Cluster capabilities or ethnic ties? Location choice by foreign and domestic entrants in the services offshoring industry in India

We contrast the knowledge spillovers perspective, which focuses on the externalities that arise from locating in a cluster, with the social ties perspective, which emphasizes resource flow through ethnic connections, arguing that these factors differentially influence the location decisions of foreign and domestic entrants in the services-offshoring industry in India. We develop a typology of the capabilities involved in the offshoring of services and, using 108 location decisions across 11 city clusters, find that ethnic networks exert greater influence than cluster capabilities on location decisions, although, as expected, the effect is stronger and more widespread in the case of Indian rather than foreign firms. Journal of International Business Studies (2009) 40, 944-968. doi:10.1057/jibs.2008.91