Location Choices Across the Value Chain: How Activity and Capability Influence Collocation

  • Authors:
  • Juan Alcácer

  • Affiliations:
  • Stern School of Business, New York University, 40 West 4th Street, Tisch Hall 7-10, New York, New York 10012

  • Venue:
  • Management Science
  • Year:
  • 2006

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Abstract

There has been a recent revival of interest in the geographic component of firm strategy. Recent research suggests that two opposing forces---competition costs and agglomeration benefits---determine whether firms collocate in a given geographic market. Unexplored is (1) whether these forces have different impacts on R&D, production, and sales subsidiaries, leading to diverse collocation levels, and (2) how firm capabilities impact collocation by increasing or decreasing competition costs and agglomeration benefits. I explore these questions using the worldwide location decisions of firms in the cellular handset industry. I find that production and sales subsidiaries are more geographically dispersed, and R&D subsidiaries are more concentrated, than a random distribution would predict. When distinguishing firms by their capabilities, I find that more-capable firms collocate less than less-capable firms, regardless of the activity performed.