Re-investment, Survival and the Embeddedness of Foreign-Owned Plants

Colin Wren () and Jonathan Jones ()

ERSA conference papers from European Regional Science Association

Abstract: "3,000 Jobs to go in Motorola Closure", "Black and Decker cuts 1,000 jobs", "Vauxhall axes 2,000", "North-east jobs go as Viasystems fails", "NEC to close Scottish plant", "1,900 jobs to go as Ford confirms closure". These headlines are all taken from a national newspaper over a recent few years and they indicate an important phenomenon: the much-observed closure of large-scale foreign-owned plants, often in manufacturing. In response to these high failure rates the economic development agencies have attempted to 'embed' these plants in the local economy in order to forestall closure, but there is little evidence on this, no doubt because of the difficulties in quantifying the features that go to make up plant embeddedness. However, recently, Phelps et al (2003) identify five indicators of embeddedness: corporate status and function; research, development and design activity; local supply chains; skills and training demands; and repeat investment, and this provides a potentially useful way of assessing this idea. The paper focuses on the last of these indicators, and it examines if re-investment by these foreign-owned plants embeds them leading to higher survival time durations. It utilizes project-based inward investment data for the North East of England over the period 1985-98. This region has been a major recipient of inward investment. The paper has three main sections. First, it investigates plant re-investment, both in terms of the probability of re-investment and the time duration to re-investment. Second, it uses duration analysis to examine plant survival. Finally, it examines the issues of plant re-investment and survival together in order to assess the idea of embeddedness. The issue that the paper addresses is not whether re-investing plants are more likely to survive than firms that do not re-invest, as this seems trivially obvious. Rather, the issue is whether plant survival from the time of the re-investment is greater than that for other foreign-owned plants commencing at the same time with similar characteristics but which do not re-invest. If so, it suggests that a re-investment is qualitatively different from that of an initial investment, and it provides support for the idea of embeddedness in the form of repeat investment. The paper finds that the plants that re-invest (Multiple Investors) have longer survival durations, but these are much the same as the survival durations of new plants starting-up at the same time with similar characteristics. The median survival duration of a Multiple Investor is found to be about 1.5 times that a plant that does not re-invest, but this ratio is smaller for larger plants at about 1.2. For all start-up plants, the median survival duration of a Multiple Investor is 13.3 years, compared with 8.8 years for other plants(and 10.2 years overall), but for the larger plants the respective figures only differ by about 2 to 3 years. The larger plants that are associated with the vast majority of job losses. Overall, the paper does not find strong evidence for re-investment as a source of embeddedness, although it does not close down other options for embedding these plants. Reference Phelps, N., MacKinnon, D., Stone, I. and Braidford, P. (2003), 'Embedding the Multinationals? Institutions and the Development of Overseas Manufacturing Affiliates in Wales and North East England', Regional Studies, forthcoming.

Date: 2003-08
New Economics Papers: this item is included in nep-geo and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www-sre.wu.ac.at/ersa/ersaconfs/ersa03/cdrom/papers/19.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wiw:wiwrsa:ersa03p19

Access Statistics for this paper

More papers in ERSA conference papers from European Regional Science Association Welthandelsplatz 1, 1020 Vienna, Austria.
Bibliographic data for series maintained by Gunther Maier ().