Determinants of Corporate International Expansion Beyond the Home Region: An Empirical Examination of U.S. Multinational Enterprises Expansion to Europe and Asia‐Pacific

• Date: 01 November 2017
• Published date: 01 November 2017
• DOI: http://doi.org/10.1002/gsj.1155

Determinants of Corporate International Expansion

Beyond the Home Region: An Empirical Examination

of U.S. Multinational Enterprises Expansion to

Europe and Asia-Pacific

Alfredo Mauri,*Sangcheol Song, and João Neiva de Figueiredo

Department of Management, Haub School of Business, Saint Joseph’s

University, Philadelphia, Pennsylvania

Research Summary: This study extends Rugman and Verbeke (2001)’s model by exam-

ining how firm-specific advantages (FSAs) and host region conditions affect multina-

tional enterprise expansion at the inter-regional level. We examine the impact of their

three constructs (non-location-bound FSAs, location-bound FSAs, and complementary

resources in the host regions) on U.S. MNEs’sales in Europe and Asia/Pacific. We also

suggest and examine the impact of two additional factors (host market efficiency and

FSA fragmentation). For empirical testing, we use U.S. industry- and firm-level panel

data and compare results from both datasets. We find that location-bound FSAs and

fragmented FSAs hinder expansion to other regions, while non-location-bound FSAs,

host region complementary resources, and host market efficiencies facilitate expansion to

other regions. Results from the two datasets are highly consistent.

Managerial Summary: This study aims to provide guidelines for multinational enter-

prise (MNE) managers seeking to expand to areas beyond their home region. Some firm

capabilities “travel”well to distant countries, to different cultures, and across economic

levels, i.e., they are transferable. Others are not, i.e., they are more embedded in the

firm’s home-country environment. Expansion of U.S. MNEs to Europe and Asia/Pacific

is facilitated by (a) higher levels of intrafirm transfers, (b) access to complementary

resources abroad, and (c) relative host market efficiencies. In contrast, such expansion

is hindered by (a) higher productivity of labor at home relative to that abroad and

(b) fragmentation of its product portfolio. This analysis is helpful for managers inter-

ested in building the systems, conditions, and mechanisms that increase the MNE’sgeo-

graphic reach. Copyright © 2017 Strategic Management Society.

Introduction

Firm-specific advantages (FSAs) associated with

multinational enterprises’(MNEs’) proprietary

resources and capabilities have been extensively

examined in terms of their impact on international

expansion, or internationalization. The positive

impact of FSAs on MNE global expansion is well

documented in international business (IB) theories,

Keywords: complementary resources; firm-specific advan-

tages; FSA fragmentation; host market efficiency; location-

bound FSAs; nonlocation-bound FSAs

*Correspondence to: Alfredo Mauri, Haub School of Business,

Saint Joseph’s University, 5600 City Avenue, Philadelphia, PA

19131. E-mail:amauri@sju.edu

Copyright © 2017 Strategic Management Society

Global Strategy Journal

Global Strategy Journal, 7: 400–426 (2017)

Published online in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/gsj.1155

including monopolistic advantage (e.g., Hymer,

1976; Kindleberger, 1969), internalization/transac-

tion costs (e.g., Buckley & Casson, 1976; Caves,

1982; Hennart, 2001; Rugman, 1979), and interna-

tional diversification (e.g., Allen & Pantzalis,1996;

Chari, Devaraj, & David, 2007; Kotabe, Sriniva-

san, & Aulakh, 2002; Morck & Yeung,1991),

among others. These theories commonly agree that

MNEs expand internationally, subject to their dis-

tinct FSA characteristics, to internalize transactions

and exploit new business opportunities in other

countries.

However, one limitation in the existing literature

is the relative dearth of studies on the impact of

FSAs on a firm’s expansion at the inter-regional

level (as opposed to the many studies focusing on

expansion at the aggregate global level or at the

home region level).

1

Inter-regional level analyses

are needed to deepen our understanding of factors

that facilitate the regionalization observed in recent

decades. This trend is exemplified by the fact that

sales of the vast majority of the world’s 500 largest

firms occur in the three triad regions (i.e., North

America, Europe, and Asia/Pacific) and that the

highest portion of sales is concentrated in their

respective home regions (Banalieva & Dhanaraj,

2013; Oh & Rugman, 2014; Rugman, 2005; Rug-

man & Verbeke, 2004). This phenomenon has been

framed and studied mostly from two perspectives:

(a) the lower liability of foreignness in the home

region when compared to other regions (Qian,

Li, & Rugman, 2013; Rugman & Oh, 2012; Rug-

man & Verbeke, 2004) and (b) national policies

that promote coherence associated with regional

economic integration (Dunning, Fujita, & Yakova,

2007; Fratianni & Oh, 2009; Verbeke &

Kano, 2012).

Rugman and Verbeke (2001) pioneered the

examination of the global reach of FSAs using

three primary constructs—namely location-bound

FSAs (LBFSAs), non-location-bound FSAs

(NLBFSAs), and complementary resources in host

regions—to explain the patterns of intra- and inter-

regional expansion of large MNEs. They focused

on the relative transferability of FSAs, based on

specific FSA attributes for MNE cross-border

expansion. Subsequently, Rugman and Verbeke

(2004) examined regionalization by employing the

concepts of intra- and inter-regional liabilities of

foreignness. Rugman and Verbeke’s work has

inspired a significant body of literature on MNE

regionalization.

As mentioned, a more complete conceptual

picture of how FSAs affect company internation-

alization can be obtained by examining the impact

of FSAs on inter-regional expansion, thus addres-

sing a gap in the literature that focuses mostly on

explaining the prevalence of home region expan-

sion. Contrary to most of the extant literature on

the topic, our objective is to examine FSA char-

acteristics that extend MNE reach to other regions

(far reach) in addition to those characteristics that

have a more geographically limited impact,

mostly within the home region (near reach).

Another opportunity to conceptually extend Rug-

man and Verbeke’s model relates to two addi-

tional factors: host region institutional conditions

and “fragmentation”of FSAs. Institutional condi-

tions in the host region are reflected in market

efficiencies and will necessarily influence the

MNE’s access to complementary resources and

effective FSA bundling (Hennart, 2009). In addi-

tion, more fragmented FSAs will stifle the MNE’s

ability to expand inter-regionally because of insuf-

ficient intensity given the dampening effect of lar-

ger distances involved. If a company’s FSAs are

fragmented, the lack of a critical mass may

impede it from exploiting distant international

opportunities.

Although LBFSAs and NLBFSAs have been

discussed extensively at the conceptual level

through clear documentation of examples and

definitions, there is room to extend the empirical

literature on Rugman and Verbeke’s model in at

least two ways. First, the impact of FSAs has

been examined mostly in entry mode and inter-

nationalization studies and mostly using variables

of feasible operationalization, such as R&D and

advertising intensity. However, LBFSAs and

NLBFSAs under the regionalization theme have

not been operationalized as effectively because

measuring the geographic scope of FSAs is

inherently more difficult (e.g., information for

sales forces and distribution networks is not easy

to collect and obtain). This study suggests feasi-

ble measures for two constructs that more

1

Herein we use the terminology “home region”to represent

the region of origin of the MNE and “host region”to repre-

sent any other geographic region (other than the home region)

in which an MNE has value-adding activities. In addition, we

use the terms “intra-region”or “intra-regional”when referring

to transactions occurring within a given region (whether the

home region or a host region) and the term “inter-region”or

“inter-regional”when referring to MNE transactions that

encompass more than one region.

Determinants of Corporate International Expansion Beyond the Home Region 401

Copyright © 2017 Strategic Management Society Global Strategy Journal, 7: 400–426 (2017)

DOI: 10.1002/gsj