Article | Management Science | October 2006

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

by Juan Alcacer

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.

Keywords: Business Strategy; Competitive Strategy; Sales; Research and Development; Cost Accounting; Cost Management; Markets; Production; Organizational Change and Adaptation; Distribution; Cost vs Benefits; SWOT Analysis; Telecommunications Industry;

Citation:

Alcacer, Juan. "Location Choices across the Value Chain: How Activity and Capability Influence Collocation." Management Science 52, no. 10 (October 2006): 1457–1471.