Adjustment strategies of multinational enterprises to changing national competitiveness

This article establishes a link between four combinations of relative firm-specific advantages and comparative advantage and the adjustment strategies of multinational firms. Based on the distribution of firms across advantage combinations, hypotheses on four adjustment strategies are developed: expansion, rationalization, exit and relocation. Upon a detailed analysis of a representative sample of manufacturing firms for 1990-2000, a consistent competitiveness ranking of domestic and foreign firms across industries and over time is derived. The strategies followed by the firms are reflected by the development of employment, value-added and exports. Results show that firms are not distributed entirely in line with comparative advantage, but the dynamic interaction ("match") of location-advantage and firm-specific advantage seems to be decisive. Results also confirm that domestic and foreign firms partly react differently under a given advantage combination. The following principles for location policies are suggested: the empirically measured mismatch of firm capabilities and location advantages determine when direct and indirect measures should be used. The intensity of policy measures should be oriented towards the competitiveness ranking derived.