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Globalization and location choice: an analysis of US multinational firms in 1980 and 2000

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Abstract

In this paper we examine foreign location choices of the top 100 US multinational corporations (MNCs) in 1980 and 2000. We first ask whether there has been a change in MNC foreign location choice in this two-decade period. Second, we explore the underlying reasons of location change by focusing on country-level factors, accounting for firm-, industry- and regional-level explanations. Our findings suggest, first, that the extent of MNCs' activities around the globe is more extensive than assumed by regionalists' arguments and well beyond Ohmae's TRIAD, but still less widespread than claimed by the globalists – the two main traditions within the globalization–regionalization debate. Second, we uncover an interesting de-location pattern in this period. Third, we develop an integrative framework where both economic and institutional-cultural arguments are shown to influence MNCs' foreign location choice in different ways. We conclude with a discussion of our findings, and provide suggestions for future research.

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Notes

  1. We have a few exceptions to the overarching definition of host countries in our sample. First, some territories were chosen by US MNCs but are not included in our data set, mainly because they do not have a sovereign political status. These territories are: Bermuda and Cayman Islands (overseas territories of the United Kingdom); Madeira (region of Portugal); Reunion (overseas Département of France); and the Ryukyu or Nansei Islands (prefecture of Japan). A second exception is the cases of Taiwan (Republic of China), Hong Kong and Macao. These non-sovereign territories were included in our analysis for multiple reasons. In the case of Hong Kong and Macao, we consider they deserve a special treatment due to their strategic role in commerce in east Asia in the last century, as well as their recent change of status from colonies of the United Kingdom and Portugal to become special administrative regions of the People's Republic of China in 1997 and 1999 respectively. In the case of Taiwan, being among the largest economies in the world, a key center of economic activity in east Asia, and having achieved the status of advance economy, its exclusion would likely substantially reduce the comprehensiveness of our conclusions.

  2. Before testing our hypotheses with more sophisticated tools, we decided to perform some basic regression models to gain a preliminary sense of the validity of our hypotheses, as well as how much variance in the dependent variable is explained. Following a stepwise methodology, and a panel ordinary regression estimator (XTREG), we found the overall explained variance on the dependent variable (foreign capital investments) was 0.9% when firm size and firm performance were included. This value grew to 4% when we added industry dummies. Also, when we included a set of 100 dummy variables for each firm in our sample, the overall variance explained rose to 9%. This means that, considering the limits and problems of estimating this dependent variable with an ordinary regression technique, firm-level differences would explain only 9% of the variance in the foreign capital investment choices of this group of companies. Including regional dummies as well as economic development dummies, the variance explained rose to 11%. When all country-level variables (our main focus in this paper) were included in the model the total variance explained grew to 43%. This seems to be an early confirmation of our arguments on the relative importance of country-level factors in comparison with firm-level variables when explaining foreign location choices. Replicating this preliminary analysis, but now using a more accurate estimator (probit), we find the pseudo R2 values show the same overall trend. When all the firm-level variables were included, pseudo R2 reached 9.6%. In contrast, when all the country-level variables were included, pseudo R2 grew to 49.7%.

  3. As noted in the data and method section, we choose to test our hypotheses more accurately by relying on a general equation estimator (GEE; Hardin and Hilbe, 2002), specifically using Stata's (2006) panel general equation estimator (XTGEE). Considering the dichotomous nature of our dependent variable we decide to specify this panel model with a binomial family and probit link according to the Cross-Sectional Time Series Stata manual. Also, to minimize heteroskedasticity problems, we use in each of our models the ROBUST option (which follows a Huber–White sandwich estimator of variance) as a way of estimating the standard errors in a conservative way (wider error intervals around the coefficients mean). It is important to note that in each of these models we have included a whole set of control variables that are not explicitly shown in the tables (though they are mentioned in the explanatory note at the bottom of each table). These control variables are a set of dummy variables accounting for unobserved differences of firms and industry (at the firm level) as well as regional and economic development dummies as country-level controls.

  4. For robustness purposes, we have also operationalized the political system variable using the political constraint construct that Henisz (2000) and our results are consistent. We thank Reviewer 2 for this suggestion.

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Acknowledgements

We would like to thank Kevin Corley, Alvaro Cuervo-Cazurra, John Lawler, Niron Hashai, Torben Pedersen, Myles Shaver, Muge Tarman, Elitsa Banalieva, Randall Westgren, the participants of the OB seminar at the University of Illinois at Urbana-Champaign, as well as participants and discussants at the America Sociological Association (2005), the Academy of International Business (2005) and the Academy of Management (2006) Annual Meetings, for their helpful comments and suggestions. Paul Vaaler and George Monahan provided invaluable advice on data management and data analysis. We also appreciate the detailed comments and guidance on this revision from the participants at the JIBS Workshop (Berlin, 2006), as well as our Guest Editor Henk Volberda, and the anonymous reviewers.

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  1. Department of Business Administration, College of Business, University of Illinois at Champaign-Urbana, IL, USA

    Ricardo G Flores & Ruth V Aguilera

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  1. Ricardo G Flores
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Correspondence to Ricardo G Flores.

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Accepted by Henk W Volberda, Guest Editor, 8 June 2007. This paper has been with the authors for two revisions.

Appendix

Appendix

List of countries by type of regional category (N=147)

See Tables A1, A2 and A3.

Table A1 Ohmae's (1985) TRIAD regional category
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Table A2 Rugman and Verbeke's (2004) regional category
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Table A3 UN's regional category
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Flores, R., Aguilera, R. Globalization and location choice: an analysis of US multinational firms in 1980 and 2000. J Int Bus Stud 38, 1187–1210 (2007). https://doi.org/10.1057/palgrave.jibs.8400307

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