Location and collocation advantages in international innovation

Purpose This paper examines the role of location‐specific (L) advantages in the spatial distribution of multinational enterprise (MNE) R&D activity. The meaning of L advantages is revisited. In addition to L advantages that are industry‐specific, the paper emphasises that there is an important category of L advantages, referred to as collocation advantages. Design/methodology/approach Using the OLI framework, this paper highlights that the innovation activities of MNEs are about interaction of these variables, and the essential process of internalising L advantages to enhance and create firm‐specific advantages. Findings Collocation advantages derive from spatial proximity to specific unaffiliated firms, which may be suppliers, competitors, or customers. It is also argued that L advantages are not always public goods, because they may not be available to all firms at a similar or marginal cost. These costs are associated with access and internalisation of L advantages, and – especially in the case of R&D – are attendant with the complexities of embeddedness. Originality/value The centralisation/decentralisation, spatial separation/collocation debates in R&D location have been mistakenly viewed as a paradox facing firms, instead of as a trade‐off that firms must make.