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The Competitiveness of the UK & its Multinational Companies

Aims & objectives

The project was concerned with the competitiveness of the UK and its multinational companies, and the interlinkages between them. Studies in the competitiveness of firms and their home countries have drawn on two strands of literature: the competitiveness of countries is drawn from trade theory and analysed in terms of structural and macroeconomic characteristics of a country; while the competitiveness of firms is drawn from firm theory and characteristics which enables them to operate outside their home country. However, the competitiveness of firms is interlinked with the competitiveness of the home country, as initially, this is where firms develop their advantages. The aim of this project was to seek a common ground between existing bodies of literature and to apply it to the competitiveness of the UK economy and their multinational firms. The research focused on the financial services sector in the City of London and covered wholesale insurance and reinsurance firms. A detailed questionnaire guided data collection, based on a comparative analysis between samples drawn from the populations of foreign and UK-owned insurance firms based in London.

Results & dissemination

The study found a direct link between the size of firms and the likelihood of them leaving London. This should be a major source of concern for the London Market authorities, as the study has also shown that these large firms tend to have a more dominant position within the London market and to affect the location choices of smaller firms. The London market is overwhelmingly 'local' in terms of its reliance on labour and service suppliers. The intensity of these local linkages is related to size of firms, weakening as firms grow. There is evidence to a certain degree that developments in global financial centres elsewhere are more influential on the fate of London firms, and the London market as a whole, than those in the rest of the UK economy. The study shows that London’s competitive position in wholesale insurance is based almost entirely on foreign ownership. Policy makers have limited ability to affect the decisions of foreign companies, whose shares are quoted on the foreign stock exchanges and whose board of directors are overwhelmingly foreign. As the economic fortune of these foreign firms is affected by developments in their home countries, London's position is likely to be influenced to a significant extent by international economic forces, on which British policy makers have limited, if any, influence.

Working papers

Nachum, L. (2003) 'The home based advantages and a hierarchy of location advantages: foreign and British-owned firms in the London wholesale insurance market', Centre for Business Research Working Paper No. 260

Nachum, L. and Zaheer, S. (2002) MNEs in the digital economy. Centre for Business Research Working Paper No. 236

Nachum, L. (2002) Liability of Foreignness in Global Competition? Financial Service MNEs in the City of London. Working Paper No. 229

Nachum, L. (2002) International Business in a World of Increasing Returns. Centre for Business Research Working Paper No. 224

Nachum, L. (2002) Firm-specific attributes and MNE location choices: financial and professional service FDI to New York and London. Centre for Business Research Working Paper No. 223

Nachum L. and Keeble D. (2001) External networks as sources of MNE advantages: Foreign and indigenous professional service firms in Central London. Working Paper No.195

Keeble D. and Nachum L. (2001) Why do business service firms cluster? Small consultancies, clustering and decentralisation in London and Southern England. CBR Working Paper No. 194

Nachum, L. (2000) World market shares of advertising TNCs: Intangible comparative advantage? CBR Working Paper No. 169

Nachum, L. (2000) The impact of home countries on the competitiveness of advertising TNCs. CBR Working Paper No. 149

Journal articles

Nachum, L. (2000) 'Economic geography and the location of TNCs: financial and professional service FDI to the US' Journal of International Business Studies, 31 (3) 367-385

Nachum, L., Dunning J. and Jones, G. (2000) 'UK FDI and the comparative advantage of the UK' The World Economy 2000, 23(5): 701-720

Nachum, L. (2001) 'The impact of home countries on the competitiveness of advertising TNCs' Management International Review, Vol 1, 77-98.

Nachum L. and Keeble D. (2002) 'Why do business service firms cluster?' Small consultancies, clustering and decentralisation in London and Southern England' Transaction of the Institute of British Geographers, Vol 27, no 1, March, pp. 37-43

Nachum, L and Keeble, D (2002) 'Why being local just isn't enough: the media cluster of Central London' Business Strategy Review, Vol 13, no 1, Spring, pp. 27-43.

Nachum, L., Jones G. and Dunning, J. (2002) 'The international competitiveness of the UK and its multinational corporations' Structural Change and Economic Dynamics, Vol 12 no. 3, pp. 277-294, 2001.

Nachum, L (2003 forthcoming) 'International Business in a world of increasing returns', Management International Review.

Book chapters

Nachum, L. (2000) 'FDI, the location advantages of home countries and the competitiveness of TNCs: US FDI in professional service industries' in Y. Aharoni and L. Nachum (eds.), The Globalisation of Services: Some Implications for Theory and Practice (London and New York: Routledge) 75-92

Nachum, L. (2000) 'World market shares of advertising TNCs: intangible comparative advantage?' in T. Almor and N. Hashami (eds.), FDI, International Trade and the Economy of Peace making: Tribute to Seev Hirsch (College of Management, Rishon Lezion, Israel, pp 59-89)

Nachum, L., Jones G. and Dunning, J. (2002) 'The international competitiveness of the UK and its multinational corporations' in J. H. Dunning. and J.L. Mucchielli (eds.) Multinational Firms: The Global Local Dilemma, Routledge, London and New York, pp 33-57

Books

Aharoni, Y. and Nachum, L. (eds.) (2000) The Globalisation of Services: Some Implications for Theory and Practice (London and New York: Routledge) 338 pp

Other publications such as book reviews, pamphlets

Nachum L. (2001), The geography of FDI: geographical, industrial and functional patterns and their policy implications. A report prepared for UNCTAD, Division on Investment, Technology and Enterprise Development, Geneva 2001, 55 pp.

Nachum, L. (2000) review of UNCTAD, Division on Investment, Technology and Enterprise Development, World Investment Report 1999: Foreign Direct Investment and the Challenge of Development, International Business Review 9(3): 399-401

Nachum, L (2001) review of UNCTAD, Division on Investment, Technology and Enterprise Development, World Investment report 2000: Cross Border Mergers and Acquisitions and Development, Management International Review3/2001, pp 317-320

Nachum, L. 'TNCs in geographic clusters', review of Braunerhjelm P. and Ekholm E. (eds.), The geography of multinational firms (Deventer: Kluwer, 1998); Morsink R.L.A. Foreign Direct Investment and Corporate Networking: A Framework for Spatial Analysis of Investment Conditions (Aldershot: Edward Elgar, 1998); Amin A. and Thrift N. (eds.), Globalisation, Institutions, and Regional Development in Europe (Oxford: Oxford University Press 1996); and Dicken P. Global Shift: Transforming the World Economy, (London: Paul Chapman Publishing, 3rd edition, 1998), forthcoming in Transnational Corporations

The research focused on the financial services sector in the City of London and covered wholesale insurance and reinsurance firms.

The sustainability of London's position as a world centre for insurance services cannot be taken for granted. There is an important role for the public authorities governing the operation of the London market in improving local conditions, as these appear to be critical in affecting the location choices of London firms.

  • The London market is overwhelmingly 'local' in terms of its reliance on labour and service suppliers. The intensity of these local linkages is related to size of firms, weakening as firms grow.
  • There is evidence to a certain degree that developments in global financial centres elsewhere are more influential on the fate of London firms, and the London market as a whole, than those in the rest of the UK economy.

The study showed that London’s competitive position in wholesale insurance is based almost entirely on foreign ownership.

Dates of survey: January to June 2001

Number of responses: The dataset consists of replies from 131 respondents.

Publications: Dataset: The London Insurance Market, 1999-2000 (SN4822)

SDU output [http://www.cbr.cam.ac.uk/research/projects/SDU_output.htm]

Project leader

Lilach Nachum