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Location Strategies for Agglomeration Economies

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Author Info

  • Juan Alcacer

    ()
    (Harvard Business School, Strategy Unit)

  • Wilbur Chung

    ()
    (R.H. Smith School of Business, University of Maryland)

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    Abstract

    Geographically concentrated industry activity creates pools of skilled labor and specialized suppliers, and increases opportunities for knowledge spillovers. The strategic value of these agglomeration economies may vary by firm, depending upon the relative value of each economy, and upon firm and agglomeration economy traits. To better determine when a firm will be attracted to agglomeration economies, we develop a three-layer framework. The first layer assesses the relative importance of skilled labor, suppliers, and knowledge spillovers. The second layer considers whether firms can benefit from geographic concentration without co-locating. The final layer examines why some firms are more inclined to co-locate than others based upon firm and agglomeration economy traits. We test our framework on the U.S. location choices of new manufacturing entrants between 1985 and 1994 and find that firms are far more attracted to skilled labor and specialized suppliers than they are to potential knowledge spillovers, even in R&D intensive industries. We also find that leading firms will be more attracted to pools of labor, suppliers, and potential knowledge spillovers when their own contributions are less fungible, and cannot be easily leveraged for strategic advantage by proximate competitors.

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    Bibliographic Info

    Paper provided by Harvard Business School in its series Harvard Business School Working Papers with number 10-071.

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    Length: 38 pages
    Date of creation: Feb 2010
    Date of revision:
    Handle: RePEc:hbs:wpaper:10-071

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    Related research

    Keywords: agglomeration economies; location choice; firm strategy;

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    Cited by:
    1. Parrotta, Pierpaolo & Pozzoli, Dario & Pytlikova, Mariola, 2014. "Labor diversity and firm productivity," European Economic Review, Elsevier, vol. 66(C), pages 144-179.
    2. Andrea Gauselmann & Philipp Marek, 2011. "Regional Determinants of MNE's Location Choice in Transition Economies," WIFO Working Papers 412, WIFO.

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