Why Do Multinational Firms Exist? A Theory Note About The Effect of Multinational Expansion on Performance and Recent Methodological Critiques

Abstract

This theory note offers a detailed microanalysis of the benefits, costs, and limits to international expansion to explain why multinational firms exist, in response to critiques which ask whether any generalizable theory relationship exists between firm performance and its degree of multinationality. Some even question the validity of the entire multinationality‐performance field. These critiques fly in the face of the fact that multinational firms exist, thrive, increase in number, and are generally regarded as earning superior profits versus their purely domestic counterparts. This note proposes alternative methodological reasons for the seemingly contradictory and confusing results of past empirical studies over 30 years, indicates directions for future research, and calls for a contingent variable approach to empirical studies in the field.

Firm-specific intangible assets and subsidiary profitability: The moderating role of distance, ownership strategy and subsidiary experience

“…The internal transfer of parent intangibles or headquarters capabilities creates value (economic rents) in the subsidiary location not merely because of their intrinsic worth (Dunning & Lundan, 2008;Dunning, 2009;Buckley & Casson, 2009Hennart, 2010), but also because of the additional benefits of a multinational scope, per se, as articulated by Contractor (2012).…”

Learning breakdown in latecomer multinational enterprises

“…I needed to exclude the possibility that the relationship between internationalization and financial performance was nonlinear as suggested in some studies (Contractor, 2007(Contractor, , 2012Contractor, Kumar, & Kundu, 2007;Contractor, Kundu, & Hsu, 2003;Lu & Beamish, 2004;Thomas & Eden, 2004). A squared term of internationalization was introduced.…”

“…For those who are interested in the direct effect, please refer toContractor, Kundu, and Hsu (2003),Lu and Beamish (2004),Thomas and Eden (2004),Contractor, Kumar, and Kundu (2007),Contractor (2007Contractor ( , 2012,and Lu, Liu, Wright, and Filatotchev (2014). I would like to thank Professor Anoop Madhok of York University and Professor Ravi Ramamurti of Northeastern Univeristy for making this suggestion at the Special Issue workshop held in Macquarie University in December 11-12, 2015.…”

Transnationality and Financial Performance in the Era of the Global Factory

“…In particular, Richter (2014) was among the first who have actually attempted to measure these costs. The focus on direct benefits and costs eventually led to the formulation of a "three-stage or S-shaped general theory" of the T-P relationship (Contractor 2007: 453; also see Contractor, Kumar and Kundu 2007;Contractor, Kundu and Hsu 2003;Lu and Beamish 2004;Thomas and Eden 2004;Contractor 2012). …”