Global strategy collections: Multinationality and performance

Abstract

Research Summary

In this second collection of articles relating to global strategy, we address the well-established but unresolved issue of the relationship between multinationality and performance among multinational firms. The M-P relationship has been the topic of many articles in many journals for many years, but its true nature is still not established. Both theory and empirical findings provide different and often opposed views, as can be seen in the articles collected here. We see two main perspectives on this issue. Some scholars suggest that differences in data and analytical tools have prevented consistent empirical results, and that more consistent and carefully chosen empirical modeling can yet establish the true M-P connection. Others believe that basic problems in theory and in building testable frameworks that are truly consistent with theory have made this an inherently intractable problem. The collection provides important articles that test the M-P relationship as well as critiques from both perspectives. We see considerable power in the view that individual firms are likely to have their own idiosyncratic optimal level of multinationaliation. We finish by calling for and suggesting new approaches to the issue, such as a micro-foundations approach, as opposed to simply using more sophisticated tools to test problematic models based on well-established but ultimately inadequate theory.

Managerial Summary

The relationship between the level of multinational diversification and performance in multinational firms is at the heart of global strategy. If operating at ever increasing levels in ever more countries does not provide reliably superior performance, why do firms continue to expand internationally? One view suggests that since firms continue to increase their international presence, there must be some ultimate benefits—difficult as they may be to establish. The opposing view suggests that since an equal amount of research finds no such benefits, it may be that no level of multinational diversification is generally optimal, but that depending on its particular resources and capabilities, experience, industry, and national portfolio, each multinational must discover its own optimal level of cross-border investment.