Determinants of multinational enterprises’ (MNEs) location decision and ownership strategy: insights from Syria and Jordan

Abstract

Multinational Enterprises (MNEs) face two decisive and domineering decisions when expanding across borders, namely, location and ownership decisions. The location decision involves where an MNE should locate its affiliates (i.e. a specific market or country), whereas the ownership decision involves what level of control to have over them (i.e. a wholly owned subsidiary or joint venture). These decisions have concerned managers, decision makers, foreign investors, and academics in the field of international business. Hence, the aim of this study is to provide further empirical evidence and insights regarding the determinants of location decision and ownership strategy of MNEs. Reviewing the literature on the location and ownership decisions of MNEs reveals that altered theories and explanations have been used to address these phenomena. However, none of them provides a full explanation of the MNEs’ activities across borders unless it is combined by other theories. The only theoretical approach that provides a relatively full explanation of such activities is the eclectic paradigm. That is because it accommodates different explanations of all MNE theories by combining three types of advantages that are essential for any MNE to undertake foreign direct investment (FDI); these are ownership (O), location (L), and internalisation (I) advantages. Although this fact is evident in the literature, only few studies used the eclectic paradigm in examining and explaining both decisions incorporating all its factors together. Responding to this gap in the literature, this study developed a conceptual framework based on the eclectic paradigm incorporating all factors and variables that proved to have an impact on these decisions towards a better understanding of these phenomena. A questionnaire method was employed to examine the significance of the factors identified in the conceptual framework in determining the location and ownership decisions of MNEs. This questionnaire was addressed to senior executives of foreign affiliates operating in Syria and Jordan to ascertain the importance of these factors in the MNEs’ decision to locate in Syria and Jordan. The data were analysed by means of an exploratory factor analysis (EFA), a confirmatory factor analysis (CFA), and logistic regression for research hypotheses testing. In relation to the location decision, the following factors are found to be important: intangible asset advantages, market factors, institutional factors, advantages of common governance, strategic motives, cost factors, and transaction-specific motives. One of the interesting findings of this study is that ownership advantages are found to be more important than the location advantages. In relation to the ownership strategy, the following factors are found to be important in affecting MNEs’ preferences: ownership advantages (intangible asset advantages, advantages of common governance, and home country-specific advantages), location advantages (market factors, institutional factors, cost factors), and internalisation advantages (firm-specific motives). This study suggests that MNEs perceiving a higher level of importance for these factors are more likely to prefer a wholly owned subsidiary rather than a joint venture. Another interesting finding is that home country-specific advantages and cost factors are found to have a major effect on the ownership strategy selection. The findings also show that examining and explaining the location and ownership decisions should include the three OLI advantages. In addition, this study has proved that the OLI paradigm is the most suitable theoretical approach to examine and explain both decisions.