Moving Out of the Country: An Exploratory Study of the Impact of Country, Cluster and Firm-related Factors

Small countries are in general considerably exposed to international economic activity. For instance, Scandinavian countries with some 4–8 million inhabitants export between 40 and 50 per cent of their GNP; foreign direct inward investments represent between 3 and 9 per cent (Benito et al. 2002). The corresponding figures for large countries like US and Japan are in the region of 12 per cent and 0.5–1.0 per cent; for UK, Germany and France with between 60 and 80 million inhabitants they are in the region of 30 per cent and 1–3 per cent respectively. Small countries also have a more specialized technological and a leaner industrial base, and therefore depend to a great extent on international markets and foreign investors prospering. Hence, it is thought that this class of countries need to develop some location advantage such as low labour cost, competitive tax regimes, strong industrial clusters or other benefit in order to attract and further retain investors. One issue in this context becomes increasingly manifest: relocation or offshoring of economic activity from Western economies to countries that can offer a combination of the above advantages — most often low cost (labour and/or taxes). For example, a recent survey of Norwegian industrial firms indicates that about one fifth of all firms have shifted key subcontracting operations to foreign firms in the last few years; in the mechanical industry this ratio is as high as 37 per cent (NHO, 2004).