Ana Teresa Tavares

FDI and Multinationals: Patterns, Impacts and Policies

This Special Issue brings together eight articles dealing with a group of very topical aspects concerning recent patterns in FDI and multinationals’ (MNEs) activities, MNEs’ impacts in different host economies (especially regarding linkages with domestic firms, and productivity spillovers), the dynamic interaction between inward-outward investment, and, above all, policy vis-a-vis MNEs. A strong policy focus is the common thread linking the papers presented here, as all debate thoroughly the policy implications of the results obtained, and question some common recipes used to attract and embed international investors. The articles show that, given the complexity of the issues tackled and the heterogeneity of the impact scenarios, there are no quick fixes or easy responses. However, this does not preclude a serious discussion of the topics and, based on solid empirical evidence, the suggestion of specific policy options. The articles in this Special Issue mostly focus upon inward FDI and foreignowned MNEs. However, some of the most interesting conclusions concern domestic firms, and particularly those that have undertaken outward FDI and become multinationals in their own right. Inward and outward FDI are linked, of course, as is discussed shortly, although the fact that policy-makers have generally yet to make the specific connection (hence fully understanding what this interaction means for competitiveness and development) has important implications.

Multinational Subsidiary Evolution and Public Policy: Two Tales from the European Periphery

The paper explores the link between subsidiary evolution and public policy towards multinational enterprises (MNEs). The cases of two peripheral EU economies (Portugal and Ireland) are contrasted, both in terms of their “inward investment” policy stances and as regards differential evolutionary processes at subsidiary level unveiled by empirical results from a new survey of subsidiaries operating in those two host countries. After examining issues such as motivations underlying investment, subsidiaries roles/strategies and evolution (addressing distinct paths in subsidiary transition), the paper discusses the potential contribution of subsidiaries to host country development and what constitutes an appropriate policy towards multinationals. Explicit consideration is given to subsidiaries’ value-added scope and the density and quality of local linkages as key determinants of host country impact.

Evolution of Industry Clusters through Spin-offs and the Role of Flagship Firms

The manner in which clusters emerge and evolve is important for public policy and corporate strategy. Understanding how and why clusters emerge and develop provides insights into agglomeration phenomena, innovation capacity, location advantages, and may influence local governments’ investments. Extant research has traced the origins of clusters to historical trajectories and to reasonably random and undefined exogenous events (Hendry et al., 2000). In other instances, scholars identify life-cycle patterns to show that clusters are living entities that thrive and fail in response to environmental shifts (Swann, 1998). Others focus on unusual entrepreneurial dynamism and innovation in some regions (Saxenian, 1994; Pinch and Henry, 1999; Feldman, 2001; Zander, 2003). Extant research has two main perspectives: first, the discussion on how innovation may or may not occur as the density of firms in the cluster increases; second, the idea that firms’ co-location induces isomorphic behavior.

A New Perspective on Parenting Spin-offs for Cluster Formation

The factors propelling the competitiveness of industry clusters have been subject to extensive research. While these factors are reasonably understood, the conditions that lead to the emergence and evolution of clusters still warrant further examination. This chapter proposes that the emergence and development of at least some clusters are endogenously driven by the generation of new insider entrepreneurial spin-offs1 from incumbent firms. The specific conditions that lead to spin-off opportunities are beyond the scope of this chapter, but because these opportunities exist — for example because of technological or market changes or employee dissatisfaction — new firms will be founded. The majority of these spin-offs shape the cluster’s birth, configuration, technological specialization and evolution by remaining in the same region as the parent firm (Arthur, 1990; Zander, 2003). Hence, knowledge of the genesis of inter-firm ties in a cluster may permit a better understanding of the formation and evolution of the inter-firm organizational forms that prevail in clusters. This line of enquiry builds on recent research on how the emergence and growth of clusters are essentially an entrepreneurial process and on research studying entrepreneurship as a regional phenomenon associated with unusual innovativeness and dynamism (for example Saxenian, 1994; Zander, 2003).

Conclusions and Policy Issues

Multinationals, innovation and regional development are, and have been for a long time, topical and debatable issues. Despite the vast bodies of literature focusing on each of such aspects, and the fact that they are undoubtedly linked, there is a need to contribute to a more integrated understanding of how these issues relate and interact, as their very interaction underpins to a considerable extent the prosperity of countries and regions. This volume aims exactly at shedding light onto the complex and dynamic, yet specific, relationships that can be established between multinational firms, key actors in today’s global economy, industrial clusters (as agglomeration and proximity are deemed important to promote linkages and innovation), and the innovative activity itself. Underlying this project is also the need to develop and specify the policy implications arising from these phenomena, especially in terms of devising concrete scenarios and making practical proposals for positive policy intervention, so that the developmental impact of multinationals, clustering processes and innovative activities are maximized.