Istanbul Business Research
The Necessity of Sector Carrying Capacity in Multinational Companies' FDI Location ChoiceÇiğdem Baskıcı, Yavuz Ercil
The aim of this study is to define the carrying capacity as a new criterion in multinational companies’ foreign direct investment (FDI) location choice. The validity of such a definition requires the existence of a causal relationship between FDI and the number of companies at the investment location. As carrying capacity is a function of the sector population, FDI refers to the decisions of foreign investors regarding location choice. With this in mind, the company numbers and FDI data used belonging to 34 sub-sectors of Agriculture, Industry and Services sectors in Turkey between the years of 2006-2016 were analyzed. The Granger causality test was applied to investigate the causal relationship between the company numbers and FDI. As a result of the findings, a causality relationship between the number of companies and FDI was determined in 29 of the 34 sub-sectors. A causality relationship could not be found in 2 sub-sectors. Analysis was not possible in the remaining 3 sub-sectors because of a lack of data. The results show that carrying capacity can be used as decision criterion in multinational companies’ FDI location choice. In addition to this main result of the study, predictions for the investment decision are presented in the light of the analyses along with evaluations of the carrying capacity of the Agriculture, Industrial and Services sectors.
Çokuluslu Şirketlerin Doğrudan Yabancı Yatırım Yer Seçiminde Sektör Taşıma Kapasitesinin GerekliliğiÇiğdem Baskıcı, Yavuz Ercil
Çalışmamızın amacı çokuluslu şirketlerin doğrudan yabancı yatırım (DYY) yer seçim kararlarında taşıma kapasitesini yeni bir kriter olarak tanımlamaktır. Böyle bir tanımlamanın geçerliliği DYY’ler ile yatırımın yapıldığı yerdeki şirket sayıları arasında bir nedensellik ilişkisinin varlığını gerektirmektedir. Taşıma kapasitesi sektör popülasyonunun bir fonksiyonuyken DYY’ler, yer seçimi konusunda yabancı yatırımcıların kararlarını ifade etmektedir. Bu doğrultuda Türkiye’deki 2006-2016 yılları arasında Tarım, Sınai ve Hizmetler sektörlerinin 34 alt sektöründeki şirket sayıları ile aynı alt sektörlere ait DYY verileri kullanılmış; şirket sayıları ile DYY’ler arasındaki nedensellik ilişkisini araştırmak için Granger nedensellik testi uygulanmıştır. Elde edilen bulgular sonucunda 34 alt sektörün 29’unda DYY’ler ile şirket sayıları arasında nedensellik ilişkisinin varlığı tespit edilmiştir. Sadece 2 alt sektörde nedensellik ilişkisi bulunamamıştır. 3 alt sektörde ise eksik veriden dolayı analiz yapılması mümkün olmamıştır. Ortaya konulan sonuçlar taşıma kapasitesinin çokuluslu şirketlerin DYY yer seçimi kararlarında bir kriter olarak kullanılabileceğini göstermektedir. Çalışmanın bu ana sonucunun yanında Tarım, Sınai ve Hizmetler sektörlerinin taşıma kapasitelerine ilişkin analiz ve değerlendirmeler ışığında yatırım kararına yönelik öngörüler de sunulmuştur.
Due to the shifting of production to different regions outside of home countries, more researchers of international business and economics have started to focus on multinational companies’ (MNCs) location choices of foreign direct investment (FDI). Thus, a rich literature of choice criteria has been created. In this study, we aim to define carrying capacity as a new criterion in MNCs’ FDI location choices. The validity of defining carrying capacity as a choice criterion requires the presence of a causality relationship between FDI and number of companies at the location of investment. While carrying capacity is a function of sector population, FDI refers to decisions of foreign investors about the choice of location. In our study, we used FDI data from 34 sub-sectors of the Agriculture, Industry and Service sectors in Turkey between 2006-2016 as well as the number of companies in the same sectors. The FDI data was obtained from the data bank of the Central Bank of the Republic of Turkey (2018), and company numbers from the data bank of the Ministry of Economy of the Republic of Turkey (2018). We investigated the causality relationship between the number of companies and FDI in these sectors. Before carrying out the analyses, a test to see if the time series satisfied the stationarity condition was required. Although there are examples of stationarity tests within the literature, in this study we selected the Augment Dickey-Fuller unit root test, which is the most widely used method. After rendering the variables stationary, we applied the Granger causality test in order to test for the presence of any causality relationship among the variables. In addition to the main analyses, we calculated the carrying capacity of the sectors using the logistics growth model. The findings obtained show that there was a causality relationship between FDI and number of companies in 93.5% of the sectors. We found a one-way causality relationship in 12 sub-sectors from FDI towards the number of companies, and a one-way causality relationship in 13 sub-sectors from number of companies towards FDI. In addition, we found a two-way causality relationship between FDI and number of companies in 4 sub-sectors. We could not find a causality relationship between FDI and number of companies in 2 sub-sectors. It can be understood from the findings from the sample that in all of the sectors we studied (Agriculture, Industry and Service sectors), in Turkey sector population is greater than the sector’s carrying capacity. The one-way causality relationship from number of companies towards FDI indicates that the number of companies in a sector can affect FDI– in other words, MNCs’ investment decisions in that sector. This might result from the mimetic behaviors of companies, which have created a notable area of study within international business literature. Another reason why number of companies can affect FDI might be agglomeration economies. Our study’s finding of the one-way causality relationship from FDI towards number of companies shows that FDI may affect the number of companies in the related sectors. This relationship might stem from various reasons. FDI is a whole set of capital accumulation, know-how and technology for the sector it enters, and can enhance current knowledge in that sector through labor-force training, adding abilities to the labor-force, alternative management applications and organizational regulations. All these are in fact factors that increase the sources of a sector, and might enable the establishment of more companies. Moreover, FDI might lead to the opening of new production/supply areas in the sector it enters. One of the remarkable findings of our study is that, in the sub-sectors of the Service sector, the number of companies is the main reason for FDI. Additionally, two-way causality relationships between variables were found in only 3 sub-sectors of the Service sector. This indicates that, in these sectors, FDI affects the number of companies, and the number of companies affects FDI. The fact that two-way causality relationships were only observed in the Service sector brings up new questions about the reasons behind this. The answers to these questions may be sought within companies’ strategic approaches in the sector or within the sectorial character. Furthermore, it is also possible to initiate a new discussion on twoway causality by taking into consideration the structure of the Turkish economy, which has evolved into a service-intensive producer. Further and more detailed research carried out to answer these questions could make more detailed investigations possible. In conclusion, this study suggests that MNCs use carrying capacity as a criterion in location choice decisions for FDI during the internationalization process. When carrying capacity is taken into consideration, an MNC will both be able to decide whether to enter a sector and have an indicator as to how to enter the sector once the entrance decision is certain. Thus, it will be possible for that MNC to make strategic evaluations in internationalization decisions.