Location choice research: proposing new agenda.
| Verfasser | Jain, Naveen Kumar |
| Posten | RESEARCH ARTICLE |
Abstract Location decisions assume great significance for both managers and scholars as the choice of overseas location has the potential to either enhance or dissipate firms' profitability. The aim of the paper is to conduct a critical review of the research articles that have been published on the topic of location determinants since 1975. We analyzed 151 articles published since 1975 until September, 2015 in 17 leading management and international business journals. Our analysis suggests that a vast amount of literature on foreign direct investment (FDI) catalogues a long list of determinants that try to explain FDI by multinational companies in a particular location. However, it is noticeable that the results have, sometimes, been equivocal. Based on our analysis, we suggest that location determinants can be organized into two broad categories. We use these categories to propose a comprehensive model and four agenda that, we believe, will be helpful to both the scholarly and managerial communities. Further, we attempt to decipher some salient research questions on the basis of our analyses. Our paper enhances the literature on location decision by providing a comprehensive model and directions for future research that will be of interest to the readers of management international review.
Keywords Location choice * Location determinants * Developed country * Developing country * Foreign direct investment (FDI) * Review
1 Introduction
The scholarly research on the determinants of host country location choices by multinational companies (MNCs) assumes significance as foreign direct investment (FDI) continues to be keenly attracted by various governments to develop their countries (Brooks et al. 2010). Besides host countries, firms, too, are eager to expand overseas to benefit from the location embedded competitive advantages. Given this, in past several decades, especially after Johanson and Wiedersheim-Paul's (1975) seminal work on the overseas locations chosen by Swedish MNCs, the location literature has received a definite boost. For example, our search of the literature resulted in a total of 151 publications (1) on location determinants in 17 leading management and international business journals in the past 40 years between 1975 (after Johanson and Wiedersheim-Paul's article) and September, 2015.
The stupendous progress in the literature has produced valuable insights into the determinants of location choices of MNCs. However, a disparate use of these determinants has us believe that a systematic categorization of these determinants and their unification into a comprehensive model are likely to advance the location choice literature. Keeping this in mind, this paper conducts a synthesized review of the 151 articles. In doing so, we also identify and address some issues pertaining to the variables used in the literature.
We categorize various location determinants under two broad categories. The first broad category has been labeled as firm- and industry-specific location determinants whereas the second category has been named as country-specific location determinants. For drawing our comprehensive model, we borrow from Dunning's (1998) eclectic paradigm. Our model includes two steps, as shown in Fig. 1. In the first step, we identify some firm- and industry-specific location determinants that facilitate MNCs' resource exploitation or exploration internationally. Facilitated by the determinants in the first step, firms, if they want to internationalize, proceed to the second step of the model where they examine country-specific location determinants to evaluate the attractiveness (or unattractiveness) of a host country for resource deployment. As a result of the evaluation, if the answer in step 2 is a 'yes' (which would mean that host country or city appears attractive), the firm chooses that location, and if the answer is a 'no', the firm rejects that location. In so doing, we provide a coherent categorization of determinants on the basis of their firm, industry or country specificity. Further, we bring firm resources and internationalization motivation (exploitation or exploration) into the forefront, and address a general apathy in the location literature towards firm resources despite their recognition as one of the most important drivers of internationalization (Dunning 1998). Moreover, our comprehensive model enables us to propose four scenarios and propositions to potentially give a new direction to the literature.
As our goal was to categorize location determinants and unify them under a theoretical framework, we chose to conduct a narrative review of the location literature instead of a meta-analysis. In fact, we were surprised by the lack of a literature review that takes stock of and categorizes the location determinants. Our comprehensive search identified only three such reviews in the location literature between 1975 and 2015. A recent review by Kim and Aguilera (2015) of the articles published between 1998 and 2014 focuses on identifying the topics that have captured the attention of the location scholars during this period. It does not directly discuss the location determinants. Therefore, our effort to systematically categorize location determinants by studying the literature for the past 40 years complements the review by Kim and Aguilera (2015). At the same time, we feel that a comprehensive framework proposed in our review is unique and provides a decision making tool for managers and researchers.
[FIGURE 1 OMITTED]
We came across two additional synthesized reviews. However, they focus only on two specific location determinants, namely cultural distance and agglomeration, thus, not touching much of the iceberg. The first review by Tihanyi et al. (2005) uses a meta-analysis to examine how cultural distance influences a firm's internationalization-related decisions, including its location decisions. The second review by McCann and Folta (2008) examines 'agglomeration', a determinant that seems to have received considerable attention in the domain of economic geography. Therefore, we believe that a comprehensive review based on all determinants is warranted at this time.
The paper is organized as follows. The following section highlights the research methodology used in this paper. In section three, we provide a brief overview of the various location determinants studied in the literature, categorize some of these determinants as facilitating resource exploitation or exploration, and some as the hurdles to be overcome. We, then, detail our theoretical model. In section four, we list some unresolved questions that warrant future research. Finally, we conclude our review with a brief discussion on some challenges scholars may face in adopting the proposed framework.
2 Research Methodology
We used the systematic review procedure recommended by Denyer and Neely (2004) and Tranfield et al. (2003). We began with the six top-tier management journals noted by Tahai and Meyer (1999), and the seven leading journals in the International Business (IB) field identified by Dubois and Reeb (2000), Lahiri (2011), Michailova and Mustaffa (2012), and Denk et al. (2012). Additionally, we added four other leading management journals to this list to conduct a more exhaustive search of the articles in the literature. Thus, we examined 17 leading IB and management journals. (2)
We utilized EBSCOhost (Business Source Premier) and ScienceDirect online databases for downloading the published articles. We looked into only the full-length research articles investigating firm location choice of either a country or a state/city within a host country, and published in the above-mentioned 17 journals. Consequently, dissertations, book chapters and reviews, editorials, and commentaries were not considered for this review. We used keywords, such as "determinants", "FDI", "foreign direct investment", "foreign entry", "globalization", "location", "location choice", and "location decision", to shortlist articles on the topic. The keywords were picked on the basis of our review of the titles and the keywords of the 15 most-cited articles in the location literature. An initial list of articles was prepared by using the advanced search option of electronic databases including EBSCOhost (Business Source Premier) online database, ABI/Inform (Proquest), and Web of knowledge. As we anchored on the 1975 article of Johanson and Wiedersheim-Paul, we deliberately examined articles published since then until September, 2015. In order to ensure that we did not miss any pertinent article in the screening process, references of all articles that cited the top 15 most-cited articles as per Social Science Citation Index were manually examined. Finally, we also conducted a manual search of all of the volumes published since 1975 in the 17 journals. All of these steps yielded us a database of 151 articles.
2.1 The Rationale for Selection of the Articles
We followed some criteria for adding a paper to our dataset. First, the articles included in our analysis only discussed location determinants with respect to both the FDI inflows into a specific country, group of countries, or a broader region, and the FDI outflows from a country, or several countries. We also included those articles that discussed FDI inflows into states or cities within a host country. In all of the 151 articles, the authors had very explicitly specified one of the abovementioned questions as their research agendum. Second, as the focus of this review is overseas location determinants, we did not include any article that examines internationalization processes, such as speed or performance of firms, as a result of location choices (see, for example, Vermeulen and Barkema 2002; Nachum 2004; Qian et al. 2013), location choices for regional headquarters, or domestic location choices within their home countries by incumbent firms (see, Baum and Haveman 1997)...
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