The MNE versus the local firm: MNE relative location flexibility as a foreign firm advantage

Purpose This paper aims to investigate whether multinational enterprises (MNEs) have a heightened propensity to seek density in their location choices and to engage in locations with inherent value-creating potential compared to local firms. Design/methodology/approach Drawing on economic geography and using a unique, geographically detailed firm-level data set covering all firms in Sweden, the authors analyze subnational patterns in the location choices of foreign-owned firms compared to those of domestic firms. This study also makes a methodological contribution by exploring detailed subnational patterns down to the level of each plant or office unit’s address, within a firm. Findings This study finds that MNEs tend to choose locations that are more densely populated and to co-locate with other foreign firms in the market. Contrary to theoretical expectations that local firms should have an advantage due to their local awareness, the findings suggest that foreign multinationals can be more effective at leveraging the economic benefits of location. To explain this finding, the authors discuss the concept of MNEs’ relative location flexibility, suggesting that MNEs are well-equipped to strategically target areas that can generate value and contribute to the formation of clusters. Research limitations/implications This research contributes to theories on internationalization, location choice and the formative and nascent dynamics of clusters. The findings nuance assumptions in international business theory regarding the advantages of being embedded in local business systems and the disadvantages of being foreign. The authors also discuss the implications of MNE co-location for location choice and market entry theory. Originality/value Originality pertains to the comparative analysis of multinational enterprises and local firms in a subnational context. The concept of MNE relative location flexibility is a novel way of explaining how MNEs can target areas that generate value and contribute to the formation of clusters.