To Enter or Not to Enter Agglomerations? Navigating Multinational Corporations’ Internal Sourcing in Foreign Investment Locations

Abstract

This study investigates how multinationality shapes firms’ foreign investment decisions regarding whether to enter industry agglomerations when being in a host country. I introduce multinationality—defined as the geographic dispersion of resource assets across countries—as an internal sourcing mechanism that reduces multinational corporations’ (MNCs’) likelihood to join industry agglomerations. I unpack the efficacy of internal sourcing mechanisms based on the cross-border transferability of MNCs’ different in-network resources—knowledge/technology, intermediate inputs, and service skills, by decomposing different resource dimensions of multinationality to R&D, manufacturing, and service multinationality. Using data on MNCs’ foreign investments in the United States from 2004 to 2020, the findings from logit models indicate that the degree of an MNC’s overall multinationality reduces the likelihood of the MNC to choose agglomerations when operating in a host country. Moreover, it is revealed that an MNC’s R&D multinationality represents the strongest substitutability, followed by its service multinationality and manufacturing multinationality, respectively. By linking multinationality with agglomeration, this paper provides a comprehensive understanding of MNC location strategies.