Navigating turbulent waters: the strategic role of embeddedness in location decisions

Abstract

Purpose – This study aims to investigate how political and institutional embeddedness (PIE) operates as a strategic mechanism shaping multinational enterprises’ (MNEs) location decisions in non-core regions in emerging economies. Design/methodology/approach – Drawing on location theory and economic sociology, the analysis is based on semi-structured interviews with representatives from BMW, a German automaker that set up a production unit in Santa Catarina, a non-core Brazilian state. Findings – Results reveal that MNEs develop PIE prior to foreign direct investment (FDI) as a strategic choice, influencing their location decisions. PIE moderates the effect of conventional determinants in non-core regions and mitigates the impact of host-country complexity, contributing to the creation and/or exploitation of ownership, location and internalization advantages. Research limitations/implications – The findings indicate that MNEs strategically build PIE pre-FDI, which accelerates MNEs’ learning about non-core locations and deepens the construction of social and political networks. Analysing the relative importance of firm characteristics and contextual factors is still necessary. The authors recomend investigating how resources generated from PIE impact perceived distance at the national level. Practical implications – The results suggest that MNEs can strategically manage their pre-FDI choices through PIE, enabling diversification of subnational location strategies. The study also highlights elements that can inform public policies aimed at attracting and retaining FDI at the subnational level. Originality/value – The authors advance beyond conventional economic and institutional factors and analyze embeddedness pre-FDI. They integrate conventional determinants and PIE, examining their synergy and capturing their effects in isolation and interaction.