1. ¹Edhec Business School, Nice, France
2. ²Richard Ivey School of Business, University of Western Ontario, London, Canada
3. ³HEC Montreal, Quebec, Canada

Correspondence: J-L Arregle, Edhec Business School, 393 Promenade des Anglais, 06202 Nice cedex 3, France. Tel: +33 493 18 34 91; Fax: +33 493 18 78 42; E-mail: jean-luc.arregle@edhec.edu

Received 6 July 2007; Revised 26 November 2007; Accepted 2 January 2008; Published online 2 October 2008.

Abstract

This paper examines the regional effect of MNEs' foreign subsidiary localization. We hypothesize that the number of subsequent foreign subsidiaries in a country is in part determined by a firm's prior foreign subsidiary activity at the regional level. We test our hypotheses using data on 1076 Japanese MNEs that created 3466 foreign subsidiaries (1837 wholly owned FDIs and 1629 joint ventures) over the period 1996–2001. We use a multilevel negative binomial approach with three levels of analysis: localization decisions in a country (49 countries), in a region (six regions) and at the headquarters level. In this way, we test the regional effects controlling for country and corporate dimensions. We also run separate models to differentiate wholly owned and joint venture localization decisions. Our results strongly support the semi-globalization perspective in that the regional-level effects are significant and different from the country-level effects for all foreign subsidiaries, for wholly owned subsidiaries and for jointly owned subsidiaries. Japanese MNEs adopt a regional perspective that complements their decisions at the country and firm levels. They seek regional agglomeration benefits and make arbitrage decisions between countries in the same region.