LOCATION CHOICE OF INWARD LOGISTICS FDI

IN ITALY

Ilaria MARIOTTIIla MALTESEFlavio BOSCACCI

DiAP, Politecnico di Milano

INPUT 2012

University of Cagliari

Cagliari, 10 - 12 / 05 / 2012

STRUCTURE

• Aim of the work

• Literature review on FDI in the logistics industry• Literature review on FDI in the logistics industry

• Data and methodology

• Descriptive statistics, Econometric analysis

• Results

• Conclusion and discussion

3

Aim of the work

Investigating the location factors

of inward logistics FDI in Italy

� (subsectors 60, 61, 62, 63 – ATECO 2002)

� in 103 Italian NUTS3 provinces

� in 1997-2002

4

Literature

Manufacturing investments’ location factors are also

relevant for the service sector

among the others: Boddewyn et al., 1986; Li and Guisinger, 1992;

Gerlowski et al., 1994; Nachum and Wymbs, 2002; Oum and Park,

2004.

� Manufacturing and service FDI’s location factors� italian case studies: Mariotti and Piscitello, 1995; Basile, 2004;

Basile et al., 2005; Bronzini, 2007;

� foreign case studies: Coughlin and Segev, 2000; Auranzo-Carod et

al., 2008

� Logistics FDIs location factors� Hong, 2007a, 2007b China

� Berkoz and Turk, 2008 – Odemir and Darby, 2009, Turkey

� Boscacci et al.. 2009, Italy

Traditional location factors

Labour and land markets, demand market, land, agglomeration economies,

transportation costs, other costs

Infrastructures, services and intangible assets

Accessibility, utilities’ quality, business services, scientific and technological

assets

5

Location factors

assets

Environmental and social context

Social degradation, economic, political and social instability, local climate

Policy framework

Competition policy, trade policy, tax policy, environmental policy

Information costs

Geographical distance from the core (of city, region, nation), geographical

proximity to the home country, cultural distance, FDI penetration

6

Key location factors at the regional and local level

� Market size, growth and competitiveness

� Labour market: costs, availability, skills and unionization

Traditional Factors

� Labour market: costs, availability, skills and unionization

� Land market: costs and availability

� Agglomeration economies

� Transport costs

� Other costs (taxes and financing)

7

More innovative factors

� Transport and communication assets and infrastructures

� Technological innovation level

� Incentives and subsidies (policies and taxes)� Incentives and subsidies (policies and taxes)

� Environmental and social context (climate, instability, etc...)

� Reduced transaction costs (Info costs: e.g.

geographical and cultural proximity...)

8

Logistics FDIs location factors

The studies on logistics suggest that FDI are positively correlated with the

main location determinants:

� Market size

� Labour market� Labour market

� Agglomeration economies

� Transport infrastructure

� Public incentives

9

Research has mainly focused on manufacturing investments’ locations,

but both the theoretical and empirical studies affirm that the same

factors could be relevant for the service sector.

The studies on logistics suggest that FDI are positively correlated with

the main location determinants:

Location factors impacts

the main location determinants:

� market size;

� skilled, but not too expensive, labour force;

� the presence of other MNE (intra and inter-industry agglomeration

economies and reduced communication costs);

� local fiscal incentives, and the degree of economic privatization;

� good infrastructural assets (Hong, 2007a, 2007b; Bowen, 2008; List,

2001; Cheung and Stough, 2006).

Italian logistics sector

• a large number of small and mid-sized companies,

• on average, 4.2 employees (Istat, 2003).

The Italian transport and logistics sector is the most fragmented in Europe,

10

The Italian transport and logistics sector is the most fragmented in Europe,

even with a growing concentration (ISTAT, 2008).

This makes Italy less competitive in the global scenario but attractive for the global players, which enter the market through mergers and

acquisitions (M&A) of Italian firms (brownfield investiments) and new

companies (greenfield investiments).

11

DATA and methodology

In 1997: 130 FDI

In 2002: 258 FDI, undertaken by 152 foreign MNE

(LogINT Observatory).

The logistics inward FDI growth is modeled by means of

a Logit model linking the probability for the Italian

provinces to have experienced an increase in logistics

inward FDI to a set of explanatory variables.

Inward FDI in the more value-added activities: ”supporting and auxiliary transport activities” (forwarders, integrated logistics,

intermodal transport, cargo handling and storage, firms managing

transport infrastructures) - subsector 63:

Inward FDI in the Italian logistics sector

18%

12%

3%67%

Trasporti terrestri

Trasporti marittimi

Trasporti aerei

Attività di supporto e ausiliarie dei trasporti

60

61

62

63

mainly located in:

• in the North West

• the province of Milan

Geographical distribution

41,6

12,4 11,1

6,4 5,9

2,4 2,3 2,2 2,0 1,9

0,0

5,0

10,0

15,0

20,0

25,0

30,0

35,0

40,0

45,0

Mila

no

Torin

o

Gen

ova

Com

o

Rom

a

Trie

ste

Livo

rno

Nap

oli

Berg

amo

Reg

gio

Calab

ria

Besides, the majority of the

MNEs investing in the Italian

logistics sector originate from

Western Europe.

Logit modelDependent variable: inward logistics FDI’s variation/change of in the four

logistics sub-industries l (60, 61, 62, 63) in the NUTS3 provinces (p) in

1997-2002.

1496

pY96

pY96

pY96

pY96

pY

Market size

Agglomeration economies

Infrastructural assets

Transaction costs reduction

15

Econometric analysis Model 1 Model 2 Model 3 Model 4 Model 5

96

pY 1.5656***

96

pDurb 1.4205*** 1.3372***

∑=

00

94t

m

pFDI 0.4416** 0.3386**

96

,plIMNEJ 0.2639*** 0.3136***

0.6229*** 0.8365*** 0.8888*** pl

Age,

0.6229*** 0.8365*** 0.8888***

04

pRoad 1.2627** 1.8732*** 1.8817*** 0.9180* 0.8863

04

pRail

1.3115** 0.9840** 0.8557* 1.4313*** 1.1063**

04

pPort -0.2803 -0.4438*** -0.3656** -0.2318 -0.1806

04

pAir 0.8519*** 0.3186 0.2710 0.8364*** 0.7163**

D-Ind. Yes Yes Yes Yes Yes

D-Marea. Yes Yes Yes Yes Yes

n. obs. 408 408 408 408 408

Log

Likelihood

-58.8172 -70.2192 -63.4956 -73.3427 -67.1183

PseudoR2 0.5346 0.4443 0.4976 0.4196 0.4689

16

Results

Positive and significant impact:

� market size� infrastructure provision� agglomeration economies� agglomeration economies� the age of the first investment� the presence of Italian logistics MNE

� inward FDI are more willing to be located in the corearea of the country, specifically in the north west

� have a preference to be active in the higher added valuessub-sectors.

Information cost reduction

17

Conclusion

� the market-stealing effect for domestic logistics firms

vs

� Employment growth (by the MNE and by its local suppliers);� Employment growth (by the MNE and by its local suppliers);

� more efficient and effective logistics system;

� knowledge spill-overs towards domestic suppliers and

competitors, and possible spin-off firms;

� backward and forward linkages

� attractiveness for manufacturing firms,

18

Conclusioni (1)

� IMN straniere adottano la strategia “market seeking”

� prediligono le aree in cui i flussi sono più consistenti e in cui vi èuna prevalenza di imprese manifatturiere di medie e grandidimensioni (> outsourcing)

� necessitano di forza lavoro qualificata

� ricercano i vantaggi derivanti dalla concentrazione di altreimprese logistiche (Ec. Localizzazione) e di attività produttivee residenziali in ambito urbano (Ec. Urbanizzazione)

� si localizzano nelle province in cui la dotazioneinfrastrutturale è maggiore

� investono nei settori a maggiore valore aggiunto (I 63)� prediligono il nord-ovest del Paese

19

Settore della logistica

Imprese appartenenti al settore ATECO “I – Trasporti, magazzinaggio e comunicazioni”:

� 60 “Trasporti terrestri e trasporti mediante condotte”;

� 61 “Trasporti marittimi e per vie d'acqua”;

� 62 “Trasporti aerei”;

� 63 “Attività di supporto e ausiliarie dei trasporti e attività delle agenzie di viaggio” (movimentazione merci, magazzinaggio, spedizionieri, operatori trasporto intermodale, integratori logistici);

� 64 “Poste e telecomunicazioni” (corrieri): sono state escluse, a causa dell’impossibilità di estrapolare 64.2 (Media e TLC).

Ampia definizione del settore logistico: insieme delle imprese che svolgono in conto terzi servizi di movimentazione di merci e

persone

Suggestions are welcome

Flavio BoscacciIlaria MariottiIla Maltese

DiAP, Politecnico di Milano

Ila.maltese@polimi.it