Given the importance of proximity for knowledge spillovers, we examine firms' location choices expecting differences in firms' strategies. Firms will locate to maximize their net spillovers as a ...function of locations' knowledge activity, their own capabilities, and competitors' anticipated actions. Using new entrants into the United States from 1985 to 1994, we find that firms favor locations with academic innovative activity. Other results highlight differences in firms' location strategies suggesting that firms consider not only gains from inward knowledge spillovers but also the possible cost of outward spillovers. While less technologically advanced firms favor locations with high levels of industrial innovative activity, technologically advanced firms choose only locations with high levels of academic activity and avoid locations with industrial activity to distance themselves from competitors.
Recent research demonstrates that firms, motivated by national differences in technical activity, expand abroad to source unique knowledge. Extant research suggests that firms use a knowledge ...sourcing strategy to 'catch up' with competitors and to obtain 'technical diversity.' We widen the investigation by suggesting that firms also use knowledge sourcing as a springboard to reduce their next generation R&D costs--that firms would seek out similar R&D activity to combine with their own. Using unique data that encompasses the multitude of countries where U.S. firms invest, we test the importance of these explanations. Measuring knowledge via patent stocks, we find that country-industries with larger stocks and greater technical similarity to the United States are more attractive. These findings suggest that an important explanation for firms investing abroad is not catching up or technologically diversifying, but is using similar R&D efforts of others to overcome fixed R&D cost hurdles.
To what extent do firms go abroad to access technology available in other locations? This paper examines whether and when state technical capabilities attract foreign investment in manufacturing from ...1987-1993. We find that on average state R&D intensity does not attract foreign direct investment. Most investing firms are in lower-tech industries and locate in low R&D intensity states, suggesting little interest in state technical capabilities. In contrast, we find that firms in research-intensive industries are more likely to locate in states with high R&D intensity. Foreign firms in the pharmaceutical industry value state R&D intensity the most, at a level twice that of firms in the semiconductor industry, and four times that of electronics firms. Interestingly, not only firms from technically lagging nations, but also some firms from technically leading nations are attracted to R&D intensive states. This suggests that beyond catching up, firms use knowledge-seeking investments also to source technical diversity.
While competition decreases rents for firms, the presence of competitors may create benefits. Competitors that agglomerate, that are physically proximate, may create externalities-production ...efficiencies or heightened demand that increases rents. When such externalities exist, then who gains from and who contributes to them? We examine how other competitors' traits affect performance in Texas's lodging industry. In rural markets, we find that chain hotels and larger hotels contribute to positive externalities. While expecting those hotels similar to the establishments creating these externalities to gain, we find the opposite. Independent hotels and smaller hotels gain the most. Interestingly, some establishments are harmed.
We analyze whether firms prefer collocating with incumbent firms when choosing among markets to enter, highlighting the role of resource-seeking as a motivation for collocation. We propose that ...entrants will locate near others possessing resources that can spill over, but will avoid locations where existing firms will exploit spillovers without contributing. To test these propositions, we analyze the location decisions of 570 new hotels in Texas between 1992 and 2000. We find that hotels are attracted to markets with branded upscale hotels. Further, we find that owners of upscale hotels avoid markets with hotels without similar resources.
In an international context, we examine firms strategic choices in the management of knowledge flow. Multinational firms can manage subsidiary knowledge flows by adjusting the level of localization ...in the top management - by sending expatriates to transfer internal knowledge or hiring local managers to source external knowledge. Drawing on a panel data of Japanese overseas subsidiaries across 18 host countries, we find that subsidiaries localized top management more when firms had less internal knowledge and when external knowledge sources were rich. Greater subsidiary and parent local experience altered these two main effects in opposite directions. These findings highlight nuances in firms choices of how to manage knowledge flows in foreign markets.
Research Summary
While agglomeration economies can enhance collocated firms' performance, firms' gains will be heterogeneous. Gains will be driven not only by firms' own traits, but also by their ...neighboring firms' traits. We expect a focal firm gains more from neighbors that are larger, more proximate geographically, and more related in economic activity. We leverage a quasi‐experiment that features micro‐geographic, establishment‐level data: the exit of the HHGregg electronics retailer in outdoor shopping malls, to estimate the intensity of demand agglomeration benefits from two sources: (a) a focal‐pair—how HHGregg's exit harms a focal store's survival, and (b) the other neighbors—how the attributes of the remaining neighbors attenuate this reduced survival effect. We find results consistent with the focal store's, HHGregg's, and neighbors' heterogeneity in size and distance affecting the focal store's survival.
Managerial Summary
While firms can benefit from being located near one another, the benefits vary with both a focal firm's characteristics but also neighboring firms' characteristics. A firm should benefit more from neighbors that are larger, physically closer, and engaged in more similar activity. We examine how the bankruptcy of the HHGregg electronics retailer negatively affected other stores in outdoor shopping malls, and how that loss in benefit was attenuated by the remaining neighbors. We find that a focal store's survival is affected by the focal store's, HHGregg's, and neighbors' heterogeneity in size and physical distance.
Research Summary
While agglomeration economies can enhance collocated firms' performance, firms' gains will be heterogeneous. Gains will be driven not only by firms' own traits, but also by their ...neighboring firms' traits. We expect a focal firm gains more from neighbors that are larger, more proximate geographically, and more related in economic activity. We leverage a quasi‐experiment that features micro‐geographic, establishment‐level data: the exit of the HHGregg electronics retailer in outdoor shopping malls, to estimate the intensity of demand agglomeration benefits from two sources: (a) a focal‐pair—how HHGregg's exit harms a focal store's survival, and (b) the other neighbors—how the attributes of the remaining neighbors attenuate this reduced survival effect. We find results consistent with the focal store's, HHGregg's, and neighbors' heterogeneity in size and distance affecting the focal store's survival.
Managerial Summary
While firms can benefit from being located near one another, the benefits vary with both a focal firm's characteristics but also neighboring firms' characteristics. A firm should benefit more from neighbors that are larger, physically closer, and engaged in more similar activity. We examine how the bankruptcy of the HHGregg electronics retailer negatively affected other stores in outdoor shopping malls, and how that loss in benefit was attenuated by the remaining neighbors. We find that a focal store's survival is affected by the focal store's, HHGregg's, and neighbors' heterogeneity in size and physical distance.
Because agglomeration economies may create competitive advantage and each location has a unique array of agglomeration economies, where should firms locate? We combine fundamental economic and ...strategy concepts to: (1) determine when firms must locate proximately to access factor pools; (2) show that factor pools controlled by fewer firms are less useful to new entrants; and (3) demonstrate that certain firms risk aiding competitors when contributing to efficient factor pools. We find support for our predictions with a test on new U.S. manufacturing entrants from 1985 to 1994, using an empirical specification that separates agglomeration levels from agglomeration economies.
Although several studies have shown that inward foreign direct investment (FDI) often leads to greater host country productivity, researchers have yet to determine the relative importance of direct ...technology transfer and competitive pressure. To assess the relative importance of the two channels, we examine the US auto-component industry between 1979 and 1991. During this period, Japanese automobile assemblers began to produce vehicles in North America, and began to purchase inputs from US auto-component manufacturers. Those US manufacturers that sold components to Japanese transplants would be the direct recipients of any technologies transferred from the Japanese. Although we find that the direct investment by Japanese assemblers was associated with overall productivity improvement in the US auto-component industry, we find little evidence of direct technology transfer. The productivity growth of US suppliers affiliated with Japanese assemblers was no greater than that of other, non-affiliated US suppliers. Further, we find that the Japanese assemblers tended to purchase components from less productive US suppliers and, moreover, that low-productivity suppliers that sold goods to Japanese assemblers had a higher survival rate than low-productivity suppliers that did not sell to Japanese firms. The results suggest that increased competitive pressure in the auto-sector was the main cause of overall productivity improvement, at least during the initial stages of FDI of the 1980s.
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