Firm rivalry, knowledge accumulation, and MNE location choices

The international business (IB) literature has mostly emphasized the impact of location and firm characteristics on location choices. However, industries with a significant presence of multinational enterprises (MNEs) are oligopolistic in nature, which suggests that rivalry among firms plays an important role in firms’ dynamic decision-making processes. This paper explores how rivalry and differential knowledge accumulation among competitors affect MNEs’ geographic expansion across time and markets. Specifically, we build a model in which two competing firms with different capabilities simultaneously decide a sequence of market entries. Following previous research, we allow the possibility that certain markets are closer (a better fit) to one firm than to the other, and that certain knowledge is more transferable across markets (less market specific). We then solve the model computationally, and identify three equilibrium strategies – avoid, collocate, and stronger-chases-weaker – depending on the initial relative firm capabilities, market attractiveness, market–firm fit, and knowledge transferability. By explicitly incorporating firm rivalry across multiple markets, our model offers a comprehensive approach to understanding the drivers behind MNEs’ sequential location choices, and offers alternative explanations for some important empirical observations in IB, such as bunching and second-mover advantage in market entries.