Regional diversification and performance: Conceptualization and competing strategic objectives

This dissertation comprised of three essays provides justification for the need to pursue research on multinationality and performance with a more fine-grained approach. Essay one is a conceptual response to an article written by Jean-Francois Hennart in 2011 which questions the need and approach toward future research in this domain. I argue that internalization theory does not render multinationality and performance research meaningless and identify key areas where methodological enhancements can be made to strengthen our research findings with regard to Hennart's call for more content validity. Essay two responds to the need for more-fine grained research on the consequences of multinationality by introducing non-traditional measures of performance such as social and environmental performance and adopting a more theoretically relevant construct of regionalization to capture international diversification levels of the firm. Using data from the world's largest 600 firms (based on sales) derived from Bloomberg and the Directory of Corporate Affiliates; I employ general estimating equation analysis to account for the auto-correlated nature of the panel data alongside multivariate regression techniques. Results indicate that regionalization has a positive relationship with economic performance while it has a negative relationship with environmental and social performance outcomes, often referred to as the "Triple Bottom-Line" performance. Essay three builds upon the work in the previous essays by linking the aforementioned performance variables and sample to corporate reputation which has been shown to be a beneficial strategic asset. Using Structural Equation Modeling I explore economic, environmental and social signals as mediators on relationship between regionalization and firm reputation. Results indicate that these variables partially mediate a positive relationship between regionalization and firm reputation. While regionalization positively affects the reputation building signal of economic performance, it aids in reputation building by reducing environmental and social disclosure effects which interestingly impact reputation negatively. In conclusion, the dissertation submits opportunities for future research and contributes to research by demonstrating that regionalization affects performance, but the effect varies in accordance with the performance criterion and context. In some cases, regional diversification may produce competing or conflicting outcomes among the potential strategic objectives of the firm.

Regional Diversification and Performance: Conceptualization and Competing Strategic Objectives

This dissertation comprised of three essays provides justification for the need to pursue research on multinationality and performance with a more fine-grained approach. Essay one is a conceptual response to an article written by Jean-Francois Hennart in 2011 which questions the need and approach toward future research in this domain. I argue that internalization theory does not render multinationality and performance research meaningless and identify key areas where methodological enhancements can be made to strengthen our research findings with regard to Hennart’s call for more content validity. Essay two responds to the need for more-fine grained research on the consequences of multinationality by introducing non-traditional measures of performance such as social and environmental performance and adopting a more theoretically relevant construct of regionalization to capture international diversification levels of the firm. Using data from the world’s largest 600 firms (based on sales) derived from Bloomberg and the Directory of Corporate Affiliates; I employ general estimating equation analysis to account for the auto-correlated nature of the panel data alongside multivariate regression techniques. Results indicate that regionalization has a positive relationship with economic performance while it has a negative relationship with environmental and social performance outcomes, often referred to as the “Triple Bottom-Line” performance. Essay three builds upon the work in the previous essays by linking the aforementioned performance variables and sample to corporate reputation which has been shown to be a beneficial strategic asset. Using Structural Equation Modeling I explore economic, environmental and social signals as mediators on relationship between regionalization and firm reputation. Results indicate that these variables partially mediate a positive relationship between regionalization and firm reputation. While regionalization positively affects the reputation building signal of economic performance, it aids in reputation building by reducing environmental and social disclosure effects which interestingly impact reputation negatively. In conclusion, the dissertation submits opportunities for future research and contributes to research by demonstrating that regionalization affects performance, but the effect varies in accordance with the performance criterion and context. In some cases, regional diversification may produce competing or conflicting outcomes among the potential strategic objectives of the firm.

A fresh look at decision making in international investment choices: Firm international coherence and home-host country relatedness

Understanding how decisions for international investments are made and how this affects the overall pattern of investments and firm’s performance is of particular importance both in strategy and international business research. This dissertation introduced first home-host country relatedness (HHCR) as the degree to which countries are efficiently combined within the investment portfolios of firms. It theorized and demonstrated that HHCR will vary with the motivation for investments along at least two key dimensions: the nature of foreign investments and the connectedness of potential host countries to the rest of the world. Drawing on cognitive psychology and decision-making research, it developed a theory of strategic decision making proposing that strategic solutions are chosen close to a convenient anchor. Building on research on memory imprinting, it also proposed that managers tend to rely on older knowledge representation. In the context of international investment decisions, managers use their home countries as an anchor and are more likely to choose as a site for foreign investments host countries that are ‘close’ to the home country. These decisions are also likely to rely more strongly on closeness to time invariant country factors of historic and geographic nature rather than time-variant institutions. Empirical tests using comprehensive investments data by all public multinational companies (MNC) worldwide, or over 15,000 MNCs with over half a million subsidiaries, support the claims. Finally, the dissertation introduced the concept of International Coherence (IC) defined as the degree to which an MNE’s network comprises countries that are related. It was hypothesized that maintaining a high level of coherence is important for firm performance and will enhance it. Also, the presence of international coherence mitigates some of the negative effects of unrelated product diversification. Empirical tests using data on foreign investments of over 20,000 public firms, while also developing a home-host country relatedness index for up to 24,300 home-host pairs, provided support for the theory advanced.

Assessing the impact of business group diversification on the internationalization of their affiliates: The case of Latin American firms

This dissertation explored the capacity of business group diversification to generate value to their affiliates in an institutional environment characterized by the adoption of structural pro-market reforms. In particular, the three empirical essays explored the impact of business group diversification on the internationalization process of their affiliates. ^ The first essay examined the direct effect of business group diversification on firm performance and its moderating effect on the multinationality-performance relationship. It further explored whether such moderating effect varies depending upon whether the focal affiliate is a manufacturing or service firm. The findings suggested that the benefits of business group diversification on firm performance have a threshold, that those benefits are significant at earlier stages of internationalization and that these benefits are stronger for service firms. ^ The second essay studied the capacity of business group diversification to ameliorate the negative effects of the added complexity faced by its affiliates when they internationalized. The essay explored this capacity in different dimensions of international complexity. The results indicated that business group diversification effectively ameliorated the effects of the added international complexity. This positive effect is stronger in the institutional voids rather than the societal complexity dimension. In the former dimension, diversified business groups can use both their non-market resources and previous experience to ameliorate the effects of complexity on firm performance. ^ The last essay explored whether the benefits of business group diversification on the scope-performance relationship varies depending on the level of development of the network of subsidiaries and the region of operation of the focal firm. The results suggested that the benefits of business group diversification are location bound within the region but that they are not related to the level of development of the targeted countries. ^ The three essays use longitudinal analyses on a sample of Latin American firms to test the hypotheses. While the first essay used multilevel models and fix effects models, the last two essays used exclusively fix effects models to assess the impact of business group diversification. In conclusion, this dissertation aimed to explain the capacity of business group diversification to generate value under conditions of institutional change.^