Location and collocation
advantages in international
innovation
Rajneesh Narula
Henley Business School, University of Reading, Reading, UK, and
Grazia D. Santangelo
Facolta
`
di Scienze Politiche, University of Catania, Catania, Italy
Abstract
Purpose – This paper examines the role of location-specific (L) advantages in the spatial distribution
of multinational enterprise (MNE) R&D activity. The meaning of L advantages is revisited. In addition
to L advantages that are industry-specific, the paper emphasises that there is an important category of
L advantages, referred to as collocation advantages.
Design/methodology/approach – Using the OLI framework, this paper highlights that the
innovation activities of MNEs are about interaction of these variables, and the essential process of
internalising L advantages to enhance and create firm-specific advantages.
Findings – Collocation advantages derive from spatial proximity to specific unaffiliated firms, which
may be suppliers, competitors, or customers. It is also argued that L advantages are not always public
goods, because they may not be available to all firms at a similar or marginal cost. These costs are
associated with access and internalisation of L advantages, and – especially in the case of R&D – are
attendant with the complexities of embeddedness.
Originality/value – The centralisation/decentralisation, spatial separation/collocation debates in
R&D location have been mistakenly viewed as a paradox facing firms, instead of as a trade-off that
firms must make.
Keywords Foreign direct investment, Multinational enterprises, Eclectic paradigm, Collocation,
Country-specific advantages, Innovation, International business
Paper type Research paper
Introduction
Understanding the reasons why economic activity prefers to locate in certain physical
spaces (and not in others) has formed the basis of much enquiry since at least the
Enlightenment, and continues to do so. Although the jargon in such enquiry has
evolved through the centuries, concern with national competitiveness has driven much
of this effort, and connected to competitiveness, the propensity to trade, and the
ensuing issues of balance of payments and national debt. Nonetheless, the location and
agglomeration of economic activity – until about 50 years ago – worked on the
assumption that both capital and labour were location-bound, because firms and
individuals showed little propensity to mobility. Thus, competitiveness was primarily
shaped by the attributes of the location, and as locations evolved in the nature of their
inherent strengths and weaknesses, the kind of economic activity based there also
fluctuated. This had obvious ramifications for the nature and extent of trade, and the
conditions that permitted one region or country to be more successful than others.
The evolution of the modern MNE[1] changed this with the growing level and
intensity of foreign direct investment (FDI), intra-firm trade, and complex sets of
The current issue and full text archive of this journal is available at
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MBR
20,1
6
Multinational Business Review
Vol. 20 No. 1, 2012
pp. 6-25
q Emerald Group Publishing Limited
1525-383X
DOI 10.1108/15253831211217161