FDI, the Location Advantages of Countries and the Competitiveness of TNCs: US FDI in Professional Service Industries

This paper seeks to examine the impact of the foreign activities of firms on their international competitiveness. It addresses questions such as: to what extent and under what conditions can firms compensate for deteriorating location advantages of their home country and maintain their lead in an industry through investment in foreign countries? Under what conditions can firms reap the benefits of a locationally advantageous foreign country? These questions are examined with reference to selected US professional service industries. The findings show that FDI weakens the link between the location advantages of home countries and the ownership advantages of firms, as it enables firms to develop advantages which are not directly related to the location advantages of their home countries. However, this impact is very moderate, and is exercised through the indirect impact of FDI on the advantages of firms and countries. The ownership advantages which firms develop in their home countries are the most critical determinant of their competitiveness.