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

In Hyeock (Ian) Lee (), Eunsuk Hong () and Shige Makino
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In Hyeock (Ian) Lee: Loyola University Chicago
Eunsuk Hong: SOAS, University of London

Asia Pacific Journal of Management, 2016, vol. 33, issue 2, No 3, 343-370

Abstract: 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 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (7)

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DOI: 10.1007/s10490-015-9456-6

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