The persistence of distance? The impact of technology on MNE motivations for foreign investment

Lilach Nachum, Srilata Zaheer

Research output: Contribution to journalReview articlepeer-review

214 Scopus citations

Abstract

Why do firms go abroad when technology makes it possible to do business at a distance? We argue that the cost of distance differentially affects investment motivations across industries. We find support for this hypothesis in a study of U.S. inward and outward FDI. Knowledge seeking and efficiency seeking are the two most important explanations for international activity in information-intensive industries, reinforcing the value of intangible resources in this sphere. In less information-intensive industries, market seeking and the search for low-cost export platforms are the dominant motivations for FDI. An important implication for the current debate on offshoring is that inward FDI flows into the United States occur in high- rather than low-paying industries, and are of the knowledge-seeking variety, while outward flows are driven by the search for efficiency and markets.

Original languageEnglish (US)
Pages (from-to)747-767
Number of pages21
JournalStrategic Management Journal
Volume26
Issue number8
DOIs
StatePublished - Aug 1 2005

Keywords

  • Global organization of work
  • Information-intensive industries
  • Knowledge-seeking investment
  • MNE motivations
  • Offshoring
  • Technology

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