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.

Foreign market involvement, entry-mode learning potential and SME internationalization outcomes

“…Both intensity and geographic spread of foreign market involvement (also referred to as international intensity and breadth) are the most frequently examined internationalization patterns in the literature (Cerrato and Fernhaber, 2018;Schwens et al, 2018a). Expanding business beyond domestic markets exposes firms to new information about different customer needs, different institutions and networks, and technological knowledge not available in the home market (Golovko and Valentini, 2011;Pedersen and Tallman, 2023;Rubino et al, 2019). Increasing the intensity of foreign market involvement (percentage of sales from foreign markets) provides richer opportunities for SMEs to exploit scale and scope economies.…”

“…Dikova et al, 2016) suggest that internationalization contributes positively to firm performance, internationalization per se may not necessarily translate directly to superior performance among SMEs, especially, when firms overinternationalize and stretch their resources too far (Buigues et al, 2015). This is because there are high costs and risks related to internationalization activities such as those associated with managing operations across multiple countries with high institutional, cultural and geographic distance, and the costs associated with learning or acquiring new knowledge in foreign markets (Eduardsen and Marinova, 2016;Pedersen and Tallman, 2023;Seno-Alday, 2011). This issue is generally more acute for SMEs due to their liability of smallness and the lack of organizational slack compared to larger organizations (Fadol et al, 2015;Lu and Beamish, 2001;Mun, 2019).…”

“…, 2018a). Expanding business beyond domestic markets exposes firms to new information about different customer needs, different institutions and networks, and technological knowledge not available in the home market (Golovko and Valentini, 2011; Pedersen and Tallman, 2023; Rubino et al. , 2019).…”

“…, 2015). This is because there are high costs and risks related to internationalization activities such as those associated with managing operations across multiple countries with high institutional, cultural and geographic distance, and the costs associated with learning or acquiring new knowledge in foreign markets (Eduardsen and Marinova, 2016; Pedersen and Tallman, 2023; Seno-Alday, 2011). This issue is generally more acute for SMEs due to their liability of smallness and the lack of organizational slack compared to larger organizations (Fadol et al.…”

“…The lack of consensus regarding the internationalization-performance relationship poses a significant challenge for both researchers seeking to understand its dynamics and businesses aiming to implement effective internationalization strategies (Mart ın et al, 2022;Zhou et al, 2007). It also reflects the ongoing debate in the IB literature regarding the true benefits of internationalization (Pedersen and Tallman, 2023). Internationalization can introduce additional risks and costs for SMEs due to the liabilities associated with their small size, limited experience, and unfamiliarity with foreign markets (Lu and Beamish, 2006a).…”