Microeconomic Determinants of Location Competitiveness for MNEs

The concept of microeconomic competitiveness based on the frameworks developed by Michael Porter since 1990 are popular with policy makers interested in improving the attractiveness and economic performance of their countries and regions. This concept also has many important implications for multinational businesses, a notion that has been initially discussed at the end of the 1990s. This chapter revisits the linkages between the two areas, focusing on the more recent learnings about microeconomic competitiveness and their implications for multinational companies. It lays out different dimensions of locational competitiveness and discusses their structural differences in terms of how they affect companies and how they can be affected by government. It finds that locational competitiveness is becoming an increasingly strategic question for both locations and companies: Locations need to choose their role in the global economy in terms of activities and value provided, and excel in the specific set of microeconomic dimensions that support this particular positioning. Companies need to choose locations that provide the specific assets and capabilities that are best placed to strengthen their own strategic positioning on the market place. The chapter also points out that the locational agenda for companies has broadened: they need to focus not just on choosing the right location, but on developing their strategies to leverage the locations in which they are present and on investing in those aspects of the microeconomic environment in their locations that are most critical to their own strategic position.