Local presence and international manufacturing configurations in technology-intensive industries

Abstract

In this paper, we explore one explanation of the impact of local manufacturing presence through local customers on the configurations of international manufacturing plants established by technology-intensive rivals. In order to motivate interest in international plant configurations and this demand-side assumption, we first describe some of the stylized features of competition in the early stages of the international development of the integrated circuit industry. We then present a model incorporating the positive impact of local manufacturing presence on local sales. We show that the model is sufficient to explain a variety of different patterns of international manufacturing configurations and worldwide market shares. Under certain broad conditions, duopolists locate their plants in different countries and avoid head-to-head competition. However, this tendency to avoid rivals can be reversed by asymmetries in market sizes, crowding caused by a shortage of foreign markets when start-up costs are relatively low, first mover disadvantages in start-up costs, trade protection, and an industry marginal revenue that rises, rather than declines, with multiple local plants. © 1990.