Foreign direct investment and local linkages

This paper analyses the pattern of local linkages in foreign direct investment (FDI), treating such local linkages as an investment in local relationships. Using Taiwanese manufacturing firms investing abroad as the sample for our case study, we find that the local linkage intensity of a foreign subsidiary differs by FDI location, entry mode, firm size and the nature of the production network in which an investor is embedded. More local linkages will be pursued by an investor if it is in search of distinctive and inimitable resources as opposed to homogeneous and reproducible resources. Investment in local linkages always begins with the linkage that carries the lowest risk to the original business network. For manufacturing firms, the sequence of such linkages is: workers, components and parts, subcontracting and, finally, sources of RD.