Strategic factors influencing the choice of MNCs include the need to find near an important client or customer, to find close to key competitors in order to control their actions, or to prevent the entry of key rivals. For example, service firms, such as advertising agencies often place their foreign trade operations near major customers. (Ottaviano 1998) This literature reveals some of the main motivations for firms’ decisions on FDI location.
First, and perhaps most important, although FDI flows are often discussed together economists and politicians, it is important to remember that these aggregate flows are the sum of the solution set taken by individual OLS. As firms are very different from each other, (OECD 2006) obviously, their own state variables will be very important in determining whether they choose to search for. Second, the heterogeneity of firms implies that all the above characteristics of the seats will not be as attractive for all firms. Advertising agency probably will not care about the availability of natural resources such as coal, and even the manufacturers can not take care of labor or natural resources if they are trying to decide where to find the R & D laboratory.