How intra‐ and interfirm agglomeration affect new‐unit geographic distance decisions of multiunit firms

Hyun‐Soo Woo, Albert Cannella and Luiz Mesquita

Strategic Management Journal, 2019, vol. 40, issue 11, 1757-1790

Abstract: Research Summary Prior agglomeration research takes a competitive‐level view, where any incumbent is considered as a rival by a new entrant in the same geographic market. Our study suggests an alternative corporate‐level view, where entry by multiunit firms must consider sister units as well as rivals in the market. Theorizing about a sharing mechanism between sister units distinct from a spillover mechanism between rivals, we expect that multiunit firms locate new units nearer sister vis‐à‐vis rival units and that the size, quality, and organizational form of a new unit moderate these associations. Finally, we predict that multiunit firms establish new units distant from same‐brand and same‐market‐segment sister units. We find robust empirical support from the geographic distance decisions of 10 multiunit hotel firms in 20 U.S. cities. Managerial Summary Where should multiunit firms (e.g., fast‐food chains, hotels) locate new business units relative to others? Current competitive‐level‐strategy perspective argues new units should locate “far‐from‐others” if they have superior capabilities (to avoid being imitated) and “near‐others” if inferior ones (to better imitate others). We instead examine this phenomenon from a corporate‐level‐strategy perspective, regarding locally available synergies sister units can garner to better compete. We argue that new units locate nearer sister (i.e., business‐units of same‐parent firms) than rival units; that this effect is stronger if new units are larger, have better quality, and are company‐operated rather than franchised; and that this base effect is weaker when sisters belong to same‐ rather than different‐brand companies of the same parent‐firm. We provide supporting empirical evidence from the hotel industry.

Date: 2019
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