In business, colocation occurs when companies co-locate in the same geographic space.
“In the process of internationalization, companies sometimes colocate with other companies in the same host countries,” said Minyoung Kim, the Frank T. Stockton Professor of Strategic Management at the University of Kansas School of Business.
His new paper, “Colocation as network: Types and performance implications of structural positions in colocation network,” investigates competitive colocation from a network perspective, introducing a theoretical framework of the dimensions of competitive colocation and their implications for large firms competing on a global scale. It appears in the Journal of International Business Studies.
One of the key mechanisms of colocation is “strategic interactions,” which relate to the patterns of sequential decisions of a focal firm in considering the locational choices of rivals. (For example, the multinational tire company Michelin famously attacked Goodyear’s US home market in the 1970s by using its cash flow from the European market. Goodyear defended against Michelin’s push by retaliating in Michelin’s European market.)
“The new perspective we introduce in this paper is to conceptualize colocation as network,” said Kim, who co-authored the piece with Chang Hoon Oh, the William & Judy Docking Professor of Strategy at KU, and Jukyeong Han, an assistant professor at McMaster University and Kim’s former doctoral student at KU.
“We introduce a new conceptualization of location choice and colocation as an interfirm network relationship, and this new conceptualization enables us to investigate the types and performance implications of positions in the colocation network structure,” he said. “In doing so, we also shed light on the ‘strength of weak ties’ in the process of strong internationalization.”
He said the study answers the question of “To comply, or not to comply?” In particular, this paper helps managers to answer whether multinational enterprises should repeatedly interact with the same competitors in many countries or with different competitors with less repetition.
From a network perspective, previous studies have emphasized strong ties of repeated colocation with a small number of competitors, neglecting the strength of weak ties of less repeated colocation with many unique firms.
“Our network-based approach provides an integrative framework to simultaneously investigate these two types of colocation strategies. By doing this, it enables us to compare and contrast the two types and investigate their performance implications,” said Kim.
Another managerial implication is the intrinsic tradeoff between the two colocation strategies. Managers must understand the trade-off between “meeting-the-same-competitors” and “avoiding-the-same-competitors,” and choose one that fits their strategic goals. Pursuing two strategies can cancel out the unique benefits of each strategy and can result in “stuck-in-the-middle” performance.
In terms of methodology, the team introduced two different dimensions of a company’s competitive location: intensity and diversity. They also developed a typology of a company’s structural position in a competitive colocation network: simple colocation, multicountry colocation and multifirm colocation.
Testing the predictions of the theoretical framework with subsidiary information on the location of those listed in the Fortune Global 500, they found corroborating evidence to support their thesis that the intensity and diversity of a company’s competitive colocation individually and collectively influence firm performance. Furthermore, they found multicountry colocation outperformed the other two types.
Kim said he has always been interested in the phenomenon of companies’ behaviors in geographic space.
“There was a point when I realized that the current approach limits our understanding, and the network perspective can help better illuminate the relational nature of the event because companies choose locations and make colocation decisions not only for which locations to offer but also to consider the location choices of rivals,” he said.
Now in his 11th year at KU, Kim is studying the intersection between strategic management and international business. He often focuses on how companies create value and how they adapt the value they create.
“The imitative behavior of location decisions in general and the colocation of specific bears have important implications for today’s performance because they help reduce competitive risks in conditions of uncertainty,” Kim said.
“As the level of uncertainty in today’s business environment increases, colocation as a replication strategy becomes increasingly important.”
The findings are published in Journal of International Business Studies.
More information:
Minyoung Kim et al, Colocation as a network: Types and performance implications of structural positions in colocation networks, Journal of International Business Studies (2023). DOI: 10.1057/s41267-023-00629-8
Provided by the University of Kansas
Citation: Multinational enterprises must choose between two colocation strategies, research finds (2023, July 24) retrieved 24 July 2023 from https://phys.org/news/2023-07-multinational-enterprises-colocation-strategies.html
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