Who enters, where and why? The influence of capabilities and initial resource endowments on the location choices of de novo enterprises

Abstract

Some geographical locations have characteristics that create opportunities for de novo enterprises, but not all new firms can access the benefits presented by a potential location. The ability of new firms to appropriate benefit and avoid risk depends on the resources that entrepreneurs can marshal for their enterprise. This article develops a model of the interplay between the attributes of de novo entrants and their founding locations. The model assumes that de novo entrants tend to appear in the region where their founders live, but that founders choose among locations within their regions.The test of the model, using data on all de novo entrants in the Canadian manufacturing sector during 1984—98, reveals that entrants with greater resource and capability endowments are more likely to locate in areas with an agglomeration of similar firms, but this effect reverses at high endowment levels. Additionally, larger entrants are less likely to locate in areas characterized by intense local competition and potential entry deterrence, while smaller and well-endowed entrants tend to locate in areas where entry barriers are lower and asset turnover higher. These findings suggest that entrants choose locations strategically within their founding regions.They also indicate that the strategic imperatives of de novo entrants differ significantly from those of geographically diversifying firms, and thus suggest amendments to theories of location choice when modeling the decisions of new ventures.

Through the Looking‐Glass: The Impact of Regional Institutional Logics and Knowledge Pool Characteristics on Opportunity Recognition and Market Entry

“…A clear practical implication of our work relates to the location choice of new firms. Prior studies and our field interviews indicated that entrepreneurs choose to locate in certain regions in order to benefit from larger or more specialized knowledge pools (Aharonson et al, ; Pe’er et al, ). Our empirics indicate that the ability of entrepreneurs to benefit from such localized knowledge spillovers might be contingent on the regionally generated cognitive schemas within which industry sectors emerge.…”

“…The majority of new knowledge is generated by university, federal, and corporate R&D laboratories (Nanda et al, ). New cleantech firms often locate close to these organizations to benefit from localized knowledge spillovers (Aharonson et al, ; Pe’er et al, ). An interview with the founder of a wind energy startup highlighted this dynamic:

When this firm materialized for us … it just made perfect sense ( to locate here ) for both a life decision for me, as well as a business decision because the talent was right here in Boulder … We literally searched the country from California to New York and everything in between.

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Why do Firms Locate Across Multiple Clusters? Cluster Density, Capabilities and Ethnic Ties

“…The drivers for agglomeration of similar firms include access to specialized labor, specialized inputs and the role of technology spillovers (Marshall 1890) as well as benefits of diversity of knowledge sources (Jacobs 1969). Resources and capability development as well as industry structure and competition are the two key perspectives that attract founders to set up their venture in a particular location (Pe'er, Vertinsky, and King 2008). It is well known that clusters spur new business creation and support entrepreneurship (Delgado, Porter, and Stern 2010).…”

“…Whilst many firms locate in clusters, some are seen to have their presence in form of multiple establishments across multiple clusters (McCann and Folta 2008). Although several studies have discussed the facilitators of firms' location choice of (first) cluster location (Berchicci, King, and Tucci 2011;Cooper and Folta 2000;Pe'er, Vertinsky, and King 2008;Zaheer, Lamin, and Subramani 2009), very few studies investigate the choice of locating in multiple clusters exercised by the firms (e.g., Ernst 2002;Storper 2011). More specifically, very little is known about what drives a firm to expand into multiple clusters.…”

“…Porter (1990) proposed a stronger role of intra-firm competition that drives the location choice, whereas Jacobs (1969) had argued for innovation spillovers from across diverse industries within a cluster location. More recently, new economic geography literature (e.g., Delgado, Porter, and Stern 2010;Pe'er, Vertinsky, and King 2008;Storper 2011) has brought in a novel perspective by arguing for multiple clusters both within the same industry and within the same country or region. We take this multiple cluster perspective to investigate the drivers of firms choosing to expand into multiple clusters.…”