WHY MNCS LOCATE IN PARTICULAR CITIES: AN ANALYSIS BASED ON THE ADVANTAGES TO MNES OF THE RELEVANT CHARACTERISTICS OF NINE EUROPEAN CITIES
This research examines the motivations of multinational enterprises (MNEs) to locate subsidiaries in particular global cities. The nine European cities that provide the basis for this examination are as follow: Amsterdam, Netherlands; Berlin, Germany; Brussels, Belgium; Budapest, Hungary; London, United Kingdom; Munich, Germany; Paris, France; Prague, Czech Republic; and Vienna, Austria.
A variety of factors may motivate an MNE to locate a facility in a particular country. In some instances, such factors may be relevant to a specific market objective of the MNE, while in other instances, the motivation may involve costs of production and distribution which are relevant to the general functioning of the MNE. In all instances of MNE location in a country other than its home country, however, foreign direct investment (FDI) is involved.
A widely accepted premise is that firms expand to foreign markets in order to exploit the monopoly they possess over rent-yielding advantages such as economies of scale, and superior product and process technologies (Balasubramanyam & Greenaway, 1992). The internalization explanation of FDI, an extension to the monopoly exploiting premise, argues that, in the presence of various of market imperfections, it is advantageous for firms to internalize rather than engage in arm's-length transactions. Dunning (1989) identified three conditions as being essential for FDI to occur. First, firms should possess ownership advantages of the type identified in the monopoly exploiting premise. Second, advantages should be associated with producing in a foreign location (lower-cost labor, access to raw materials, and so forth). Third, internalization as opposed to arm's-length transactions must be beneficial. These requirements for FDI are not inconsistent with a long-...