Location decisions and agglomeration economies: domestic and foreign companies

Abstract

The international expansion of multinational enterprises (MNEs) is one of the topics most frequently discussed amongst international business scholars. In particular, decisions regarding firm location and its effects on performance have received great attention. The results obtained in the study about this relationship are inconclusive, though, since a large number of studies have been conducted from
\nvery different perspectives. One of these perspectives suggests that the location in agglomerations allows MNEs to benefit from potential knowledge spillovers encouraging innovation and local adaptation. However, this co-location increases the risk of imitation by domestic companies as well. Furthermore, the acquisition by each firm of the external knowledge generated by means of concentration depends
\non its internal capabilities, and especially on its absorptive capacity. The aim sought with this work consists in analyzing the location decisions adopted by MNEs in an attempt to clarify the following issues: Are MNEs more likely to be established in agglomerations? Which companies benefit the most from geographical proximity in terms of innovation, domestic or foreign ones? What is the role of absorptive
\ncapacity? The results obtained in the analysis, carried out with a sample of firms and using data from a survey conducted in 2013 by PITEC, reveal the differences between foreign and local companies when it comes to using external knowledge.