Managerial Flexibility, Labour Market Regulations and the Comparative Attractiveness of the UK as a Business Location

At a time of intensifying uncertainty, managerial flexibility to adapt to changes in the economic environment is held to be increasingly important. It is frequently argued, that different business locations offer this flexibility to differing degrees, labour market regulations being one essential factor in determining the resulting attractiveness of a country as a business location. This paper takes a closer look at the comparative attractiveness of the UK as a business location - viewed from the perspective of US multinationals. The empirical evidence from a unique data set derived from a survey of US multinationals in the UK and Germany (1) underlines the perceived comparative attractiveness of the UK as a business location, (2) highlights the potential relevance of a process of self-selection by international investors where investors employing transparent capital goods (i.e. investors that value the flexibility to divest) particularly prefer the UK as a business location, and (3) provides evidence for the differential adjustment strategies in British and German manufacturing subsidiaries where UK subsidiaries make larger use of layoffs and are more likely to close down.