8.2.1. Various theoretical approaches

The theoretical reflections on multinationalization are relatively recent (late 1950s), but have developed widely in recent years, thanks to a number of empirical studies concerning multinational firms (groups and/or SMEs), sectors of activity, and different countries (Table 8.1). International operations have affected not only the competitive (strategic) advantages of firms, but also the comparative advantages of countries [IET 98, IET 05].

The theme of internationalization was also at the heart of the reflection of authors from “different worlds”. [OES 11] have mentioned this in particular, and have also emphasized the contributions of different disciplines in the field of international management:

“Most theories used by IB/IM scholars are borrowed from other subfields of business administration such as strategy, organization, and finance – or even from disciplines outside business administration (e.g. economics and sociology). For instance, this is true for the resource-based view (strategy), real-options theory (finance), information-processing theory (organization), and neo-institutionalism (sociology)”.

The first attempt to explain firm multinationalization was made by rejecting the main lessons of international trade theory, because its approach focused solely on raw materials and manufactured goods. While international trade theory was based on models assuming pure and perfect competition, as well as the international immobility of factors of production, there was increasing evidence that firms operated in a world of imperfect competition, generally oligopolistic in nature, and that they were exporting extra amounts of capital.

Authors like [HYM 68] insisted on the importance of taking into account imperfect competition structures and oligopolies as key elements of the multinational firm. In that sense, the concept of “specific advantage” was particularly heightened: firms should possess and/or develop specific advantages transferable at an international level, which will enable them to accomplish greater gains, higher than the costs related to establishing in business. Specific benefits are linked to a number of market imperfections (products, factors of production, economies of scale, government policies favorable to the presence of multinational companies, etc.). This theoretical corpus was criticized in that it could not fully explain why a firm chooses to settle abroad instead of exporting goods and exploiting its specific advantages. Truth be told that there is no specific determinant for multinationalization. The following theoretical analyses will try to apprehend oligopolistic competition on a deeper level: firms are internationalized as a reaction to a competitive context. Vernon’s concepts of “product cycle” and of a (temporary) technological monopoly linked to innovation show how an innovative company in a certain country decides to relocate after having exported to the markets of other developed countries.

Nowadays, a progressive analysis of the company and its internal organization is being developed. Competitive factors are no longer decisive as they used to be. The firm is now at the heart of the problem and Foreign Direct Investment (FDI) appears as a result of its development process. The more growth oriented a firm is, the more it will seek to diversify, in particular geographically, in order to reduce risk. The theory of internalization has often been evoked so as to explain this evolution (we will study this aspect on the next section of the chapter).

However, there is also another interesting theory that accounts for the advantages of internationalization: the concept of liability of foreignness. The firm that wants to settle abroad holds a certain disadvantage (liability of foreignness) compared with domestic firms. This disadvantage can be explained because of the favorable treatment that domestic firms sometimes receive, to the detriment of foreign investors. Foreign investors have to face not only economic conditions (market, demand structure), but also social conditions (labor law, hours of work, protection of employees) in accordance with the law and with which they are at times unfamiliar. This relative lack of knowledge (at least in the early stages of internationalization) may engender considerable costs, to the point of inviting the multinational firms to leave the country. The concept of liability of foreignness was defined by [ZAH 95] as:

“the costs of doing business abroad that result in a competitive disadvantage for an MNE subunit… broadly defined as all additional costs a firm operating in a market overseas incurs that a local firm would not incur”.

These costs are generally associated with:

• – geographical distances (costs of transport, staff commuting between headquarters and subsidiaries, coordination costs linked to jet lag, depending on the geographical area);
• – specific elements related to a lack of information and specific knowledge about the local environment and the domestic market;
• – cultural factors [BRO 01, MES 08b, MEI 13] and policies that may destabilize the foreign firm by questioning its legitimacy (strong nationalistic feeling).

However, how do these arguments relate to Hymer? In fact, Hymer was the first author in the 1960s to notice these disadvantages:

“[…] national firms have the general advantage of better information about their country: its economy, its language, its laws, and its politics. In given countries, foreigners and nationals may receive very different treatment [from government, consumers, and suppliers]. Foreigners may also have disadvantages […] because of their own government’s actions, for international operations are affected by the laws of the home country”.

Miller [MIL 02] and Luo [LUO 02] have pointed out that these costs can be overcome thanks to the development of firm-specific advantages linked to specific organizational or managerial capacities [DUN 77, ZAH 95].

In the 1970s, Johanson, Vahlne and Wiedersheim-Paul deepened the notion of distance in their work concerning the Uppsala model (U-model), where they outlined the main stages of the internationalization process. The Uppsala model is described as progressive and continuous because of the existence of a “psychic” distance between the firm engaged in international activities and the host country [JOH 75, JOH 77]. In this model, four steps are usually identified: single export transactions, later followed by an agent, commercial representation in the host country, and the establishment of a production and/or distribution subsidiary resulting from a deeper knowledge of the local market, thanks to the experience gained by the foreign investor. Some of the criticisms aimed at this model include the irreversibility of phases, the lack of clarity on the reasons behind the transition from one stage to another, and the failure to consider other development modalities such as mergers and acquisitions (which elicit integration issues), alliances (with local partners) and inter-organizational networks.

8.2.2. Arbitration between different methods of penetration in foreign markets

The different approaches sketched in Table 8.1 attempt to answer a fundamental question: how can a firm benefit from operating internationally? The advantage will particularly depend on the choice of internationalization modalities. The options are truly varied: exports, foreign direct investment (FDI), cooperation agreements and/or licensing [HEN 88, BUC 98, KOG 02, BEA 02]. As we will see in the next paragraphs, these modalities have been studied following step-by-step approaches, each stage of the internationalization process favoring a different mode of market penetration.

Modalities for penetrating foreign markets can be divided into two broad categories. the first one relates to simple market transactions (Table 8.2) and the second one refers to foreign direct investment (FDI), which intends to elicit a larger commitment on the part of the firm and which can be sustained over time (Table 8.3).

The latest report published by UNCTAD [UNC 16], which annually records all FDI operations, states that JVs still play an important role in the internationalization strategies of firms [MAY 11, MAY 13]. There are several reasons that may explain why, from the many types of international cooperation agreements, it is often the joint venture form that is privileged, to the detriment of other external growth operations:

“In this case, while the partners are concerned about the local profitability of production, the parent company of the multinational concentrates on the global profitability of the business. Besides, the transfer of technology to the foreign subsidiary is limited by the risks of the joint venture partner’s appropriation of the technology. Finally, the intention of the parent company to globally fragment production and to transfer prices between subsidiaries may enter into conflict with the strategy of the local partner” [MUC 09].

Back in 1976, Hymer had already insisted on the existence of these forms of international cooperation:

“Some firms in a certain country are fully controlled by the national interests of this country, while other firms are fully controlled by foreigners. The firm can be a joint venture owned 50% by nationals and 50% by foreigners, but the partnership may be uneven: nationals or foreigners may only possess minority shareholding. The foreign firm may not be in possession of the property, but may exert some control by means of a license or a cartel. The relationship may also be of a subtler nature, that is to say, there is the possibility of tacit collusion between firms.”

In 2014, investment by multinational firms in developing countries reached unprecedented levels. This trend was led by Asian firms. The statistics revealed that among the top 20 investor countries in the world, 9 were from developing countries or transition economies. Their firms continued to acquire foreign subsidiaries of firms from developed countries in developing countries.

8.3.1. Application of transaction costs theory to equity joint-ventures: Hennart’s analysis

Transaction costs theory can provide a unified framework for the explanation of joint ventures (JVs) and, expressly, for the case of equity joint ventures (EJVs). Hennart distinguishes between EJVs and non-equity joint ventures (non-EJVs). We observe the existence of EJVs when two (or more) entities contribute assets to an independent legal entity and are remunerated with the profits recovered by the entity, for a part or the totality of their contribution. They represent the participation and the legal entities created by two or more partners (joint subsidiaries). Conversely, we speak of “non-EJVs” when there are contractual arrangements such as licenses, distribution agreements, management support or technical assistance (see Table 8.3 and Chapter 1).

According to [HEN 88], JVs are often perceived as a means of achieving four objectives: economies of scale, bypassing barriers to entry into new markets (see Chapters 2 and 3), pooling knowledge and competencies and reducing political hazards. Regarding this last point, the establishment of multinational firms or the acquisition of a majority share in local industries which may provoke hostile reactions from the part of the host country, JVs appear as an adequate or, in severe cases, the one and only alternative. In countries like this, the foreign investment code requires the establishment of a JV between the foreign partner and a local company. The case of China is a good example.

According to [HEN 88], while the reduction of transaction costs is not the only explanatory factor for the creation of a JV (collusion being another very important reason), this is particularly relevant. The author continues his analysis by establishing an additional distinction between scale and link joint ventures [HEN 88].

Scale JVs take place when two or more firms get together at a higher stage of production or distribution or in a completely new market. The main feature of these JVs is that they result from a similar movement of the protagonists. They involve firms that hold similar assets which intend to increase their size through partnership.

Link JVs result from a simultaneous market failure for the services of two or more specific assets, and the acquisition of the holding company in question would require substantial management costs. In this type of JV, the situation of the partners is not symmetric. For one of the firms, the JV may represent a vertical investment while for the other protagonist, it may represent a diversification strategy.

“Link JVs unite partners whose asset contribution is heterogeneous, and which deploy different strategic movements. These types of partners aim to exploit a synergy between complementary assets and competencies held by different firms” [DUS 91].

At the same time, JVs offer the possibility of avoiding inefficient input markets (raw materials, components, loans, distribution services). These different elements explain why firms prefer to internalize transactions. In fact, EJVs are particularly recommended as an effective organizational mode when the two following conditions are simultaneously met:

• – the markets of intermediate goods held by each of the parties are deficient;
• – acquiring or reproducing these assets would be more expensive than obtaining them under a JV. Some market failures have been explained due to the nature of customers, certain types of tacit know-how or technology.

In case of appearance of a market failure, incentives for opportunistic behavior will be reduced. This will enable the different partners to enter the JV on an equal basis. Suppliers of intermediate goods will have less incentive to take advantage over the buyer by increasing prices or reducing product quality. Simply put, JVs reduce transaction costs by combining intermediate goods. However, as [HEN 88] pointed out, profits are sometimes offset by their costs. Incentives to adopt opportunistic behavior are not totally eliminated, in the sense that each partner may find it beneficial to maximize his own gain at the expense of the arrangement. The effectiveness of a JV ultimately depends on the aims pursued by the various partners involved in the agreement.

8.3.2. The introduction of time as a variable

Now the question is: what can motivate the partners of an EJV to justify their involvement in such an operation? As [BEA 87] have pointed out, the explicit intention of the partners is to engage in an EJV with a long-term perspective. On the contrary, contractual JVs are concluded after a fixed period (see Chapter 1). These partnerships are due to be dissolved on a date that the partners set at the beginning of the arrangement.

[BEA 87] also provide a definition of EJVs as long-term cooperation agreements. The use of JVs in the conceptual framework of internalization can only by justified if two conditions are met: on the one hand, the firm must have an asset that enables it to compete in an external market. On the other hand, JV agreements are the best option for appropriating rent by selling this asset on an external market.

At the same time, JVs provide a better solution not only for the “small number” dilemma, but against opportunism problems and uncertainty, in the case of wholly owned subsidiaries. [BEA 87] have focused on these two aspects:

• – One of the most significant problems a JV has to face is the question of opportunism. [BEA 87] argue that when a JV blossoms in a climate of mutual trust, opportunistic behavior is unlikely to arise. In that situation, agents act on a reciprocal basis, giving up short-term benefits, as [BUC 88] has cleverly noticed. What is more, if these positive attitudes are reinforced by strong organizational connections (profit-sharing, common decision-making procedures, monitoring and control systems), incentives to adopt opportunistic behavior will significantly diminish.
• – The problem of uncertainty can also be efficiently solved within the framework of JVs. In the absence of opportunism and the disadvantages associated with the small number, there is strong incentive for the parties involved to pool their respective resources and to exchange information about technology, the capital market and local business conditions.

8.4.1. Eclectic paradigm: multiple advantage identification?

Dunning is the author of what is known as “eclectic” theory or OLI paradigm (these initials stand for the three major types of advantages associated with multinationalization). Such paradigm was inspired by a large number of theoretical corpuses:

• – (O) stands for Ownership Advantage, that is, the specific advantage of the firm is linked to the notion of imperfect competition. This advantage can be based on specialized knowledge (innovation, know-how), control of economies of scope and/or scale, first-mover advantage, etc. [DUN 79] states that this advantage is materialized in the possession of intangible assets, which are exclusive or specific to the firm that owns them, at least for a given period.
• – Internalization Advantage (I) is linked to the fact that the internal exploitation of specific advantages is more profitable than their sale or lease. This benefit is linked to the imperfections of intangible resource markets as well as the markets for intermediate goods and services.
• – Location Advantage (L) refers to the situation when firms profit from advantages (O) and (I), for example, by internalizing the activities based on its specific advantages outside their country of origin.

Dunning’s approach is dynamic in the sense that OLI advantages evolve according to three factors: firm-specificity, sector of activity and country involved. Despite the fact that each type of advantage is associated with a specific level of analysis (O for industry, L for country and I for firm), there can be numerous interactions. The monopolistic advantages of the firm may be reinforced by a number of conditions: for example, the existence of a large domestic market in the country of origin, a skilled workforce, major R&D efforts supported by the public authorities and a government policy encouraging the protection of innovations. The firm can also influence (O) via its own R&D expenses, (L) by the ability of its managers to seize opportunities for relocation and carry them out, and (I) through its ability to organize internalization.

[DUN 88] associates these different elements with the triptych ESP, an acronym coined by [KOO 71]. ESP provides an understanding of FDI flows thanks to the analysis of the evolution of a country’s structural variables such as Environment (E), System (S) and Policy (P). Environment (E) refers to the available resources of a country (including technology) and the capacity of firms to use them in order to supply the domestic market and access foreign markets (see Table 8.5). System (S) makes reference to the organizational framework in which the use and allocation of resources is decided, from issues relative to the division of functions between different modes of coordination (market, firm), to the role of public authorities in allocating transaction costs to different organizational forms. Finally, Policy (P) includes the strategic objectives of governments and the actions taken by them or by public institutions in order to implement these decisions. [DUN 94] focuses on this last aspect in particular. He considers that the role of government policy is fundamental, especially in the field of science and technology. The technological competitiveness of a firm largely depends on the design and enforcement of specific public policies.

8.4.2. The real contribution of eclectic theory to inter-firm alliances

[DUN 88] marries both paradigms (OLI and ESP) so as to determine the different modes of organization for international production. To begin with, the author reminds us of the three reasons why he designated his approach as “eclectic”. The first one is related to the fact that eclectic theory makes it possible to explain the multinational phenomenon that emerged in the 1950s. Second, it provides a satisfactory explanation for all types of FDI. Finally, it examines the three main alternative means of penetrating foreign markets, namely direct investment, export and contractual agreements: licensing, technical assistance, franchising and management agreements (see Chapter 1). [DUN 88] analyzes these three types of organizations as a function of OLI advantages.

With this information, Dunning then studies the three main and alternative methods of penetrating foreign markets: licensing, export and FDI:

• – licenses are chosen in the case where the undertaking has only one specific advantage: the sale of the license is performed with a local firm which will exploit the domestic market;
• – export is preferred when a firm has no localization advantage, but still benefits from the other two advantages (specific advantage and advantage to internationalization);
• – FDI is privileged when the firm simultaneously combines the three types of benefits.

According to the author, an increase in cooperation agreements in the 1980s and the 1990s can be justified because of the evolution of the macroeconomic variables of some countries [DUN 93a, DUN 93b]. From this perspective, three factors should be considered. The first one is related to major technological advances, which opened the possibility of a whole new range of products and methods of production, and also distinctively changed the way assets and goods are organized and processed. The second one relates to the attitude of governments towards “economic interdependence” and to the international operations of firms. In other words, governments were more open to joint ventures between foreign and local companies. The third factor affecting the growth and configuration of international activities was the way in which economic activity was organized. In fact, this was the result of the first two factors, reflecting the increasing inadequacy of traditional modes of production and transaction. This could explain the growing appeal of a broad scope of horizontal and vertical “external” relationships, ranging from FDI to more informal and flexible off shoring/outsourcing collaboration and service agreements.

Nevertheless, Dunning recognizes that the paradigm of international production has certain limitations for illuminating complex strategic alliances:

“While the conceptual and analytical structure of the paradigm remains largely intact, its operational use decreases as the complexity of the variables which make up the configuration intensifies. For example, it is relatively easy to explain foreign direct investment of a rubber or tobacco firm in terms of truly specific and easily identifiable OLI benefits. But it is quite different to account for the extent, configuration and growth of the international production of a firm such as Philips, with a number of (totally or partially controlled) 350 subsidiaries, having developed more than 800 strategic alliances, some of which involve global leaders in electronics and telecommunications as well as thousands of licenses, technical assistance and subcontracting agreements.” [DUN 88].

8.4.3. Further considerations of the OLI paradigm

[DUN 88] deepens his analysis by introducing the notion of investment development path (IDP), based on the distinction of several phases which correspond to the level of development of a certain country. In particular, the concept applies to countries that host FDI and who will, in their turn, become investors during the second phase:

• – The first step corresponds to a phase of pre-industrialization. The country is neither an investor abroad nor a host country. At this stage, factor (L) does not play and firms do not find a specific advantage encouraging them to export. Moreover, there is no specific policy for attracting FDI, and the existing infrastructure is inadequate.
• – The second stage can be recognized because of an increase in advantages to location, a more active FDI policy, a less restrictive regulatory framework and favorable macroeconomic conditions (labor market).
• – The third stage refers to countries which have reached a certain degree of economic maturity. There may still be a discrepancy between the FDI of domestic firms and the investment of foreign firms in the host country. However, at this phase, the country develops its own advantages, which enables national firms to reinforce their specific advantages (O). Technology is at the center of the government’s policy.
• – The fourth stage witnesses the emergence of the country as an investor abroad. Firms are able to increase their specific advantages. In this phase, the State particularly favors the integration of firms in an international economy.
• – Finally, the fifth phase acknowledges a broader consideration of the strategies of competitors in regional markets. At this stage, alliances are particularly favored.

The OLI model, as developed by Dunning, has received numerous criticisms, in particular regarding the existing boundary between the firm’s specific advantage (O) and internalization advantage (I). [RUG 11] observes that:

“Dunning’s eclectic paradigm, however, struggles to integrate country and firm level interactions. From the firm’s viewpoint, the (O) and (I) are not independent parameters in managerial decision making but need to be considered jointly, with (I) being the dominant consideration. The existence of the MNE itself, resulting from FDI, implies that (O) needed to be internalized in terms of the processes of (O) creation, transfer, deployment, recombination and profitable exploitation”.

8.4.4. Synthetic theory and strategic alliances

Mucchielli [MUC 85] goes a step beyond the theory developed by Dunning and suggests combining the different types of advantages in a new way. He insists that the three levels (firm, sector, country) should be considered simultaneously. In his own words:

“Dunning’s approach faces its own limitations. The author attempts to take into account the levels of the firm, the sector and the country, but in fact the sector is summarized by the simple nature of the product or technology, conferring (or not) an advantage to internalization; the interface of OLI/ESP approaches appears to us as a firm/country coupling, without it being possible to go beyond. However, the growth of international alliances and cooperation strategies highlights the global strategies enforced by multinationals, which can only be part of a theoretical framework in which the industrial structure should assume its full importance” [MUC 85].

The analysis developed by [MUC 85] has been described as synthetic. In its origins, it connected the notions of comparative advantage of the country and competitive advantage of the firm. Later, it was enriched with the concept of “strategic advantage”, what made it possible to broaden the scope of the theory, in particular in the area of international strategic alliances.

There are six common determinants of trade and international investment: international differences in production functions, factor endowments, tastes of economic agents, existence of economies of scale, distortions in the market of products and in factors of production.

A firm presents competitive advantages (or specific advantages) due to its own features such as, for example, technological innovations, a certain level of R&D, or significant human resources. Competitive advantages can also be associated with product differentiation (branding, advertising).

Countries have comparative advantages that include the location advantages mentioned by Dunning. These comparative advantages relate not only to a country’s supply capacity (factor endowments, economies of scale, etc.), but also to the size and dynamics of domestic and foreign demands.

Firms offer goods and services and demand inputs that must be obtained at the lowest cost, whereas countries offer factors of production through their factor endowments and productivity (quantity and quality of factors) at the time that they demand product by means of consumers.

Mucchielli establishes a relation between comparative and competitive advantages, and introduces the notion of concordance/discordance between these types of advantages. In a very general way, concordance between the competitive advantages of firms and the comparative advantages of countries encourages firms to export. On the other hand, in the face of discrepancy between these two types of advantages, the firm will probably relocate.

Synthetic analysis integrates new forms of international investment (see Chapter 1), namely cooperative strategies of firms that can lead to the creation of a dominant position. Mucchielli introduces the concept of strategic advantage that results from inter-firm cooperation. In this way, the author arrives at a new grid of analysis implicitly based on the notions of concordance and discordance between the various types of advantages. In a situation where the three types of a firm’s advantages (competitive, comparative and strategic) are met, the cooperative strategy will prevail (Table 8.7).

8.4.5. Comparative advantage, competitive advantage and international cooperation agreements: the empirical analysis

There are numerous empirical studies regarding comparative and competitive advantages. However, the association of these two types of advantages with the concept of cooperation has not been studied in depth. The works of Shan and Hamilton [SHA 91] are particularly interesting in that they explore the link between the comparative advantages of a country and the competitiveness of a firm, on the one hand, and the various forms of international cooperation, on the other hand. Cooperative relationships are used as a means of acquiring or strengthening comparative advantage [REI 86].

[SHA 91] tested the following hypothesis: a country’s advantage (for example, comparative advantage) encourages the signature of international cooperation agreements and is a significant variable for explaining the differences between alliances at a national level and inter-firm international cooperation. Their test was carried out by comparing national and international cooperative relations established by Japanese firms in the area of biotechnology. They chose this sector because, at the time, Japan showed a low level of competitiveness in those activities. The dependent variable chosen for the test developed by [SHA 91] was the nationality of the partner firm involved in the cooperative relationship. The partners were later divided into three groups: Japanese, American and other nationalities. The model used was a multinomial logistic regression analysis in which the dependent variable was split into three categories of values for the nationalities of the partner firms.

The results of the test confirmed the main hypothesis: the comparative advantage of a country is an important motivator for subscribing international cooperation agreements. Nevertheless, this factor alone is not decisive in relation to other explanatory variables of international cooperative relations and there is not a single explanatory variable for accounting for all international joint ventures. Although the cultural, institutional and economic context of the country has an important impact on firms, a certain number of features (particularly technology) are specific to the firms themselves. In fact, this inherent value is the one that reflects (or not) the comparative advantage of the country of origin. Again, we encounter the notion of discordance and/or concordance between the comparative advantage of a country and the advantage of the firm [MUC 85].

8.5.1. Comparative advantage, competitive advantage and “regional advantage”

At the end of the 2000s, [MUC 09] recalled the main teachings that analyzed the localization strategies of multinational firms, which highlighted:

“A sequence of choices: first, a large geographic area (Asia, Europe, America), then a country, later a region and finally a precise location. Every time, a short list is established and the criteria are set on the basis of a cost/benefit analysis comprising broad macroeconomic elements (potential demand, production costs) up to very specific characteristics of host alternatives (transportation, taxes, land prices, labor availability, etc.) as well as the technical characteristics of the plant” [MUC 09].

Considering that regions become economic actors in their own right, they possess comparative advantages [TIS 99]. [PEC 03] refers to the idea of a differentiating advantage:

“Our hypothesis is that comparative advantage, in the light of globalization, becomes a “differentiating advantage”. Therefore, what matters in terms of territories is not to specialize in a comparative scheme, but rather to escape the laws of competition when they are impossible to follow, and aim at the production for which they could (ideally) become a monopoly”.

The more recent problems of firm relocation from developed countries are also part of these reflections. Analyses have shown that relocations are often associated with other factors apart from costs, such as the search for new markets, better productivity, and also a more skilled workforce [MUC 09].

8.5.2. The expansion of localized industrial systems

There is a broad palette of terms relating to the different forms of territorialized organizations or groupings of entities belonging to the same sector of activity and located on the same territory. These have been designated as clusters, technological and industrial clusters, industrial districts, technological districts, “radiant” districts, public standing districts, innovative areas, learning regions, (technological, excellence, competitive) poles, territorial production systems and localized production systems (LPS). The list continues to expand in order to describe all these different forms. They include Hubs and spokes, satellite platforms and state anchored districts [THO 06].

The origin of the theory of industrial districts goes back to the very beginning of the 20th Century with the works of Alfred Marshall [MAR 90a]. The districts or areas of clustered industrial enterprises already existed in the Marshall era and still exist today. The concept of “industrial district” was developed on the basis of an observation of an organizational form in England. [MAR 90a] was also interested in the concept of agglomeration economies. According to this scholar, there may be external economies of scale linked to the proximity of territories outside urban areas. This could eventually favor a reduction in production costs. In the 1970s, the Marshallian conception of the district experienced a revival, notably through the works of Becattini [BEC 78] who used it for characterizing the industrial organization of the northeastern and central region of Italy.

The concept of an industrial district evolved considerably from the 1980s onwards, in parallel with the changes recorded by the technical-industrial system, an event that led to a gradual transformation of territorial development, no longer centered on the presence of material resources in a production chain, but on activities with an orientation towards “science-technologies-markets”.

Other forms, apart from the industrial district, have emerged, which are more or less significant in different countries [LON 91a, LON 91b, MAY 92a, MAY 92b]. In Europe in particular, the situation of different countries concerning the development of territorialized production systems is mixed [MAY 93, MAY 94, MAY 94b]. [PEC 03] has observed that:

“It appears that the strength of localized production organizations is directly linked to the characteristics of the national production system in which they are inserted. For instance, unlike most other European countries, the French context is characteristic for certain particularities that have not played a role in favor of the development of local productive systems. Instead, Jacobinism has favored centralized action, as it can be deduced from the territorial development of the sixties, an industrial policy which encouraged the constitution of “national champions” or labor relocation from Paris to the West”.

8.5.3. Clusters and firm internationalization: which dynamics?

As we have observed in previous sections, firm internationalization has inspired a broad literature. However, on reading Table 8.1, we find that while the factor of location is unquestionably fundamental, the phenomenon of territorialization is not a determining factor in these approaches. [SAI 10] consider that localization obeys an allocative logic, whereas territorialization belongs to an anchoring logic. Among the various territorialized inter-organizational networks, clusters have long been at the heart of academic research (Table 8.8).

Finally, we find some common characteristics in the different definitions offered by the authors we quoted above:

• – Clusters refer to groupings of firms and institutions located in a specific region, in a given sector. The emergence of ICTs could have abolished borders and put an end to all territorialized forms of organization and, especially, clusters. Authors like [GIL 01] have declared the “death of distance”, but this observation is far from being true.
• – Firms have similar activities, can share a common area of competence and produce related or complementary goods. There may be development of “off-market” relationships, information exchange and knowledge thanks to informal collaboration that avoids the market sphere. Mature clusters are recognizable for the existence of specific, differentiated and localized links between individuals and organizations. These are coordinated by conventions or routines that often only function in a context of proximity [STO 97]. In terms of geography and activities, the concept of proximity creates positive externalities that can be associated with the access to specific tangible and intangible assets.
• – The actors in these clusters are closely intertwined and may establish relations of a different nature (subcontracting, cooperation, etc.). Porter has consistently focused on the coexistence of rivalry and cooperation relations between the different actors:

“Geographic concentrations of interconnected companies, specialized suppliers, service providers, firms in related industries, and associated institutions (for example, universities, standards agencies, and trade associations) in particular fields that compete but also co-operate” [POR 00].

Other authors have adopted the same approach. This is the case of [COO 02]:

“Clusters are geographically proximate firms in vertical and horizontal relationships, involving a localized enterprise support infrastructure with shared developmental vision for business growth, based on competition and cooperation in a specific market field”.

But also of [MEN 05]: “Firms in business clusters compete and collaborate with great enthusiasm”.

Therefore, the cluster seeks to use the virtues or the advantages of both competition and cooperation [RAI 01]. Regions become a factor of attraction for international companies.

Box 8.1 illustrates the idea through the example of the Ile-de-France region. The literature of “the new economic geography”, thanks to the contribution of [KRU 91, KRU 95], has focused on the phenomenon of attractiveness. Some regions (hosting clusters) are able to attract business from a large number of enterprises, some of which are multinational. The result is a phenomenon of competition between these different territories in order to attract foreign capital. Tiebout [TIE 56] already reflected on the idea of a “localization market” in the 1950s, where regions would compete to attract investors. More recently, territorial competition had led to the development of “nomadic” business practices and/or the development of new forms of non-territorial inter-organizational networks such as business ecosystems [DAI 11a].