Imitation of regional location choices for foreign investments: The role of home-country collectivism

Abstract

Firms investing in a foreign country tend to imitate their compatriots’ most common regional location choices. We argue that this tendency is stronger among firms from more collectivistic cultures, since such firms are more inclined to view prior compatriot investors in the target country as reliable sources for reducing information-related investment uncertainty. We also propose that home-country collectivism’s amplifying effect on firms’ tendency to imitate compatriots’ most common regional location choices is weaker for firms with existing multinational operations. Decomposing a firm’s compatriots into rivals and non-rivals and carefully controlling for agglomeration economies, we find substantial support for our ideas in a location choice analysis of 3,190 US greenfield investments by firms from 41 countries.