Embedding Multinational Firms in Regional Business Systems: Neoliberal and Social-Democratic Models in Spain

Interest in the role played by sub-national governance actors in attracting and retaining foreign direct investment (FDI) is growing (Almond et al., 2014; McCann and Mudambi, 2005; Rutherford and Holmes, 2013). Also, recently, the EU has called for the design of ‘intelligent specialisation’ policies among nations and regions, integrating social actors, in order to develop sustainable competitive advantages (Regulation 1301/2013 of the European Parliament). As Royo (2008) has shown for the Basque Country region, regional-level economic actors have a wide range of resources and policy tools to address competitive challenges. However, we know little about the existence of different configurations of regional governance within the same country, and about regions’ potential capacity to redefine their business system.

This paper will analyse how regional actors have mobilised to attract and retain FDI in two Spanish regions with different political approaches to the management of the economy, including industrial relations governance. Spain is an especially relevant case study, given its high degree of political decentralisation to the regions. Each of the seventeen Spanish autonomous communities has its own regional government, as well as wide competencies in health, education, transport, social services, and, most importantly, they have exclusive competencies on the design and implementation of regional economic development policy since the 1980s. Notwithstanding some path-dependency, such policy mandate gave Spanish ‘region states’ additional capacity to experiment with policy as well as to tailor institutional resources to the needs of particular firms, industries or clusters, for instance, setting up regional economic development agencies. Equally, however, it increased the danger of ‘regional institutional capture’ (c.f. Phelps, 2000) by powerful firms.

The regions under study are: the capital region of Madrid, dominated by service sector investment; and the peripheral region of Asturias, with a tradition of heavy industry, and a greater dependence on a smaller number of large private-sector employers. The latter, of a long social democratic tradition, has integrated social actors in the design of regional policy through the successive endorsement of regional social pacts. The former has for some time been dominated by the Right with a neo-liberal approach. In both regional economies FDI is crucial. In terms of business turnover they are the first and third Spanish regions by weight of foreign MNCs in industry and services - excluding the financial sector: 43.7% in Madrid, and 32.4% in Asturias -. Foreign MNCs also account for 9.1% of employment in Asturias - 29.7% of industrial employment -, and for 23.1% in Madrid.

Our data is based on 44 interviews, carried out in the years 2010-2013 with a wide range of governance actors, including conventional industrial relations actors, representatives of the regional state, inward investment and development agencies, and others involved in the nexus of relationships between MNCs and the regional state, and with subsidiary unit managers in regionally important MNCs. We also documented relevant affairs and policy developments, particularly those connected to the challenges posed by the threat of or actual closure of some key foreign MNCs.

Our regional case studies show that different regional processes of creatively recombining institutional environments in the search for competitive advantage (Crouch, 2005) are possible within similar political institutional structures. Thus, we find that regional governments are key decision-makers in determining the type of sub-regional governance of FDI in Spain. We also find that regional coordination mechanisms depend largely on the dominant political belief as to which actors should be integrated in the regional business system. The Asturian government opted for developing a non-market coordination mechanism, integrating industrial relations actors in the design of regional development policies, while Madrid opted to exclude them. While both alternatives seem successful, path-dependency explanations are clearly insufficient to explain their development. Thus our results reject any institutional deterministic approach. Change depends on the strategic choices of government and social actors within the existing industrial relations institutions setting.

References

Almond, P., A. Ferner, M. Gonzalez Menendez, J. Lavelle, D. Luque Balbona, and S. Monaghan (2014): "Multinational Corporations, Sub-national Governance and Human Resources: A Cross-national Comparison for Europe". In X. Richet, V. Delteil, P. Dieuaide (eds.) Strategies of Multinational Corporations and Social Regulations. European and Asian Perspectives, Springer, 107-124.

Crouch. C. (2005) Capitalist Diversity and Change. Oxford; Oxford University Press.

McCann, P., and Mudambi, R. (2005) “Analytical differences in the economics of geography: The case of the multinational firm”, Environment and Planning, 37: 1857-1876. Phelps, N. A. (2000). The locally embedded multinational and institutional capture. Area, 32(2), 169-178.

Phelps, N. A. (2000). The locally embedded multinational and institutional capture. Area, 32(2), 169-178.

Royo, S. (2008) Varieties of capitalism in Spain. Remaking the Spanish Economy for the New Century. Houndmills: Palgrave-McMillan.

Rutherford, T. D., and Holmes, J. (2013). (Small) differences that (still) matter? Cross-border regions and work place governance in the Southern Ontario and US Great Lakes automotive industry. Regional Studies, 47(1), 116-127.