Multinational enterprises ought to select between two colocation methods, analysis finds

In enterprise, colocation happens when corporations find collectively in the identical geographic house.

“Within the strategy of internationalization, corporations typically colocate with different corporations in the identical host international locations,” mentioned Minyoung Kim, the Frank T. Stockton Professor of Strategic Administration on the College of Kansas College of Enterprise.

His new paper, “Colocation as community: Varieties and efficiency implications of structural positions in colocation community,” investigates aggressive colocation from a community perspective, introducing a theoretical framework on the size of aggressive colocation and their implications for giant corporations competing in a world scale. It seems within the Journal of Worldwide Enterprise Research.

One of many key mechanisms for colocation is “strategic interactions,” which concern the patterns of a focal agency’s sequential selections in consideration of rivals’ location decisions. (For example, the multinational tire firm Michelin famously attacked Goodyear’s U.S. dwelling market within the Nineteen Seventies through the use of its money move from the European market. Goodyear defended towards Michelin’s push by retaliating in Michelin’s European market.)

“The brand new perspective that we’re introducing on this paper is the conceptualization of colocation as community,” mentioned Kim, who co-wrote the piece with Chang Hoon Oh, the William & Judy Docking Professor of Technique at KU, and Jukyeong Han, an assistant professor at McMaster College and Kim’s former doctoral pupil at KU.

“We introduce a brand new conceptualization of location selection and colocation as an interfirm community relationship, and this new conceptualization allows us to research sorts and efficiency implications of structural positions within the colocation community,” he mentioned. “In doing so, we additionally make clear the ‘power of weak ties’ within the strategy of agency internationalization.”

He mentioned the examine addresses the query of “To observe, or to not observe?” Particularly, this paper helps managers reply whether or not multinational enterprises ought to repeatedly colocate with the identical rivals throughout a number of international locations or with numerous rivals with much less repetition.

From the community perspective, earlier research spotlight robust ties in repetitive colocation with a small variety of rivals, neglecting the power of weak ties in much less repetitive colocation with numerous distinctive corporations.

“Our network-based strategy supplies an integrative framework to concurrently examine these two varieties of colocation methods. By doing so, it allows us to match and distinction the 2 sorts and examine their efficiency implications,” Kim mentioned.

One other managerial implication is the intrinsic tradeoff between the 2 colocation methods. Managers want to grasp the trade-off between “encountering-the-same-competitors” and “avoiding-the-same-competitors,” and select one that matches their strategic objectives. Pursuing each methods might cancel out the distinctive advantages of every technique and may end up in “stuck-in-the-middle” efficiency.

By way of methodology, the workforce launched two distinct dimensions of a agency’s aggressive colocation: depth and variety. Additionally they developed a typology of a agency’s structural place within the aggressive colocation community: easy colocation, multicountry colocation and multifirm colocation.

Testing predictions of the theoretical framework with subsidiary location info of these listed within the Fortune World 500, they discovered corroborating proof in assist of their thesis that the depth and variety of a agency’s aggressive colocation individually and collectively influenced agency efficiency. Moreover, they discovered multicountry colocation outperforms the opposite two sorts.

Kim mentioned he is at all times been within the phenomenon of corporations’ behaviors in geographic house.

“There was some extent after I realized that the prevailing strategy is limiting our understanding, and the community perspective may be useful higher illuminating the relational nature of the phenomenon as a result of corporations select areas and make selections on colocation not just for what areas have to supply but in addition to think about rivals’ location decisions,” he mentioned.

Now in his eleventh yr at KU, Kim research the intersection between strategic administration and worldwide enterprise. He usually focuses on how corporations create worth and the way they acceptable the worth they’ve created.

“Imitative behaviors in location selections on the whole and colocation in particular bear ever extra vital efficiency implications these days as a result of they assist cut back aggressive dangers in circumstances of uncertainty,” Kim mentioned.

“As the extent of uncertainty within the present enterprise atmosphere is getting greater, colocation as an imitative habits turns into extra essential.”

The findings are revealed within the Journal of Worldwide Enterprise Research.