When do firms choose global cities as foreign investment locations within countries? The roles of contextual distance, knowledge intensity, and target-country experience

Rene Belderbos, Helen S. Du*, Arjen Slangen

*Corresponding author for this work

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Abstract

Foreign investors generally need to overcome a liability of foreignness stemming from contextual distance between their home country and the target country. We argue that they can limit that liability more easily by investing in a global city rather than elsewhere in the target country. Accordingly, we hypothesize that the contextual distance to a target country has a positive effect on a firm's propensity to invest in a global city in that country. We also predict that this effect is stronger for investments in knowledge-intensive activities and weaker for investors with more target-country experience in general and target-country experience in global cities in particular. Our hypotheses receive considerable support in an analysis of 11,748 foreign greenfield investments by 1025 manufacturing and service firms during 2008-2012. Our findings suggest that global cities are superior subnational locations for gathering contextual knowledge about target countries and limiting the liability of foreignness.
Original languageEnglish
Article number101022
Number of pages13
JournalJournal of World Business
Volume55
Issue number1
DOIs
Publication statusPublished - Jan 2020

Keywords

  • Contextual distance
  • Global cities
  • Knowledge-intensive activities
  • Liability of foreignness
  • Location decisions
  • Target-country experience
  • RESEARCH-AND-DEVELOPMENT
  • JAPANESE MULTINATIONAL-CORPORATIONS
  • CULTURAL DISTANCE
  • INTERNATIONAL EXPERIENCE
  • HOST-COUNTRY
  • CHOICE
  • ENTRY
  • IMPACT
  • CITY
  • HEADQUARTERS

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