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Asia Pacific Journal of Management

, Volume 33, Issue 2, pp 343–370 | Cite as

Location decisions of inward FDI in sub-national regions of a host country: Service versus manufacturing industries

  • In Hyeock (Ian) LeeEmail author
  • Eunsuk Hong
  • Shige Makino
Article

Abstract

Built on the differences between services and manufacturing sectors, this study examines the general proposition that service and manufacturing multinational enterprises (MNEs) have different responsiveness to location-specific characteristics when conducting foreign direct investment (FDI), and that these differences influence their final locations in the sub-national regions of a host country. Using a full population of 1,212 and 6,199 inward FDI projects conducted by MNEs in manufacturing and services sectors, respectively, across 234 sub-national regions in Korea between 2000 and 2004, it finds that the location decisions made by service MNEs are more likely to be driven by demand-side considerations, whereas those made by manufacturing MNEs are more likely to be influenced by supply-side characteristics of sub-national regions. In addition, it shows that sub-national location decisions made by both high-tech and low-tech manufacturing MNEs consider the availability of local strategic assets within a focal region more importantly than that from its neighboring regions, suggesting the importance of intra-regional effects. Sub-national location decisions made by location-bound service MNEs exhibit the same intra-regional effects for local market potential; however, those by non-location-bound service MNEs consider the local market potential from neighboring regions more importantly than that within a focal region, suggesting the existence of inter-regional effects.

Keywords

MNEs Inward FDI Service industries Manufacturing industries Location strategy Sub-national regions 

Notes

Acknowledgements

The first author gratefully acknowledges the financial support from Indiana University CIBER (Center for International Business Education & Research) Business Ph.D. Dissertation Award and Barbara J. Clark-Edwards Doctoral Dissertation Scholarship for this article.

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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  • In Hyeock (Ian) Lee
    • 1
    Email author
  • Eunsuk Hong
    • 2
  • Shige Makino
    • 3
  1. 1.Department of Management, Quinlan School of BusinessLoyola University ChicagoChicagoUSA
  2. 2.Department of Financial & Management StudiesSOAS, University of LondonLondonUK
  3. 3.Department of Management, Faculty of Business AdministrationThe Chinese University of Hong KongShatinHong Kong

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