Bird in Hand or Two in the Bush: Location Choices Specific to Present Vis-à-vis Future Buyers

Although co-locations with vertically-related buyers represent competitive advantage for their suppliers, the value of the locations is vulnerable to the buyers’ performance uncertainty. This study examines how firms manage this uncertainty that previous studies has not sufficiently addressed. Drawing on inter- organizational coordination literature and resource dependence theory, this study argues that under current buyers’ performance uncertainty, the focal firm faces and complies with demand from the current buyers for relation-specific co- locations with them, but not with potential buyers that are rivals to the initial buyers. This mechanism prohibits the focal firm from seeking potential buyers as real options. Consequently, a feasible real options strategy is limited to co- locations with potential buyers in different industries that are not rivals to the current buyers, because such investments do not contradict current buyers’ demand. Empirical analyses of market entries by multinational firms considering the locations of current and potential buyers largely support this argument.