of circumstances:
(1) where MNE R&D is asset-augmenting in motivation and essentially represents
supply-driven R&D;
(2) in market-seeking MNE activity where R&D is central (rather than subordinate)
to the primary value adding activities of firms; and
(3) where the MNE’s activity are tightly linked and interdependent with other
collocated firms’ activities, as in the case with supply chains, production
networks, and keiretsu.
All three share another common feature: the importance of the role of institutions, and
the knowledge of these institutions.
The systems of innovation literature can be useful to understand this dynamic
(Lundvall, 1992). In particular, this stream of research builds on the principle that
innovation is a collective process that involves firms as well as other actors, such as
policy makers, universities, public research centres, investment banks, etc.[3]. These
actors are bound together through rules, routines, habits, and procedures, which may
be formally or informally defined, that shape the nature and extent of interaction
between the various parties. This ties into the idea propagated by Marshall (1920)
about successful agglomerations – something that is “in the air”, a stock of knowledge
that is only available to members with a particular location-specific absorptive
capacity by virtue of their constant interaction.
Whatever the geographical unit of analysis, a systems view builds around the
important principle that knowledge diffusion between actors in geographical
proximity foster innovation. Where knowledge is being exchanged, and this
knowledge has a strong tacit nature, “physical” or geographical proximity eases
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knowledge transmission (e.g. Blanc and Sierra, 1999). Knowledge spillovers tend
indeed to be more intense between parties that are located close to each other in space
(e.g. Jaffe and Trajtenberg, 1996, 1998; Jaffe et al., 1993; Maurseth and Verspagen,
2002). Thus, MNEs are typically located in a particular location because of such L
advantages, which often include quasi-public goods provided through universities and
public research institutes (Asheim and Gertler, 2006). The point here is that proximity,
linkages, and institutions are inextricably tied together, and that especially where
innovation (which has a tacit aspect) is concerned, firms share an inertia in seeking
alternative locations.
MNEs and the trade-off between centralization and decentralization
The innovation activities of MNEs follow the same general logic as other value adding
activities, in that they require access to specific L advantages. However, the nature of
innovation and its strategic significance to the long-term well-being of the MNE means
that MNEs have been more reluctant to internationalise R&D than other aspects of the
value chain (Narula and Zanfei, 2004). Nonetheless, there is compelling evidence that
this is changing as well, albeit much more cautiously, and with a time lag relative to
other aspects of the value chain.
The issue of location in the innovatory activities of MNEs is a complex one. At the
most elementary level, MNEs face the dual and (sometimes) opposing challenges of
centralization and decentralization (Sanna-Randaccio and Veugelers, 2007), although
the contradictions between the two are not necessarily always as stark – firms seek to
do both simultaneously, depending upon the motivation of the R&D, and the centrality
of R&D to the primary value adding activities of the MNE. The willingness or
reluctance to internationalise is due to a number of factors. First, the strategic
importance of R&D means that firms may wish to exert as much control over the
process, by keeping R&D close to headquarters, as can assure an optimal level of
monitoring and control over its activities. Second, there is a minimum efficient scale
associated with R&D activities. Given the relatively high costs of R&D, MNEs prefer to
maintain a single (or a few) R&D facilities to reduce costs. Size matters in R&D: smaller
firms are constrained by their limited resources. The expansion of R&D activities both
at home and in overseas locations requires considerable resources both in terms of
capital investment and managerial resources, which smaller firms simply do not have.
Ceteris paribus, large firms have more money and resources to use on overseas activity.
Third, a dispersion of R&D activities across the globe also requires extensive
coordination between them and particularly with headquarters if they are to
function in an efficient manner with regards to the collection and dissemination of
information. Internal proximity between R&D and the rest of the MNE is an important
issue (Blanc and Sierra, 1999). Spatially distributed R&D requires the establishment
and management of networks internal to the firm, in addition to those between external
networks and internal networks, and require complex coordination if they are to
provide optimal benefits (Narula and Zanfei, 2004). Such networks are not only difficult
to manage, but also require considerable resources (both managerial and financial).
Managing spatially dispersed R&D even within the same organisation
is suboptimal, due to knowledge internal stickiness (Szulanski, 1996). Thus, firms’
default option is to maintain R&D in as few locations as possible, and to maintain
strategic control by concentrating it close to headquarters.
Location and
collocation
advantages
17
Fourth, there are industry-specific reasons that may encourage or discourage
centralization. The maturity of the core technology and its characteristics determines
the extent to which the innovation process can be internalised (Narula, 2003; Teece,
1986) and geographically dispersed (Cantwell and Santangelo, 1999, 2000). Most
mature technologies evolve slowly and demonstrate minor but consistent innovations
over time. The technology is to a great extent codifiable, widely disseminated, and the
property rights well defined. Intra-industry competition emphasises price and,
therefore, economies of scale. In the extreme – as in many resource-extractive
industries downstream activities add most value, with the natural resource being
priced as a commodity. These sectors do not require outputs to be tailored to customers
to the same extent, or as quickly. This means that constant and close interaction
between customers is not an important determinant of R&D. Profits of firms are highly
dependent on the costs of inputs, and proximity to the source of these inputs is often
more significant than that of customers. On the other extreme, rapidity of technological
change in “newer” technologies requires a closer interaction between production and
R&D. Technology has a higher tacit, uncodifiable element, and this requires a closer
coordination between users and producers of innovation.
In addition, though, supply-side considerations are especially important in
asset-augmenting innovation. To engage in more intensive activities, such as research
(as opposed to development), complementary assets are necessary. These assets can be
best described as non-generic, knowledge-intensive L advantages, which the firm
cannot (or as cheaply) have access to in its home base (or other locations). Thus, MNEs
need to access “unique” or scarce L advantages related to knowledge infrastructure
and specialized sources of knowledge that may be either firm specific and location
bound, or location specific and available to all. In the case of asset-augmenting activity,
MNEs may situate (or seek to establish) themselves in particular locations to (and in
some cases only to) undertake innovation because of specific location-bound assets
provided through the innovation system. Such innovation activities are more of the
nature of stand-alone R&D facilities, which are considerably knowledge intensive, and
imply a considerably greater dependence on domestic knowledge sources and
infrastructure.
MNEs and the trade-off between spatial separation and collocation
Most theoretical perspectives (such as the innovation systems literature) provide
arguments in favour of firms locating in close spatial proximity, particularly for R&D.
However, recent research has provided a number of arguments challenging this view.
First, while all firms in principle seek to have positive inflows of knowledge, few
firms wish to be the source of (unintended) knowledge outflows (Alca
´cer, 2006;
Santangelo, 2011). Although in the case of R&D (compared to sales or manufacturing)
there is a greater active interest in seeking spillovers, this tendency reflects the
capabilities of the firm. R&D tends to be more concentrated relative to manufacturing
and sales, but more-capable firms collocate less than less-capable firms, regardless of
the activity. In other words, firms may seek to avoid collocation of R&D to minimise
leakages of value assets. Even where spillovers are the objective, being co-located is
not always necessary. Of course, this varies considerably by industry, particularly in
sectors where the tacit aspect is considerable. Tacit knowledge is much more difficult
to exchange or trade, and as a result, tends to be sticky and geographically less mobile.
MBR
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18
In industries where the tacit aspect is considerable, ceteris paribus, the propensity to
geographically concentrate is higher (Iammarino and McCann, 2006) than in sectors
where the knowledge being exchanged is codifiable. This is especially so in
oligopolistic industries (as opposed to industries with a competitive market structure)
where loss to rivals is perceived as costly, and the private good aspect of knowledge is
more important than the public good aspect (Iammarino and McCann, 2006; McCann
and Mudambi, 2005). Empirical evidence has shown that the involvement of firms in
clusters is extremely sensitive to the nature of the industry structure in which the firm
operates (Cantwell and Kosmopoulou, 2002). That is, firms operating in the same
R&D-intensive, oligopolistic industry tend to spatially separate their core innovative
activity (Cantwell and Santangelo, 2002). Unintended knowledge outflows from a firm
can be quite valuable to its direct competitors and can, therefore, be important in not
locating close to rivals (Cantwell and Santangelo, 2002), or it may result in an adverse
selection of collocated firms (Shaver and Flyer, 2000). Thus, for oligopolistic industries,
although the choice of R&D location is important in determining the capabilities of
firms and their access to “members only” public goods, collocating with rivals is not
always the preferred option. Technically advanced firms prefer being proximate to
universities and are disinterested in locating close to other firms in the same industry,
whereas less competitive firms prefer to locate close to rivals (Alca
´cer and Chung,
2007).
Second, firms do not always collocate because they wish to benefit from knowledge
transfers (intended or unintended), but simply to have access to the same
location-specific assets (such as skilled labour), which may be achieved by staying
broadly in the same regional vicinity (Cantwell and Iammarino, 2003). When, however,
the local system provides a combination of factors that contributes to innovation (such
as skills, finance, production, user-producer linkages), the fear of knowledge spillovers
to competitors may be counterbalanced by location-bound (i.e. associated with
firm-specific advantages) or location-specific factors, and intra-industry spatial
concentration then takes place. Firms whether they are technological leaders or
followers – often have little choice in their location, and may in fact be collocated in a
cluster by virtue of their history, or because of the presence of an important university
or public research establishment. In particular, firms often locate their R&D to take
advantage of a specific scientific specialization of a university or public research
establishment. The number of specialized universities and institutes in a given
scientific field are finite, so even where a technological leader would prefer to avoid
spatial proximity with its less-able rivals, it cannot prevent these firms from
collocating in order to establish embedded relationships with these institutions. Thus,
once competitors collocate, the decision to embed locally in order to access local
complementary knowledge depends on entry motivations and firms capabilities, since
such a decision may bring about risks of unintended knowledge spillovers (Perri et al.,
2011; Santangelo, 2011). In particular, when domestic actors are valuable in terms of
knowledge, rivals entering the market with a competence-creating motivation (as
opposed to a non-competence-creating motivation) embed in the host economy, as their
expected payoffs of embeddedness exceed those of isolation (Santangelo, 2011).
Moreover, empirical evidence documents that highly capable firms invest more on the
relationships with local partners under conditions of low competition, but they also
reduce their commitment more to such relationships when the perceived pressure from
Location and
collocation
advantages
19
the competitive environment exceeds a certain threshold as a result of potential loss
from outward spillovers (Perri et al., 2011).
Third, few technological leaders have superior capabilities in all sub-sectors, and
may require complementary resources from their rivals. Alliances allow firms to
effectively engage in knowledge exchange without the hazard of unintended
knowledge spillovers (Narula and Santangelo, 2009). Firms are unable to properly
protect their technological assets that they intentionally or unintentionally share with
their neighbours, even though formal property rights have been obtained. This is
particularly the case when they are geographically close since, while the marginal cost
of transmitting codified knowledge across geographic space does not depend on
distance, the marginal cost of transmitting tacit knowledge increases with distance
(Criscuolo and Verspagen, 2008). The co-location of innovation activities therefore
implies a potential threat to the competitive advantage of co-located rivals. This
argument applies especially to alliances between firms operating in the same industry
and core technological fields. In such cases, the higher the degree of competition, the
greater the need for closely monitoring knowledge transmission, since co-located rival
firms with technologically similar profiles compete both in the output market and the
technological realm (Narula and Santangelo, 2009). Therefore, in these cases
partnerships enable firms to directly monitor their co-located market and
technological rivals as well as to access possible complementary capabilities.
Implications and avenues for future research
This paper examines certain current issues in the role of location advantages in the
spatial distribution of MNE R&D activity. In doing so, it has returned to first principles
by revisiting the understanding of L and O advantages and their interaction. This
interaction lies at the heart of innovation studies, economic geography, and the
economics of innovation (which takes a policy view of the competitiveness of
locations), as well as innovation and strategic management (which take a firm-level
perspective on the competitiveness of firms).
Returning to key insights from these related disciplines, the meanings of L and O
advantages is revisited, as opposed to their definitions. This has required a return to
the oft-cited (but underutilised) differentiation between country-, industry-, and
firm-level issues, and a succinct differentiation of L advantages is proffered. Taking a
systems view allows for emphasis on the importance of institutions and enables the
concept of collocation L advantages to be fleshed out, which play an important role at
the industry and firm levels of analysis. Just because a country possesses certain L
advantages when viewed at a macro-level, does not imply that these are available to all
industries or all firms in that country without differential cost. When these are linked
to the distinction between location-bound and non-location-bound O advantages, and
when the portfolio of assets available by MNEs and its individual subsidiaries and
establishments are distinguished, it allows for a clearer understanding of the
challenges the modern MNE faces in managing its spatially distributed activities.
These have been discussed in the context of R&D, which in addition to the usual
uncertainties faced by firms must deal with the uncertainties associated with
innovation. These have to do with the nature of knowledge, and how these inherent
characteristics determine effective knowledge flows within the MNE, as well as with
other actors that make up the host location. Although prior literature has sometimes
MBR
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20
framed the centralisation/decentralisation, spatial separation/collocation debates as a
paradox facing firms, when viewed within the context of the cognitive limits to
resources, the complexities of institutions, and the glacial pace of the evolving
specialisation of locations, these are in actuality trade-offs firms must make.
This paper is not intended to provide a complete synopsis of the literature in this
area, nor is it possible to raise all aspects of the conceptual and empirical lacunae that
arise, but a few suggestions are offered here.
First, neither the IB nor the innovation studies literature has as yet come to terms with
the growing use of non-equity modes in cooperative R&D and the role of location. Social
network theory remains on the fringes of this research, and relatively little effort has been
made to marry the seeming contradictions between the global na ture of R&D cooperation
and the stickiness of locations (Narula and Santangelo, 2009). The overlapping of complex
supply chains, production networks, and MNEs within and across locations presents a
tapestry of establishments that is not, as yet, fully understood. Where are the boundaries
of the firm where non-equity suggests legal separation and separate ownership, but
where control suggests a de facto single organisation?
This raises an interesting second line of future enquiry. This fuzziness of
boundaries of the firm has implications for the fuzziness of boundaries of countries.
Policy makers have fewer tools at their disposal in building up the competitive
advantage of individual nations where MNEs operate with alacrity across borders.
Regulation, industrial policy, and investment promotion no longer function as
effectively (Narula, 2003; Narula and Dunning, 2010).
Third, the study of motives for MNE activity while useful in providing texture to
the discussion is poorly understood conceptually, and the broad motivational
arguments from Dunning (1993) are in need of revision. To cite a simple example,
asset-exploiting and asset-augmenting activity are rarely done exclusively, and this is
increasingly so.
Fourth, the last two decades has seen a vigorous discussion of the benefits of
clustering. How does spatial separation matter to firms in other aspects of the value
chain? Does the propensity to collocate vary by size of firm and industry? Under what
circumstances is collocation more important, and when does spatial separation
represent a superior option?
Notes
1. In this paper we intentionally exclude the free-standing international company.
2. The use of the term “advantage” is also troublesome, and reflects the path dependency of the
eclectic paradigm and its provenance as an extension of trade theory (Dunning, 1977). It
implies in the same sense as comparative and absolute advantage – the relative strength
or weakness of economic activity within a specific industry within a specific location (rather
than between or relative to other locations). The term advantage also implies a subjective
assessment, and as such it is preferable to use the term “characteristics”. This paper uses
location advantage and locational characteristics as synonyms.
3. Although the concept of cluster a
`la Porter takes a broadly similar view (Porter, 1980, 1986,
1990), it has been criticised for being too general. The concept of clusters in innovation has
been fleshed out by Iammarino and McCann (2006) to classify three types of clusters
depending on the nature of innovation processes and structural conditions under which
technical change occurs across space.
Location and
collocation
advantages
21
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Corresponding author
Rajneesh Narula can be contacted at: r.narula@henley.reading.ac.uk
Location and
collocation
advantages
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... The location-specific advantage is a concept embedded in this theory that demonstrates country/region characteristics which are decisive for firms' location decisions. These factors are derived from the heterogeneity and uneven development of countries, including infrastructure, regulation & policy, the presence of competitors and suppliers, di↵erences in culture and religion, political stability, etc. (Dunning 1998;Dunning and Lundan 2008;Mudambi et al. 2018;Narula and Santangelo 2012). Research perspectives in this group are normally from enterprises, industries, and governments. ...
... This implies some countries are more suitable for certain kinds of MNEs to conduct certain activities, and the comparison between countries can help MNEs to make decisions. Narula and Santangelo (2012) extended the concept, and defined location advantages as 'a set of characteristics associated with a location'. Such advantages that embedded in locations are equally available to all the firms, even some are more publicly acquirable (Mudambi et al. 2018). ...
... The classic Dunning's theory classifies location advantages according to the four types of objectives as mentioned in the last section: natural resource seeking, market seeking, e ciency seeking, and strategic asset seeking. Narula and Santangelo (2012) organized location advantages into three broad categories depending on the perspectives: macro-region/country-level, industry-level, and firm-level (see Figure 2.6). Furthermore, they identified and categorized the macro-region/country-level location advantages into three types: (1) exogenous L advantages, which derive from natural assets, such as culture, political stability, climate, proximity to other markets; (2) fundamental L advantages, including basic infrastructure, legal infrastructure, regulation infrastructure, and financial infrastructure; (3) knowledge asset L advantages, i.e. knowledge infrastructure, such as tertiary education, universities. ...
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This study applies a system thinking view to argue that transportation infrastructure is a strong driving forces for the dynamic evolution process of the GLN. Especially in context of the BRI, with its large scale and broad scope transportation infrastructure construction and upgrade, the spatial structure of GLN is rapidly altering due to the changing competitiveness of some logistics nodes and links. These changes can further induces a sequence of dynamic process, such as development of local logistics industries, MNEs’ relocation behaviors, industrialization of local regions, etc, hence substantially shift the pattern of the GLN on a long-term view. Case studies of Piraeus port and Gwadar port were conducted to validate the impacts of ports infrastructure improvements on global shipping network and its potential for regional economic growth. Apart from sea port, a very important aspect is the improvements of land connectivity and the construction of dry ports. With the operation of CR Express, China and Europe are connected passing through the vast territory of landlocked countries in between. Through investigating the case of Khorgos dry port city, the study also presents the pattern shift induced the large potential of land logistics nodes.
... Several authors discussed the effects of location and coordination of units with different roles in knowledge-intensive firms: Ferdows (1997) analyzed the other functions of manufacturing units of multinationals with globally dispersed production sites, Chiesa (2000) proposed a taxonomy for coordination of research centers, Bartlett and Ghoshal (1989), in their classic text about multinational companies, proposed modes of coordination of globally-dispersed firms, Narula and Santangelo (2012), using the OLI framework, pointed out that collocation advantages (an essential category of L advantages) derived from spatial proximity to specific unaffiliated firms, in this case, the customer (large multinationals and executives). Moreover, to emphasize the importance of geographic dispersion and coordination of units by the multinational enterprises, Mudambi, Narula, and Santangelo (2018) proposed directions for research on location and coordination. ...
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The purpose of this manuscript is to develop a taxonomy for the governance of elite business schools based on two factors: (i) their geographic dispersion and (ii) the coordination between the main campus, international branch campuses, research centers, and other business schools. The research question that drives this manuscript is: Are there different types of governance for elite business schools based on differences in the geographic dispersion and the coordination of other units? The paper contributes to the business school´s internationalization efforts because the research shows a dominant form of governance, the Center of Excellence (CoE). However, the dynamic context of business schools allows three different paths for their internationalization. First, from the CoE to Alliance, schools gradually cooperate with other programs to compete globally. Second, from the CoE to Ecosystem, that occurs when programs grow organically. Third, from the CoE to the Center of Gravity governance; in this case, the CoE moves toward a high level of resources while keeping complexity low because of the lack of interfaces between the business school and other institutions. Finally, some business schools show ambidexterity regarding the governance of their units and subsidiaries.
... Contrary to this gap in the EMNE knowledge management literature, there is extensive research on AMNEs undertaking explorative and exploitative activities across heterogeneous locations (e.g. Almeida, 1996;Narula & Santangelo, 2012;Cano-Kollmann, Cantwell, Hannigan, Mudambi & Song, 2016). AMNEs preferred home and host advanced economies as the locations for knowledge exploration (Pearce, 1999). ...
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[Forthcoming] Knowledge is critical to the survival of emerging economy multinationals (EMNEs), who are confronted by a lack of internal competitive capabilities and external challenges associated with diverse institutional environments. They thus must manage and orchestrate their knowledge globally for ultimate catch up. This article systematically reviews literature concerning EMNE knowledge management using content analysis of 93 articles in 17 leading journals across 7 major disciplines from 2000 to 2020. Applying the antecedent-process-outcome (APO) framework, we identify three major themes: knowledge-seeking strategy, knowledge transfer and innovation. We discuss knowledge frontier issues , directions for future scholarship, and avenues for greater interdisciplinary cross-fertilization.
... Tacit knowledge is ''imperfectly accessible to conscious thought'' (Nelson & Winter, 1982: 79) and, thus, harder to transfer; but even codified knowledge to some extent appears vulnerable to these challenges (Jaffe et al., 1993;Tallman & Phene, 2007). This results in the creation of location-bound knowledge and colocation advantages (Narula & Santangelo, 2012;Rugman & Verbeke, 2001). Third, physical proximity can serve to enable access to tacit and location-bound knowledge by allowing for an understanding of local buzz in a meaningful manner (Bathelt et al., 2004). ...
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We examine how individual heterogeneity can be managed across geographically dispersed units of the multinational enterprise (MNE) to facilitate effective knowledge sourcing. To explore individual heterogeneity, we adopt the componential theory of creativity, which links heterogeneous features of individuals to creativity performance. We propose that these features shape individuals’ responses to unit-level practices, stimulating international knowledge sourcing and sharing. We further acknowledge that MNE units are subject to the pressures for global integration and local adaptation. Individuals’ responses to unit-level knowledge transfer practices may be inconsistent with one or both of these pressures. We explore, in a nuanced fashion, conditions that can lead to such inconsistencies, and investigate how they can be resolved at the unit level to ensure effective knowledge sourcing by the MNE. Ultimately, our model challenges the assumption that individual knowledge-related efforts automatically accrue to the MNE level. We argue that effective knowledge sourcing by the MNE is the result of successful unit-level processes in managing individual heterogeneity and ensuring consistency with global integration and local adaptation pressures. Our multi-level model contributes to both the MNE- and individual-level perspective on international knowledge sourcing, and the growing microfoundations research on the role of the individual in an MNE.
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Purpose This paper aims to evaluate the past contributions of Multinational Business Review (MBR), identify research gaps and opportunities and provide a research agenda that addresses several sustainability-related and other contemporary challenges. Design/methodology/approach This study analyzes 400 papers published between 2003 and 2021 to map the MBR’s intellectual and conceptual structure using advanced bibliometric techniques. Findings The bibliographic coupling technique identifies core clusters in MBR papers, and subsequent content analysis of these clusters reveals the following five research fronts: internalization theory and the future of international business (IB) research; internationalization and firm performance; regionalization versus globalization debate; internationalization by emerging market firms; and global dynamic capabilities and firm internationalization. Originality/value To the best of the authors’ knowledge, this is the first comprehensive analysis of past contributions of MBR to research on IB and suggests a way for MBR to play a seminal role in addressing contemporary challenges in IB.
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Se analizan los determinantes de la Inversión Extranjera Directa (IED) de grandes empresas mexicanas en Estados Unidos (EU), que en términos macroeconómicos responden a coyunturas económicas internas e internacionales. Éstas resultan en dos “oleadas” de IED con determinantes diferenciados: la primera que inicia en los años setenta, y la segunda con la apertura de la economía mexicana a finales de los años ochenta del siglo pasado, misma que adquiere características especiales partir de la crisis financiera internacional de 2008. Debido a las prácticas comerciales y actividades económicas de las empresas mexicanas, los factores que determinan la ubicación espacial de la IED mexicana en EU son la proximidad de la casa matriz a los mercados reales y potenciales y su participación en las cadenas productivas globales.
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Substantial research has focused on how innovation is influenced by geography from a macro perspective (e.g., at the country, state, or metropolitan level). However, less attention has been paid to how innovation is configured within a cluster from a micro perspective (e.g., at the district or firm level within a city), i.e., the “micro-geographical proximity” within a cluster. With this paper, we aim to “zoom into” a technology cluster to study the role of the inter-organizational micro-geographical proximity for the establishment of knowledge transfer relationships. Specifically, we analyse whether and how the micro-geographical proximity is related to the formation of three different types of inter-organizational relationships: venture capital (VC) deals, intellectual property (IP) transfer agreements, and R&D strategic alliances. We take empirical evidence from the biopharma cluster in the Greater Boston Area. Our findings suggest the importance of micro-geographical proximity for the establishment of VC deals and IP transfer agreements, which emphasizes the importance of adopting a micro-geographical perspective to highlight this “neighbourhood effect”, which would not be possible when considering spatial proximity at the macro level.
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Purpose Top-management-teams (TMTs) and chief executive officers (CEOs) dealing with internationalization are naturally predisposed to deal with space, so they will consult “spatial knowledge.” The purpose of this paper is to offer a conceptual description of spatial knowledge used by TMTs/CEOs and to describe how the use of spatial knowledge can be triggered and the resulting biases that arise from it. The description of spatial knowledge is also discussed in relation to core international business (IB) theories/models. Design/methodology/approach This is a conceptual study. Findings TMTs/CEOs use spatial knowledge for internationalization decisions. This spatial knowledge is “declarative” because it involves knowledge of places and associated characteristics or attributes, “configurational” because it involves knowledge of various types of relative positions and proximities between places and “procedural” because it involves knowledge of how to structure transactions, operate or organize interdependencies between locations. Additionally, TMTs/CEOs individually have spatial knowledge that is uniquely distorted. Then, finally, when TMTs/CEOs consult spatial knowledge to identify international opportunities or solutions, their search process may entail distance and directional biases as a result of their spatial knowledge. Originality/value This is the first paper to introduce the notion of “spatial knowledge” to the research on TMT/CEO experiences and internationalization and IB research in general.
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Location of new products, 191. — The maturing product, 196. — The standardized product, 202.
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This is the second edition of the celebrated volume by Professor John H. Dunning, first published in 1993, which has now been not only updated but also enriched with the addition of a number of new topics. This addition was not least due to the expertise of the co-author, Sarianna Lundan, in the institutional aspects of international business and the internal governance of transnational corporations (TNCs). It is a comprehensive synthesis of all the theories in International Business based on extremely rich data evaluation in almost all fields of TNC activities and their environment. It is a “creative masterpiece which unbundles the DNA of the field of international business” as described by Alan Rugman in his assessment of this volume.
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'Forsgren, Holm, and Johanson have been among the leaders in developing the idea of the multinational firm as a network that spans different country environments. This perspective cautions the easy prescription that a multinational firm can do everything easily, if it just has the right organizational form. Relationships matter, as do the legitimacy of the firm in the context of its foreign investments. This book provides rich case insights into these dimensions.' © Mats Forsgren, Ulf Holm and Jan Johanson 2005. All rights reserved.
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'This book provides an excellent overview of the changing relationship between multinationals and economic development as globalization has taken off, and substantially altered the conditions for catching up as opposed to falling behind. The authors move very effectively between the discussion of concepts that are crucial to understanding such changes, and various empirical evidence on foreign direct investment, trade, inter-firm relationships, institutional settings and competitiveness.' - John Cantwell, Rutgers University, US. © John H. Dunning and Rajneesh Narula 2004. All rights reserved.
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With the publication of his best-selling books "Competitive Strategy (1980) and "Competitive Advantage (1985), Michael E. Porter of the Harvard Business School established himself as the world's leading authority on competitive advantage. Now, at a time when economic performance rather than military might will be the index of national strength, Porter builds on the seminal ideas of his earlier works to explore what makes a nation's firms and industries competitive in global markets and propels a whole nation's economy. In so doing, he presents a brilliant new paradigm which, in addition to its practical applications, may well supplant the 200-year-old concept of "comparative advantage" in economic analysis of international competitiveness. To write this important new work, Porter and his associates conducted in-country research in ten leading nations, closely studying the patterns of industry success as well as the company strategies and national policies that achieved it. The nations are Britain, Denmark, Germany, Italy, Japan, Korea, Singapore, Sweden, Switzerland, and the United States. The three leading industrial powers are included, as well as other nations intentionally varied in size, government policy toward industry, social philosophy, and geography. Porter's research identifies the fundamental determinants of national competitive advantage in an industry, and how they work together as a system. He explains the important phenomenon of "clustering," in which related groups of successful firms and industries emerge in one nation to gain leading positions in the world market. Among the over 100 industries examined are the German chemical and printing industries, Swisstextile equipment and pharmaceuticals, Swedish mining equipment and truck manufacturing, Italian fabric and home appliances, and American computer software and movies. Building on his theory of national advantage in industries and clusters, Porter identifies the stages of competitive development through which entire national economies advance and decline. Porter's finding are rich in implications for both firms and governments. He describes how a company can tap and extend its nation's advantages in international competition. He provides a blueprint for government policy to enhance national competitive advantage and also outlines the agendas in the years ahead for the nations studied. This is a work which will become the standard for all further discussions of global competition and the sources of the new wealth of nations.