International plant configuration strategies: a structured decision making approach and product level test

Abstract

We analyze the determinants of the decision to invest abroad and the choice of spatial configurations of overseas plants for 120 Japanese firms active in 36 well-defined electronic product markets. We find support for a structured internationalization decision model in which the decision to internationalize is taken at the product level after scanning for all possible profitable foreign plant configurations based on the locational advantages of different regions. In addition, strategic drivers related to the competitive position of the firm's in the product market and its technology base have a critical impact on the choice between alternative international plant configurations. Regional configurations focused on Asia are chosen by firms with weaker competitiveness for products with established manufacturing technologies. Plant configurations focused on the US and the EU are pulled by restrictive trade policies and are chosen by technology intensive firms facing competitive threats in foreign markets. Global configurations are chosen by firms with a strong competitive position in the Japanese and world market for their core product businesses and are more common in case of strong oligopolistic rivalry between Japanese firms. Keywords: Foreign Direct Investment, Plant Location, Multinational Firms