The extent and drivers of internal agglomeration of U.S. multi‐unit firms

Research Summary This paper examines the extent and determinants of internal agglomeration—the spatial clustering of establishments within firms. It introduces a novel methodology that benchmarks a firm's spatial footprint against that of comparable stand‐alone firms, yielding a firm‐level measure of internal agglomeration. Applied across sectors of the U.S. economy, the approach reveals that internal agglomeration is widespread but varies by industry and firm characteristics. It is more prevalent in service, non‐tradable, and labor‐intensive industries, and is especially pronounced among diversified firms. Among potential drivers, labor similarity consistently predicts intra‐firm colocation, while input–output and knowledge linkages are less influential. These findings bring a spatial lens to corporate strategy, showing that when key resources—particularly labor—face geographic frictions, colocating related activities enhances opportunities for sharing and redeployment. Managerial Summary Many firms are known to colocate or cluster with other firms in related industries to reap the benefits of sharing specialized inputs, labor, and knowledge. We study whether multi‐unit firms can generate similar benefits by colocating their establishments. We examine the geographic distribution of establishments of multi‐unit firms using comprehensive data on the U.S. economy. We find that over half of all firms colocate their establishments significantly more than would be expected if these belonged to independent firms. Firms are especially likely to colocate establishments with similar labor requirements, which suggests a deliberate strategy to leverage internal labor synergies. Our findings suggest that managers should consider the potential benefits of internal resource sharing when selecting locations, particularly to capitalize on synergies from resources that are less geographically mobile.