The Role of Entrepreneurship Theory and Methods, Practice and Policy
Edited by Sameeksha Desai, Peter Nijkamp and Roger R. Stough
Chapter 14: FDI Inflows to Sweden: Consequences for Innovation and Renewal
Börje Johansson and Hans Lööf 14.1 INTRODUCTION Why should a firm decide to have several establishments located in different regions and countries? We may also ask why the number and expansion of multinational firms have increased for several decades. Antras and Helpman (2003) argue that the expansion of foreign direct investment (FDI) flows reflects a growing specialization of production. The main mechanism for FDI is mergers and acquisition (M&A), and since the late 1980s the cross-border share of total M&A has been relatively constant (UNCTAD, 2000). Hence, the tendency of multi-location solutions is as strong within countries as it is between countries. Dunning (1977) suggests that a multi-location firm has specific assets that give it an advantage over potential competitors in a given region. In addition, the location of a subsidiary in a given region must also provide some advantage that is not obtained if the firm were exporting from some ‘home location’. Extending this argument, the assumption is that a lack of markets for firm-specific assets, including various forms of knowledge, provides the individual firm with incentives to internalize production and other supply activities in owned subsidiaries abroad (Caves, 1982; Braunerhjelm, 1999). Because of this, and with reference to Coase (1937), a firm may decide to penetrate a foreign market by means of direct investments instead of forming agreements to cooperate with firms in the foreign market, including licensing arrangements. When a multinational firm makes a direct investment in a foreign market it establishes an...
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