Multi-Regional (incl. Multinational) Corporations and Host Economies



Host Region Concerns

  1. External Control Proposition (Branch Plant Economy): What does it mean for the host region or country to host economic activities which are governed and controlled by external headquarters?

  2. Disclosure of Corporate Information and Accountability: Does the firm disclose the type of information needed for local planning, development and economc policy purposes?

  3. Structural Inferiority Proposition: Truncation. (Firm (a) adjusts to local conditions and (b) to intra-firm patterns of division of functions resulting in "truncated" local structures.

  4. Lack of Local (Backward) Linkage Effects: extremely variable evidence;
    • Sub-Proposition: Some backward linkages are created by attracting supply firms from same country (car parts suppliers from Japan)

  5. (Possible) Lack of Export Incentives (since the MRC/MNC would not want to compete with itself in third markets)

  6. Instability Proposition: To what extent are employment prospects more or less stable than for domestic firms; when will the MRC/MNC "pack up and leave"?

  7. Anti-Competitive Industrial Structure: Many MRC/MNCs belong to industries which have an oligopolistic structure (thereby potentially projecting oligopolistic powers (originating elsewhere) to the host economy; may or may not lead to beneficial competitive effects)

  8. Capital- versus Labor Intensity: Does the MRC/MNC employ a capital/labor ratio which the host country considers appropriate for its development process?

  9. (In-)Appropriate Technology? To what extent is the technology imported and used by the MRC/MNC appropriate for the local level of education and skills and the long-run development process? Should the MRC/MNC be permitted or asked to "push the envelope" or should it "get away" with technologically truncated local production units? (see literature on "Small is Beautiful" by Schumacher and others)

  10. New Firm Formation: Birth rate of new firms suggested to be smaller in regions dominated by large/extra-regional (foreign) firms (less reliance on small local firms).

  11. Environmental Degradation and Accidents (What is "responsible" behavior of MRC/MNC confronted with restrictive regulation at home and lack of regulations in the host country?)

  12. Inappropriate Locations (MRC/MNC location in host countries may reinforce undesirable spatial structures; may be less willing (although able) to fit into intra-country regional development plans.

  13. Transfer Pricing, Profit Shifting, Tax Issues (Avoidance).

  14. Lack of Reinvestment (Repatriation of profits)

Home Region Concerns:

  1. Production Displacement Effects (Diversion of production to overseas locations); In the short-run: unemployment (?); In the long-run: higher- or lower-income use of labor (and other factors of production) set free by displacement; what kinds of jobs have been displaced? Jobs which had already been "deskilled"? Concepts: Conversion; retraining, (?)

  2. The Home-Office Effect (The Hollow Corporation; The Doughnut Corporation) Employment gains from non-production activities at headquarters. The domestic structure of the firm changes. Roger Hayter suggests "Truncation" takes place. "A truncated plant is one which does not carry out all functions ...."

  3. But: Export-Stimulus Effect: Employment gains arising from additional demand based on foreign/extra-regional investments (Backward linkages)


Foreign Direct Investment (Resources)

Dicken, Peter, "The Multiplant Business Enterprise and Geographical Space: Some Issues in the Study of External Control and Regional Development," Regional Studies 10(1976), 401-12

Dicken, Peter. Global Shift, 3rd. ed., 1998, Ch.8 ("Dynamics of Conflict and Collaboration,") This chapter used to be ch. 12 in earlier editions ("Beauty and and the Beast").

Erickson, Rodney A. and Thomas R. Leinbach, "Characteristics of Branch Plants Attracted to Nonmetropolitan Areas," in Richard E. Lonsdale and H. L. Seyler (eds.), Nonmetropolitan Industrialization (Washington, D.C.: V. H. Winston, 1979), p. 68.

Firn, J.R., "External Control and Regional Development: The Case of Scotland," Environment & Planning A, 1975, vol.7, pp.393-414.

Hayter, Roger, The Dynamics of Industrial Location, 1997, pp.390ff.

Lincoln, James R., "The Urban Distribution of Headquarters and Branch Plants in Manufacturing: Mechanics of Metropolitan Dominance," Demography, 15(2), May 1978, pp.213-22.

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