Adaptive Business Location, Survival, and Sustainability in Transitional Market Economies
Grant
Overview
abstract
This project addresses the problem of business survival through spatial or non-spatial (e.g., management and operational) changes in the context of foreign direct investment (FDI) into post-socialist, emerging market countries. In the case of former socialist transition countries, FDI inflow is primarily from the west for labor and other factor cost advantages, as has been witnessed over the last decade. The investigators expect that firms should become more efficient in their location choice after experiencing the transition and its effect on their operations and markets, yet adaptive behavior in ex-socialist settings has received minimal attention in the literature. A model of the adaptation process is proposed that considers the original FDI location as one made with good information about the new market, or one based on inadequate assessment of the conditions that affected the firm's operation. Either way, a firm can choose a good or bad location, resulting in the possible need for adaptation through management or location change, unless it becomes "adopted" by the system. The decision to stay in place or move to another location will be made on the basis of firm characteristics and options available. Examples of spatial adaptation through location change may include clustering, or clustering may be a form of adoption where other firms gather around an original FDI company. To study the adaptation process, this project uses survivors from an earlier NSF study of the original FDI firms from Nordic countries that entered the Baltic region after Soviet collapse in 1991. It compares adaptation trends and reasons with firm characteristics such as size, source country, host setting, and original location decisions. Data from the earlier study will be compared with current data for each surviving company.
The project will further basic understanding of adaptive behavior by firms in a new setting. By selecting survivors who entered the fast-changing and high-risk post-Soviet Baltic region at roughly the same time, the project should help answer some questions about the importance of initial location decisions and the need for location change to survive in the emerging market setting. The investigators also will be able to determine whether geographic patterns of clustering have developed and if these are viewed as important in the firms' survival strategies. The longitudinal study of these firms provides a unique opportunity to study survival, adaptation, and change during the first ten years of the transition to market economy. Because FDI is an important development strategy in transition countries, this project also will provide needed evidence of surviving companies' adaptive strategies and the reasons for needed changes during the first ten years of the transition. The broader impact of the study could be policies that are better designed to alleviate these problems if governments understand how they affect FDI (and local) firms.
