Firm capabilities and technology ladders: sequential foreign direct investments of Japanese electronics firms in East Asia

This paper investigates how investments in capabilities offer platforms for the upgrading or downgrading of overseas subsidiaries' activities along a 'technology ladder' in response to macroeconomic changes. By analyzing panel data on Japanese electronic firms in East Asia from 1988 to 1994, the empirical results confirm the importance of capabilities at host country, parent company, and local subsidiary levels in sequential foreign investment decisions. The results show that subsidiary capabilities offset macroeconomic factors influencing location decisions of multinational corporations.