Do United States multinationals engage in sequential choice? Evidence from new manufacturing operations in Europe and Asia-Pacific

Despite an extensive literature on the determinants of the foreign location choices by multinational companies, researchers have only recently begun to systematically examine how these companies form their location consideration sets. When considering new foreign locations, do firms evaluate the attributes of the alternatives at the national level, the sub-national regional level, at some other level of geographical aggregation, or using some combination of these? This study employs discrete choice models to examine how U.S. multinational companies form their location consideration sets and to identify some of the relevant location attributes. The data set covers new manufacturing investments by U.S. companies in selected countries in Europe and Asia-Pacific over the period 1989-2003. The results indicate that U.S. firms tend to employ a sequential, or hierarchical, choice process in which a host country is first chosen based on one set of attributes and then a region within that country is chosen based on another set of attributes. Location attributes related to industrial agglomeration (such as the proximity to customers, suppliers, workers with the necessary skills, and transportation infrastructure) appear to dominate location attributes related to factor prices (such as the availability of cheap land and low-wage labor).