Scope, scale, and locational preferences: an analysis of emerging multinationals

Abstract

This paper aims to examine the case of emerging multinationals, using a large sample of Spanish parent-subsidiary links obtained from ORBIS Bureau van Dijk. Three characteristics of multinational firms are specifically considered: their scope, scale, and location decisions. Our results confirm that more productive firms engage in greater multinational activity in terms of their scope (the number of foreign markets in which they invest) and scale (the volume of local sales by subsidiaries in foreign markets). The structure of multinational firms’ activity is also analyzed from the perspective of host country characteristics. Distance and the relative labor costs of the host country are negatively related to the scope of foreign direct investment decisions, whereas the presence of a common language, host country size, and institutional quality positively influence decisions to invest abroad. In the manufacturing sector, host country tariffs positively correlate with the scope of multinational firms' operations, whereas regulatory trade barriers in host countries negatively influence investment decisions in the services sector. These results are robust to the control of endogeneity between parent firms’ productivity and both the scope and scale of subsidiaries abroad.