Who Enters, Where, and Why? The Influence of Capabilities and Initial Resource Endowments on the Location Choices of De Novo Enterprises

Abstract

Using data about all de novo entrants into the Canadian manufacturing sectors during 1984-1998, we studied location choices as a function of firms' initial resources and capabilities. Employing nested logit estimation, we examined the impact of various location traits such as: agglomeration, competition, deterrence, and sunk costs, on location choices. Findings reveal that the probability of entry to a location with high agglomeration economies increases with increases in resources and capabilities and then declines. Very large de novo entrants may prefer isolated locations. Stronger entrants are more detracted by local competition and incumbents' deterrence strategies. Weaker firms value more places with lower entry barriers and sunk costs.