Academic journal article Multinational Business Review

Location and Collocation Advantages in International Innovation

Academic journal article Multinational Business Review

Location and Collocation Advantages in International Innovation

Article excerpt

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 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 ([69] 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 ([5] 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 ([16] Dunning, 1977, [17] 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 ([38] 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 ([7] 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 ([33] Lall and Pietrobelli, 2002). …

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