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The origin and nature of meaningful, persistent firm-specific differences is a central issue in the study of business strategy. I investigate in this paper the role of characteristics physically external to firms, but embodied in their local geographic areas, in driving differences in firms’ organizing strategies. Specifically, I examine the extent to which location-specific characteristics affect the organization of pharmaceutical firms’ research laboratories bringing both qualitative and quantitative evidence to bear on this issue. Analyses of the histories of several late 19th century drug makers suggest that differences in local institutions, labor markets, and demand structures played important roles in affecting case firms’ strategic evolution. For example, while Mulford (Philadelphia PA) exploited the strength of nearby universities and the city’s public health system in organizing around leading-edge capabilities in bacteriology, Sterling (Wheeling WV) found that its local environment rewarded investments in marketing and distribution. Panel data analysis on a sample of firms from the late 20th century provides complementary evidence, demonstrating that the scientific orientation of modern drug discovery laboratories is positively and significantly correlated with measures of the strength of the local scientific and technical base. Together, these analyses suggest that location-specific characteristics may be important in driving firm heterogeneity and, ultimately, competitive advantage.