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THE COMPETITIVENESS OF LOCATION IN INTERNATIONAL BUSINESS AND ECONOMIC GEOGRAPHY
Philippe Gugler
Introduction
The World Economic Forum (WEF) defines competitiveness as “the set of institutions, policies, and factors that determine the level of productivity of a country” (WEF, 2015, p. 4). A competitive location offers efficient opportunities and assets, allowing firms to achieve a high level of productivity (Porter, 2008, p. 176). The higher the competitiveness of a location, the more attractive it is as a business location. The attractiveness of a specific location will induce a concentration of enterprises and therefore economic activities within its boundaries. Domestic firms will grow, new firms will be created, and foreign firms will invest in the location. This phenomenon has raised the interest of scholars from several disciplines, particularly Economic Geography and International Business (IB) (Beugelsdijk, McCann & Mudambi, 2010, p. 485). From the establishment of these two fields until recently, theoretical and empirical studies had mainly been conducted in parallel (Dunning, 1998; Gertler, 2003). As stated by Beugelsdijk et al. (2010, p. 486), the scientific connections between them were very limited until the end of the 1990s. On the one side:
[i]n terms of locational analysis, one of the obvious shortcomings of the traditional Economic Geography and regional science approaches was that the complex spatial behaviour of multiplant and multinational establishment was largely ignored, and where such issues were discussed, the analysis rarely ventured beyond being largely descriptive.
On the other side, the IB literature neglected the role of location for many years (Dunning, 1998, p. 49; Cantwell, 2009, p. 35; Iammarino & McCann, 2013, p. 33). Since the end of the 1990s, the competitive advantages of locations—as territorial capital attracting firms, particularly MNEs—have benefited from an increased interest in both schools. One of the convergent approaches of the two “schools” is to consider and to demonstrate that globalization has not reduced the importance and differences of local specificities (Venables, 2005, p. 1; Porter, 2008, pp. 252–253; Meyer, Mudambi & Narula, 2011, p. 235).
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This chapter focuses on the competitiveness of location in the fields of IB and Economic Geography by investigating four interlinked features, highlighting the theoretical and empirical developments of both schools on this matter: (1) MNEs and the competitiveness of the host country location as an attractiveness factor; (2) MNEs and the competitiveness of the home country location as an enhancer of competitive advantages; (3) MNEs’ internal and external networks, implying interconnection between the assets of host and home countries; and (4) the spillover effects of MNEs on the competitiveness of their host and home countries. This “artificial” division of these four issues reflects the different specific academic contributions dedicated to each of them.
MNEs and the competitiveness of the host country location
Roots regarding a host country’s features in the IB literature were mainly identified in the late 1940s, but the first foundations of a theory of MNEs and features of their location did not appear until the 1960s (Dunning & Lundan, 2008, p. 82). Raymond Vernon’s work on product life cycles had already considered the relationship between the comparative advantages of the host country and the home country as a driver of trade and FDI (Vernon, 1966). Referring to Chandler, Hymer is one of the pioneers in analyzing the “spatial dimension” of FDI (Hymer, 1972, pp. 122–125; see also Iammarino & McCann, 2013, p. 39). More specifically, he considered the concentration of MNEs in specific locations, such as cities (Hymer, 1972, p. 124). The seminal contribution of Hymer to the role of MNEs’ location has been further developed by other scholars, particularly by Dunning (1981).
The role of location in IB observed new momentum in the “Ownership-Location-Internalization” (OLI) paradigm, which was proposed by Dunning in the late 1970s (Dunning, 1981). Dunning highlighted the role of location (in a host country) as one of the three legs explaining why firms operate value-added activities across national borders (Dunning, 1998, p. 45). The L-advantages reflect the “assets” offered by the recipient country, explaining why a specific firm decides to invest in a specific host location. The development of the OLI paradigm proposes a new theoretical angle to explain the role of a specific location in attracting FDI. Whereas the role of location was mainly considered from the macroeconomic point of view, despite the works of Vernon and Hymer (Iammarino & McCann, 2013, p. 62), Dunning focused on the microeconomic features of locations to understand MNEs’ strategies.
During the two decades following the presentation of the OLI paradigm, scholars concentrated most of their studies on the O advantages (why MNEs) and I advantages (how MNEs) rather than on the L advantages (Cantwell, 2009, p. 36; Iammarino & McCann, 2013, p. 63). In 1998, Dunning highlighted this “loophole” in a paper that marked a significant “turn” in the IB literature (Dunning, 1998). This paper received an award for the most prominent research paper published in the Journal of International Business Studies over a ten-year period and was re-edited in 2009 (Dunning, 2009). One of the major questions was “Why do firms locate their activities in one country rather than another?” (Dunning & Lundan, 2008, p. 80). The question raises the feature of a location’s competitiveness: “The spatial distribution of L-bound resources, capabilities and institutions is assumed to be uneven and, hence, will confer a competitive advantage on the countries possessing them over those that do not” (Dunning & Lundan, 2008, p. 100). “Local contexts vary in particular on two dimensions: institutional frameworks and resource endowments” (Meyer, Mudambi & Narula, 2011, p. 237). In this context, Dunning and Lundan (2008) have emphasized specific types of L advantages, such as L advantages reflecting the role of formal and informal institutions in the attraction of specific countries. The specific assets of locations explaining the spatial allocation of firms have also been the core of Economic Geography, whose aim is to identify the inherited and created assets “shaping the geography of the firms” (Audretsch, 2000, p. 333; Storper, 2000, p. 147).
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The role of competitiveness of locations has been considered in relation to the four main motivations to invest abroad: market-seeking investment, resource-seeking investment, efficient-seeking investment, and strategic asset-seeking investment (Dunning, 1998, p. 50; 2009, p. 8). This choice establishes an important link between the IB field and the field of Economic Geography (Shatz & Venables, 2000, pp. 129–133; Feldman, 2000, p. 388; Hanson, 2000, p. 485). On the Economic Geography side, the literature offers several models and approaches, such as the “Weber Location-Production Model” (Weber, 1909; model developed in Iammarino & McCann, 2013, pp. 71–90) as well as recent theoretical and empirical developments inspired by Michael Porter (1990, 2008).
Indeed, an important topic developed by Economic Geography is the “spatial allocation of economic activity” (Clark, Feldman & Gertler, 2000, p. 11), which includes the drivers of geographic location, the concentration of specific economic activities, and, in particular, a location’s features that attract firms such as MNEs (Hanson, 2000, pp. 477–478). One of the major issues of Economic Geography is “the difference, differentiation, and heterogeneity . . . [that] characterize the economic landscape” (Clark et al., 2000, p. 4). These different comparative advantages, being based inter alia on human capital and technological capabilities, impact the location activities of firms (Audretsch, 2000, p. 336; Storper, 2000, p. 147). These differences are at the root of a location’s comparative advantages reflected in Dunning’s OLI paradigm.
Greater attention has been given to the role of location (location competitiveness) in the changing context of globalization that has impacted the motivations of MNEs to invest abroad. The increasing trend of asset-augmenting investments since the early 2000s has given new momentum to the importance of location. Strategic asset-seeking motivations drive the firms to choose a specific location where they can acquire a host country’s assets and develop new assets because of their activities in the specific host country. As MNEs have become more knowledge intensive, strategic asset-seeking investment and therefore the competitive attraction of host places has gained a new impetus: “MNEs are increasingly seeking locations which offer the best economic and institutional facilities for their core competencies to be efficiently utilized” (Dunning, 2009, p. 9). More specifically, the increased flows of strategic asset-seeking investment since the 1990s has led researchers to more deeply scrutinize the interaction between L advantages and O advantages: “Such mostly intangible L advantages are highly localized and concentrated within specific locations, and contribute to enhancing firm-specific O advantages, which in turn strengthen those of the home and host location at the same time” (Iammarino & McCann, 2013, p. 63; see also Rugman & Verbeke, 1992, p. 762; Dicken, 2000, p. 280; Dunning & Lundan, 2008, pp. 72–74). Bartlett and Ghoshal (1989, pp. 116–121) studied the links between the role of MNE subsidiaries and the importance of the local environment of the recipient country. According to Dunning (2009, p. 6), the role of location is increasingly important, particularly when one considers the activities of “knowledge-intensive” MNEs: “the geography of International Business activity is not independent of its entry modes; nor, indeed, of the competitive advantage of the investing firms”.
These trends may explain the development of common interests between the geography and IB scholars since the late 2000s (Dunning, 2009, p. 8). A more micro-economic approach to location competitiveness—developed inter alia by Porter (1990)—has been explored within the IB community. Referring to Michael Porter’s work, Dunning and Lundan (2008, p. 190) note: “it is the availability and quality of L-bound institutions, resources and capabilities which MNEs need to complement their own O-specific advantages which are increasingly determining their global competitiveness”. The competitiveness of locations is understood as a crucial parameter explaining not only the competitiveness of firms (Porter, 1990) but also their mode of entry and of expansion abroad (Dunning, 2009, p. 6). Michael Porter’s framework based on the interactions of firms’ competitiveness and location competitiveness (synthesized as the “diamond of competitive advantage”) has been meaningful for further theoretical developments within the IB community on the role of recipient countries location: “I believe more attention needs to be given to the importance of location per se as a variable affecting the global competitiveness of firms” (Dunning, 2009, p. 16). From an exogenous variable, location features have been considered endogenous parameters, opening the door to geographic economics in the field of IB (Jensen & Pederson, 2011, p. 355). As highlighted by Meyer, Mudambi and Narula (2011, p. 237): “Local contexts have a central role in International Business research”. Porter’s approach towards the crucial role of localization had a major influence on Dunning’s article published in 1998 and reproduced in 2009 (see Cantwell, 2009, p. 37).
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Therefore, IB scholars have investigated the microeconomic assets offered by locations to understand the location choices of MNEs as well as their modes of entry and of operation. In this respect, the agglomeration of theoretical insights from Marshall to Porter has raised an increased interest in the IB literature:
[t]he ease at which MNEs can transfer intangible assets across national boundaries is being constrained by the fact that the location of the creation and use of these assets is becoming increasingly influenced by the presence of immobile clusters of complementary value-added activities.
(Dunning, 2009, pp. 7–10; see also Cantwell, 2009, p. 37)
The role of clusters as drivers of economic agglomeration of domestic as well as of foreign firms is an important common feature of both Economic Geography and IB. Indeed, clusters—particularly innovation networks—play an important role as premium locations for MNEs, generating productivity benefits (Asheim, 2000, p. 415; Clark, Feldman & Gertler, 2000, p. 8; Feldman, 2000, p. 374; Hanson, 2000, p. 479; Porter, 2000, p. 267; Venables, 2005, p. 8; Karna, Täube & Sonderegger, 2013, p. 211; Jacobs, Koster & van Oort, 2014, p. 445). Clusters offer assets that are “non-transferable across geographic space” (Audretsch, 2000, p. 333), the so-called location-bound assets (Rugman & Verbeke, 2001; Rugman, 2008). As stated by Krugman (2000, p. 50): “So economists believe that companies agglomerate because of agglomeration economies”.
MNEs and the competitiveness of the home country location
The first developments of the IB literature focused mainly on the role of host countries’ comparative advantages in explaining why firms may internalize some of their value-added activities in a specific foreign location. The role of home assets has attracted less attention (Rugman & Nguyen, 2014, p. 54). Nevertheless, the first attempts to explain trade and FDI in the 1960s started with the features of home countries’ comparative advantages as an explanatory variable. According to Vernon (1966), U.S. firms’ competitiveness was determined by the markets, institutions, and factor endowments of home countries. Links between the home and host countries’ comparative advantages, first developed by Vernon, are at the core of the “investment development path” (IDP) proposed by Dunning (Dunning, 1981; Dunning & Narula, 1996). The IDP comprises five stages characterized by specific development of trade (imports and exports) and of FDI (inward and outward FDI) (Dunning & Lundan, 2008, p. 330). At each stage, trade and FDI are driven by specific competitive advantages or disadvantages of the home country and host countries (Dunning, Kim & Park, 2008, p. 164). The IDP highlights the interactions between the O advantages of firms and the L assets of home and host countries.
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In the late 2000s, the IB community paid closer attention to the role of home countries’ comparative advantages in the international expansion of MNEs (Peng, Wang & Jiang, 2008, p. 920; Cuervo-Cazurra, 2012, p. 154; Sun et al., 2012, pp. 5–6; Rugman & Nguyen, 2014, p. 54). As noted by Meyer et al. (2011, p. 239): “First, firms are shaped by the home context from which they originate . . . At the same time, MNEs’ embeddedness in their home contexts may act as either inducements or constraints on some types of overseas business activities”.
According to Dunning, the ownership-specific (O-specific) advantages of firms are impacted by home-based assets (Dunning, 1981, p. 34). Eminent IB scholars have acknowledged the work inter alia of Michael Porter regarding the quality of the local business environment as a driver of firms’ competitiveness (O advantages) and therefore of their ability to expand abroad (Porter, 1990, pp. 69–70; Rugman & Verbeke, 2004, p. 12; Dunning, 2009, p. 16). Are the O advantages of MNEs based mainly on their own specific corporate’s competitiveness and/or on their home countries’ assets (Cuervo-Cazurra, 2011; Buckley, 2017)? This question has been dealt with wisely by Rugman (2008). Rugman proposes a matrix explaining firms’ ability to compete and invest abroad according to the specificities of their home country’s specific advantages (CSAs) and of their firm’s specific advantages (FSAs). The FSAs reflect the unique assets and capabilities of a firm (Rugman, 2008, p. 12): “It may be built on product or process technology, marketing or distribution skills, or managerial know-how”. The CSAs “are exogenous location factors in a country that represent economic and institutional environments (including geographic location, factor endowments, government policies, national culture, institutional framework, and industrial clusters)” (Rugman & Nguyen, 2014, p. 53). In this context, the tremendous role of the local environment is at the forefront of the foundation of IB theory (Rugman & Li, 2007, p. 335). According to Rugman, a firm’s competitiveness and strategy in international markets depend on its home CSAs and on its FSAs, the roles of which may vary depending upon their respective strengths or weaknesses as drivers of competitiveness. Rugman proposes a matrix that expresses four scenarios according to the strengths or weaknesses of FSAs and of the home CSAs (Rugman & Li, 2007, p. 335; Rugman, 2008, p. 13).
The importance of home CSAs has been highlighted recently due to the increasing role of emerging country MNEs (EMNEs) (Gugler & Vanoli, 2015; Gugler, 2017). Most studies on the FDI of EMNEs in the 1990s and 2000s show that EMNEs’ competitive advantages are mostly based on strong home CSAs rather than on their FSAs (Nelson & Pack, 1999, pp. 432–433; Debrah, McGovern & Budhwar, 2000, p. 319; Luo & Tung, 2007, p. 482; Dunning, Kim & Park, 2008, p. 174–177; Ramamurti, 2008, p. 7; Rugman, 2008, pp. 96–97). The impact of the comparative advantages of the home country on the capabilities of domestic enterprises to invest in foreign countries may change over time according to the stage of the investment development paths (Narula, 2012, p. 188).
The specific case of EMNEs shows that the evolution of the home CSAs has impacted the development of EMNEs’ FSAs: “The nature of the CSA components in EMNEs’ O-advantages has changed over time due to the increased integration of emerging countries in the world market and the inherent changes related to their institutional, structural and regulatory patterns” (Gugler, 2017). Some studies have also highlighted—inter alia in the case of EMNEs—the fact that upgrading the quality of home-based comparative advantages has a positive impact on domestic FSAs and therefore on firms’ ability to expand abroad (Yiu, Lau & Bruton, 2007, pp. 520–526; Brandl & Mudambi, 2014, pp. 135–145; Zhang, Jiang & Cantwell, 2015, p. 228).
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MNEs and home/host countries’ competitiveness
The two previous sections investigated separately the interaction among MNEs’ strategies and (i) the host countries’ competitive advantages and (ii) the home countries’ competitive advantages. This choice between host and home reflects the separate trends of some IB scholars focusing more exclusively on host countries’ features and others focusing more on home countries’ features. Studies concentrating on the strategies and organization of MNEs have uncovered the evidence that MNEs organize their activities according to the competitive assets of their home countries and of their different host countries. MNEs organize their internal and external networks, and therefore their global value chain, according to their own competitive advantages and disadvantages related to the comparative advantages of the location of their activities (Sölvell, 2002, p. 3; Ketels, 2008, p. 124; Mudambi, 2008; Porter, 2008, p. 315; Cuervo-Cazurra, 2013; Buckley, 2017; Gugler, 2017). As noted by Gugler, Keller and Tinguely (2015, p. 324; see also Mudambi & Swift, 2011, p. 1):
As a result of their ability to supersede the market and internalize the benefits of the geographic distribution of their activities, multinational enterprises (MNEs) have distributed their value chain around the world and implemented a global network of subsidiaries that allow them to take advantage of the specific profile of different environments.
Studies on developed economy MNEs as well as on EMNEs report that companies’ portfolios of activities are closely related to the configuration and the management of assets that are developed and sourced in different locations (Luo & Wang, 2012, p. 244; Tinguely, 2013; Gugler, Keller & Tinguely, 2015; Gugler & Vanoli, 2015). FSAs are impacted by the ability of the firm to take advantage of the assets that are related to the CSAs of home and host countries (Verbeke, 2009, p. 187; Buckley, Forsans & Munjal, 2012; Buckley, 2017). Multiple national diamonds are at work. As noted by Lessard (2014, p. 116) firms may create “a virtual diamond” based on the competitive assets offered by their different locations. The “network” approach analyzing the internal and external linkages of MNEs highlights not only the tremendous importance of the competitiveness of location but also the agglomeration of specific activities of the value chain in particular locations. This phenomenon has recently been explored in the case of EMNEs (De Beule & Duanmu, 2012; Estrin & Meyer, 2013; Deng & Yang, 2015). Here again, it is important to distinguish the different types of FSAs and CSAs, in particular the “location-bound FSAs” and the “non-location-bound FSAs” (Rugman, 1981; Rugman & Verbeke, 1992). The “location-bound FSAs” depend upon the CSA features of the home and host countries (Rugman & Verbeke, 2001). As noted by Gugler, Keller and Tinguely (2015, p. 328) “firms can take advantages of clusters as CSAs in their home country (home-CSA-cluster) and in their host locations (host-CSAs-cluster) and develop FSAs at the headquarter level (FSA-headquarter) and at the affiliate level (FSA-affiliate)”.
As already stressed earlier, clusters are important drivers of location competitiveness explaining the agglomeration of activities and capabilities in specific locations: “What we can say is that the global economy is made up of intricately interconnected localized clusters of economic activity which are embedded in various ways into different forms of corporate network” (Dicken, 2000, p. 284). The role of clusters is crucial for strategic-assets seeking investment and may explain the concentration of R&D subsidiaries abroad within knowledge-intensive clusters (Dunning, 1998, p. 50; Gugler, Keller & Tinguely, 2015, p. 325). These developments highlight the impact of the agglomeration of specific activities of the value chain such as R&D activities. IB scholars’ research on innovative activities and the capabilities of firms has emphasized the positive impact of the agglomeration of economic activities on innovation (Jaffe, Trajtenberg & Henderson, 1993; Audretsch & Feldman, 1996; Feldman, 2000; Iammarino & McCann, 2013; Tinguely, 2013). MNEs increase their competiveness through the internationalization of the specific CSAs offered by various locations (Gugler, Keller & Tinguely, 2015, p. 329).
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MNE spillovers on host and home countries’ competitiveness
The assessment of MNE spillovers on host and home countries’ competitiveness offers another field of the IB literature that has a direct link with Economic Geography patterns. This issue has been developed within the broad question related to the overall impact of MNEs (Dunning & Lundan, 2008, p. 295). Major attention has been dedicated to the impact of MNEs on host countries. Indeed, MNE affiliates may have an important impact on the quality of the business environment of the recipient region/country in terms of the factor conditions, the type of rivalry, the supporting and related industries, and the demand conditions (Porter’s Diamond). Theoretical and empirical studies have also investigated the so-called “reverse spillovers” or in other words, the impact of MNEs on their home country’s assets. This issue has attracted increased attention in light of the development of emerging countries’ FDI, such as Chinese FDI.
From a theoretical point of view, the assumption that MNEs may create positive spillovers in the host economies relies inter alia on the “positive gap” between foreign affiliates and local firms (Gugler & Brunner, 2007, p. 272). As asserted by the OLI paradigm, MNEs decide to invest abroad if they possess O advantages over domestic firms (Dunning, 1993). The impact of MNEs on their host country’s competitiveness is particularly relevant when one considers the spillovers on innovation, productivity, and therefore wealth creation within the recipient country/regions (Dunning & Gugler, 1994, p. 173). As stated by Blomström and Kokko (1998, p. 249), spillovers occur when “the entry or presence of MNC affiliates lead to productivity or efficiency benefits in the host country’s local firms and the MNCs are not able to internalize the full value of these benefits”. The spillover effects affect the L advantages of a recipient country (Dunning & Lundan, 2008, p. 323) characterized, either by the “environment/systems/policy (ESP) framework” (Koopmans & Montias, 1971) or the Diamond of Michael Porter (Porter, 1990).
The literature distinguishes two main spillover effects: the impact on competition and the impact on knowledge and technology. According to Ben Hamida and Gugler (2009, pp. 494–495):
The competitive effects, or rather the incentives for competition, operate through either a more efficient use of existing technology and resources or an assimilation of foreign technologies. While knowledge transfer effects may result from the introduction of new know-how to local firms, by among other things, demonstrating new technologies and training workers who later work for local firms.
Because innovation is one of the major drivers of a location’s competitiveness, the IB literature on technological spillovers is of particular interest. (Blomström & Kokko, 1998, pp. 247–248; Markusen & Venables, 1999, p. 336; Hubert & Pain, 2001, p. 136). The results of the studies devoted to this question are mixed (Görg & Strobl, 2001; Gugler & Brunner, 2007, pp. 273–276; Ben Hamida & Gugler, 2009, p. 497). The impact depends inter alia on the technological absorptive capacities of local firms and of the overall configuration of the diamond of the host location (Gugler & Brunner, 2007, p. 273). The main studies identifying positive spillovers focus on FDI in developed economies where the technological gaps between home and host economies are lower than in the case of FDI and developing countries (Rugman & Verbeke, 2001). The quality of the host country’s business environment also plays an important role in the potential positive impact of technological spillovers on the local economy. For example, Smeets and de Vaal (2016) show that countries with strong intellectual property protection benefit more from technological spillovers created by foreign affiliates.
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In that respect, the role of clusters in leveraging context to maximize the technological spillovers of MNE affiliates is particularly relevant. The agglomeration of economic and technological capacities plays an important role in benefiting from the efficiency and technology knowledge of foreign affiliates (Gugler & Brunner, 2007, p. 271; Franco & Kozovska, 2011, p. 131). The potential positive spillovers of MNEs on host countries are driven not only through transfer of know-how, knowledge, and technologies within existing clusters but also through their impulse toward the creation of new clusters and the development of embryonic clusters (Birkinshaw, 2000, pp. 99–103; Enright, 2000, p. 130; Porter, 2008, p. 247). In that respect, MNEs may contribute to strengthening the specialization and agglomeration of economics activities abroad, and therefore, the MNEs’ impact is an important factor of the drivers of economic agglomeration trends studied by economic geographers.
The economic literature focuses also on the transfer of knowledge and capacities from the MNEs’ foreign subsidiaries to the home country headquarters’ business units. These so-called “reverse spillovers”, quite neglected for many years, have observed increased interest among the IB and regional economics scholars (see, for example, Dunning & Lundan, 2008, pp. 406–408). Ambos, Ambos and Schlegelmilch (2006, p. 298) positively tested the following hypothesis: “headquarters’ benefits from reverse knowledge transfers will be positively related to the competitive strength of the host country”. Using patent citations, Tinguely (2013) clearly identified spillovers on both sides of Swiss pharmaceutical MNEs, i.e., within the home-based business and foreign affiliates. Tinguely’s study highlights the role of clusters in this respect. In the case of Swiss pharmaceutical firms, the major R&D affiliates are located in specific clusters abroad and in the home country (Switzerland). These results confirm that the agglomeration of economic activities within clusters contributes to benefits not only from the spillover of foreign affiliates but also from the reverse spillovers from the home MNEs’ affiliates located abroad (Tinguely, 2013; Gugler, Keller & Tinguely, 2015). The increase of the interest regarding reverse spillovers and their effects on the home country’s competitiveness has taken on new impetus with the increasing trend of emerging country MNEs investing abroad—inter alia through mergers and acquisition—to acquire knowledge capabilities abroad that will profit home country parent firms lacking FSAs (e.g., in the case of Chinese firms: Bhaumik, Driffield & Zhou, 2016). Nair, Dermibag and Mellahi (2016) investigated the reverse knowledge transfer of Indian MNEs to their home parents. According to their study, the main transfer occurs when parent firms benefit from knowledge capabilities thanks inter alia to their FSAs developed through adequate domestic research and development infrastructures. Many factors influence the intensity of technological reverse spillovers. For example, as shown by Mudambi, Piscitello and Rabbiosi (2014, p. 60), the importance of reverse technology transfers depends inter alia upon the mode of entry into foreign countries: greenfield subsidiaries generate higher reverse transfers than acquisitions. Among all features influencing these patterns, it is important to highlight the role of the CSAs of the home and host countries, particularly when those CSAs are shaped by the presence of innovative clusters. MNEs located in a home-based cluster may benefit from stronger technological FSAs, allowing them to benefit from higher externalities when they locate their subsidiaries in foreign clusters. The increased capabilities acquired abroad will also strengthen the importance of technological reverse spillovers in their home country. These are potentially more important when home-based parent firms are themselves located in home clusters.
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Conclusion
The competitiveness of location—as territorial, capital-attracting, value-added activities—has gained increased interest among the scientific community, particularly in the fields of Economic Geography and IB. Our review of the literature reflects four different, but interrelated, research orientations dedicated to the interconnection between the competitiveness of a specific location and MNEs’ choice of where to spread their value-added activities. The first approach considers the comparative advantages of a specific recipient location as one important criterion for explaining why, where, and how firms invest abroad. The OLI paradigm, developed by Dunning, perfectly reflects the interdependence between the location advantages of a specific recipient area, the ownership advantages of the firm, and its internalization of advantages. The second approach investigates the role of the competitive assets of home countries as an enhancer of domestic firms’ competitiveness and therefore as an enhancer of their ability to invest abroad. One of the major contributions in this field was offered by Alan Rugman, who considered CSAs on the one side and FSAs on the other to explain the international expansion strategies of firms. The third approach starts to consider the internal and external networks of MNEs. MNEs internalize the major assets, particularly the competitive location-bound assets, of their home and of their multiple host countries. Finally, the fourth approach studies MNEs’ spillover on their recipient countries as well as the reverse spillovers on their home countries. These spillovers affect the competitive advantages of their locations (through labor, research and development, competition effects, etc.).
These four approaches find their roots and results in major issues developed by economic geographers, such as the role of clusters, in explaining the competitiveness of home and host countries, and therefore the geographical expansion of MNEs.
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