Technological overlap and cultural distance in MNCs location choice of technological clusters in China

Abstract

While prior literature argued that multinational corporations (MNCs) with superior technology locate themselves outside technological clusters to prevent knowledge spillovers, this paper examines the impacts of technological overlap among MNCs as well as cultural distance between home and host countries on location choices that this argument has overlooked. Empirical analysis is conducted based on 26,981 observations of positive versus negative co-location choices in 28 New and High-Technology Industrial Development Zones decided by 110 Fortune Global 500 corporations from 13 home countries for 352 of their research and development subsidiaries in China between 1996 and 2007. Results in this paper evidence that technological overlap between a focal MNC and the MNCs in a potential technological cluster has an inverted-U shape relationship with the likelihood that the focal MNC chooses to locate in the cluster, whereas cultural distance between the MNC's home and host countries is a positive moderator of this relationship.