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LOCATION CHOICE OF INWARD LOGISTICS FDI
IN ITALY


 Ilaria MARIOTTI
 Ila MALTESE
 Flavio 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
• 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
5



       Location factors
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

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



     Traditional Factors
Key location factors at the regional and local level

        Market size, growth and competitiveness


        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)


    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
    Agglomeration economies
    Transport infrastructure
    Public incentives
9



Location factors impacts
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:

    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).
10




                 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,
  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 Italian logistics sector
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:

                                                                  18%


                                                                         12%


                                                                        3%
                                      67%
        60      Trasporti terrestri
        61      Trasporti marittimi
        62      Trasporti aerei
                Attività di supporto e ausiliarie dei trasporti
        63
Geographical distribution
 mainly located in:
 • in the North West
                                                                           • the province of Milan

                                  45,0   41,6
                                  40,0
                                  35,0
                                  30,0
                                  25,0
                                  20,0
                                  15,0             12,4     11,1
                                  10,0                               6,4     5,9
                                   5,0                                                 2,4        2,3       2,2      2,0       1,9

Besides, the majority of the       0,0




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MNEs investing in the Italian                                      om


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logistics sector originate from




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Western Europe.
Y p96
                                                                                        14



                                      Logit model
          Dependent 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.

                  Market size



 Agglomeration economies


        Transaction costs reduction




        Infrastructural assets
15



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

                    1.5656***
  Yp96
  Durb96                        1.4205***    1.3372***
      p
   00                                                      0.4416**    0.3386**
  ∑ FDI
  t =94
                m
                p


  IMNEJ l96                     0.2639***                 0.3136***
          ,p

                    0.6229***                0.8365***                0.8888***
  Age l , p
  Road 0 4           1.2627**   1.8732***    1.8817***     0.9180*      0.8863
       p
                     1.3115**    0.9840**     0.8557*     1.4313***    1.1063**
  Rail 0 4
       p
           04         -0.2803   -0.4438***    -0.3656**    -0.2318      -0.1806
  Port p
          04        0.8519***     0.3186       0.2710     0.8364***    0.7163**
  Air p
  D-Ind.               Yes         Yes          Yes          Yes         Yes
  D-Marea.             Yes         Yes          Yes          Yes         Yes
  n. obs.               408        408          408          408         408
  Log                -58.8172    -70.2192     -63.4956     -73.3427    -67.1183
  Likelihood
  PseudoR2            0.5346      0.4443       0.4976       0.4196      0.4689
16



              Results
Positive and significant impact:

   market size
   infrastructure provision
   agglomeration economies
   the age of the first investment            Information
   the presence of Italian logistics MNE      cost reduction


   inward FDI are more willing to be located in the core
   area of the country, specifically in the north west
   have a preference to be active in the higher added values
   sub-sectors.
17



    Conclusion

   the market-stealing effect for domestic logistics firms

                                vs

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 è
una prevalenza di imprese manifatturiere di medie e grandi
dimensioni (> outsourcing)

necessitano di forza lavoro qualificata

ricercano i vantaggi derivanti dalla concentrazione di altre
imprese logistiche (Ec. Localizzazione) e di attività produttive
e residenziali in ambito urbano (Ec. Urbanizzazione)
si localizzano nelle province in cui la dotazione
infrastrutturale 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 Boscacci
Ilaria Mariotti
Ila Maltese


DiAP, Politecnico di Milano
Ila.maltese@polimi.it

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Mariotti, Maltese & Boscacci - input2012

  • 1. LOCATION CHOICE OF INWARD LOGISTICS FDI IN ITALY Ilaria MARIOTTI Ila MALTESE Flavio BOSCACCI DiAP, Politecnico di Milano INPUT 2012 University of Cagliari Cagliari, 10 - 12 / 05 / 2012
  • 2. STRUCTURE • Aim of the work • Literature review on FDI in the logistics industry • Data and methodology • Descriptive statistics, Econometric analysis • Results • Conclusion and discussion
  • 3. 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. 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
  • 5. 5 Location factors 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 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. 6 Traditional Factors Key location factors at the regional and local level Market size, growth and competitiveness Labour market: costs, availability, skills and unionization Land market: costs and availability Agglomeration economies Transport costs Other costs (taxes and financing)
  • 7. 7 More innovative factors Transport and communication assets and infrastructures Technological innovation level 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. 8 Logistics FDIs location factors The studies on logistics suggest that FDI are positively correlated with the main location determinants: Market size Labour market Agglomeration economies Transport infrastructure Public incentives
  • 9. 9 Location factors impacts 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: 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).
  • 10. 10 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, 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. 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.
  • 12. Inward FDI in the Italian logistics sector 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: 18% 12% 3% 67% 60 Trasporti terrestri 61 Trasporti marittimi 62 Trasporti aerei Attività di supporto e ausiliarie dei trasporti 63
  • 13. Geographical distribution mainly located in: • in the North West • the province of Milan 45,0 41,6 40,0 35,0 30,0 25,0 20,0 15,0 12,4 11,1 10,0 6,4 5,9 5,0 2,4 2,3 2,2 2,0 1,9 Besides, the majority of the 0,0 ri a i o no o a e o a o ol MNEs investing in the Italian om om am ov st r in rn ab ap i la ie vo en To C R rg N M al Tr Li G C Be logistics sector originate from o gi eg R Western Europe.
  • 14. Y p96 14 Logit model Dependent 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. Market size Agglomeration economies Transaction costs reduction Infrastructural assets
  • 15. 15 Econometric analysis Model 1 Model 2 Model 3 Model 4 Model 5 1.5656*** Yp96 Durb96 1.4205*** 1.3372*** p 00 0.4416** 0.3386** ∑ FDI t =94 m p IMNEJ l96 0.2639*** 0.3136*** ,p 0.6229*** 0.8365*** 0.8888*** Age l , p Road 0 4 1.2627** 1.8732*** 1.8817*** 0.9180* 0.8863 p 1.3115** 0.9840** 0.8557* 1.4313*** 1.1063** Rail 0 4 p 04 -0.2803 -0.4438*** -0.3656** -0.2318 -0.1806 Port p 04 0.8519*** 0.3186 0.2710 0.8364*** 0.7163** Air p D-Ind. Yes Yes Yes Yes Yes D-Marea. Yes Yes Yes Yes Yes n. obs. 408 408 408 408 408 Log -58.8172 -70.2192 -63.4956 -73.3427 -67.1183 Likelihood PseudoR2 0.5346 0.4443 0.4976 0.4196 0.4689
  • 16. 16 Results Positive and significant impact: market size infrastructure provision agglomeration economies the age of the first investment Information the presence of Italian logistics MNE cost reduction inward FDI are more willing to be located in the core area of the country, specifically in the north west have a preference to be active in the higher added values sub-sectors.
  • 17. 17 Conclusion the market-stealing effect for domestic logistics firms vs 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. 18 Conclusioni (1) IMN straniere adottano la strategia “market seeking” prediligono le aree in cui i flussi sono più consistenti e in cui vi è una prevalenza di imprese manifatturiere di medie e grandi dimensioni (> outsourcing) necessitano di forza lavoro qualificata ricercano i vantaggi derivanti dalla concentrazione di altre imprese logistiche (Ec. Localizzazione) e di attività produttive e residenziali in ambito urbano (Ec. Urbanizzazione) si localizzano nelle province in cui la dotazione infrastrutturale è maggiore investono nei settori a maggiore valore aggiunto (I 63) prediligono il nord-ovest del Paese
  • 19. 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
  • 20. Suggestions are welcome Flavio Boscacci Ilaria Mariotti Ila Maltese DiAP, Politecnico di Milano Ila.maltese@polimi.it