Location Characteristics of Manufacturing Investments in the U.S.: A Comparison of American and Foreign-Based Firms

By Ulgado, Francis M. | Management International Review, January 1996 | Go to article overview

Location Characteristics of Manufacturing Investments in the U.S.: A Comparison of American and Foreign-Based Firms


Ulgado, Francis M., Management International Review


Introduction

Between 1980 and 1990, Foreign Direct Investment in the United States [FDIUS] increased dramatically (particularly in the late eighties) growing by more than 400 percent (Choate 1993). This FDIUS growth has inspired considerable research and media focus on various related issues, ranging from the economic growth effects to national sovereignty implications of such foreign investment. One area of interest concerns the location of FDIUS, involving location determinant issues on why and how foreign investors select their U.S. site of operations. Academicians, managers of multinational corporations investing in the U.S., state and local economic developers and policymakers have all been interested in the locational aspects of FDIUS. Various U.S. locations have aggressively marketed their respective sites to potential foreign investors, competing against rival communities by offering a significant amount of incentives ranging from employee training to tax breaks.

After peaking in 1988 with a record high of $ 73 billion, this growth of FDIUS declined in the past four years, falling 47 percent to $14 billion in 1992. (U.S. Department of Commerce 1993 a). Nevertheless, FDIUS has shown signs of resurgence for 1993 (U.S. Department of Commerce 1993 b). Foreign investment in the United States remains significant with a total of over [section] 400 billion by 1990. The United States still remains quite attractive to many foreign multinational companies due to favorable factors such as the promise of a huge, integrated market that could be enhanced through a North American Free Trade Agreement, relatively lower wages, and a way to avoid any increase in trade barriers.

To contribute to a better understanding of the needs of foreign multinational investors in the U.S. relative to domestic counterparts, this paper identifies and examines location factors that are considered important by manufacturing firms.

Literature Review

Given the background on industrial location and the increased interest in FDIUS in the seventies, a selection of empirical and descriptive literature began to look into the area of foreign investment location in the United States (Daniels 1970, Foster 1976, Tong 1979). Subsequent studies such as Schmenner (1982), Carlton (1983), Bartik (1985), and Newman and Sullivan (1988) were limited to location decisions of domestic companies establishing branch plants, and focused on specific factors affecting location. Additional research that focused on foreign firms in the U.S. were Mandell and Killian (1974), Little (1978) and Arpan (1981), McConnell (1980), Hartman (1984), and Boskin and Gale (1987).

Econometric research was done by Glickman and Woodward (1988) and Glickman et al. (1989), and a number of studies preferred using a conditional logit framework to analyze Department of Commerce statistics (for example, Coughlin, Terza, and Arromdee 1991, Woodward 1992, Friedman, Gerlowski, and Silberman 1992). Research has also focused on specific investments such as Japanese FDI in the U.S. Cole and Deskins (1988) and Tyson (1992) examined Japanese automakers. Others, such as Mann (1993), concluded that industry-specific factors influence direct investment behavior, while Ondrich and Wasylenko (1993) discussed the reasons behind FDI location in particular states within the U.S., and the effectiveness of government policy measures designed to attract FDI.

In examining the contrast between domestic and foreign location decisions, studies have suggested and provided evidence that foreign firms behave differently from their domestic counterparts (Daniels 1970, Foster 1976, Little 1978, Glickman et al. 1989). However, further research (for example, Swamidaas 1990) found that foreign direct investors are increasingly behaving more like domestic firms when it comes to the location decision.

In addition to the distinction between foreign and domestic firms, other research has indicated that the importance of location factors could differ according to the country of the manufacturing investor. …

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