Who Enters, Where, and Why? The Influence of Capabilities and Initial Resource Endowments on the Location Choices of New Enterprises

Abstract

Using data about all de novo entrants into Canadian manufacturing sectors during 1984-1998, we studied location choices as a function of firms' initial resources and capabilities. Employing nested logit estimation, we examined the impact of various location traits such as: agglomeration, competition, deterrence, and sunk costs, on location choices. Findings reveal that stronger entrants value more locations with positive cluster externalities, but are more detracted by local competition and incumbents' deterrence strategies. Weaker firms are attracted to places with lower entry barriers and sunk costs. The findings imply the existence of both favorable and adverse entry selection processes which are dominant at different phases of the evolution of a cluster

Keywords: Resources and capabilities, Location choice, Agglomeration, Adverse Selection

JEL Classification: L10, L20, R12, L60