"Following" Or "Attracting" the Customer? Japanese Banking FDI in Europe (Foreign Direct Investment‪)‬

Introduction Much of the recent expansion of global foreign direct investment (FDI) flows is the result of an increase in services--rather than manufacturing-related investment. As a result, a growing literature has arisen investigating the characteristics, causes, and determinants of such service-related FDI. Many studies point to the strong link that exists between manufacturing firms and service (primarily financial and banking) firms. In describing the location choice of these banks, many studies find support for the hypothesis that service firms "follow the customer" (FTC) abroad; that is "the larger the home-based business (manufacturing) presence in the host (FDI-recipient country), the more the service provider should invest in that country." This suggests that service-FDI flows are tied to manufacturing FDI flows as service providers, either seeking to maintain home-based business relationships with their customers in foreign countries or searching for a means to enter foreign markets, choose to locate where manufacturing has previously invested. From a policy perspective, this may then suggest that the more non-banking FDI a country can attract, the more banking FDI that country may later host.