The purpose of this study is to identify the effect of ethnic networks on firms’ location decisions using social network theory and the homophily principle.
A traditional gravity model is used on a sample composed of high-skilled and low-skilled ethnic networks and multinational enterprises (MNEs) from Latin America, North America and the European Union.
Contrary to findings of previous studies, ethnic networks do not appear to influence location decisions of Latin American firms expanding into countries from North America and the European Union. This might be because of weak ethnic connections among the players.
Managers must be aware that ethnic networks not always can be used for the strategy of the firm, at least regarding location.
Governments and entrepreneurial and immigrant associations from home and host countries could develop initiatives addressed to strengthening the links between the members of the networks.
This study extends the social network theory in the sense that ethnic networks do not always positively affect firms’ location. Moreover, it is important to consider the specific context or features of the members of a network before analyzing its effects on firms’ location.
