Firms are significantly more likely to conduct business with a given country if there is a large resident population living near their headquarters, according to a new study from University of Texas at Dallas (UT Dallas) researchers.
“In cities like Dallas, we are endowed with
a rich mix of ethnic backgrounds, and it impacts considerably more than the
menus at restaurants,” UT Dallas Naveen Jindal School of Management Professor
Dr. Umit Gurun, one of the study’s authors, said. “When people immigrate to the U.S.,
their existing potential network is a hidden benefit -- having connections with
people of different expertise, backgrounds and ways of thinking.”
Comparing microlevel import and export data
and census-tract demographic data, the study, which was published in the
Journal of Finance, linked trade decisions with local populations. Firms are
more likely to see sales and profitability growth in countries with large
resident populations near their headquarters, as well as being more likely to
acquire companies from those countries.
“Over 50 percent of the profits of S&P
500 firms come from overseas,” Gurun said. “Clearly, international relations
are a critical source of competitive advantage. Any leg up firms can achieve -- such as through network connections of local residents to home countries -- could translate into the bottom line.”
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