International Strategy: Context, Concepts and Implications

Chapter 9 Where to Locate?

MOTIVATION

I began research for this book in the late 1990s. At that time China had barely appeared on any multinational's radar screen (Exhibit 9.1 shows market shares of global exports – the best measure of a country's presence in international competition). As a result, when I am asked what has been the biggest recent change in the global arena, my response is simple, “China.” China has emerged on the global landscape in the last two decades, in a dramatic way, by opening new markets and new locations for multinationals and triggering repercussions around the world. We covered product market issues in the previous chapter. Here we consider countries like China as locations for a multinational's activities and address the factor market issues underpinning international competition.

Exhibit 9.1 World Export Shares, 2000–2010

The chart in Exhibit 9.2 shows the impact China had on global manufacturing in the first decade of the twenty-first century. In 2004 there was seen to be a huge labor cost advantage to be arbitraged by relocating manufacturing to China. Even after allowing for all the additional overhead and coordination costs of managing operations in a country as foreign as China, it was expected that the landed cost into the USA or Europe would be at least 25% lower than if the item was made domestically. At the same time as such analyses ...