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Influence of MNC Network Configuration Patterns on the Volatility of Firm Performance

An Empirical Investigation

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Abstract

  • Previous studies examining the influence of internationalization on the volatility of a firm’s performance have found inconsistent empirical evidence. Earlier studies support a reduction in volatility resulting from a higher level of international operations. However, more recent studies have found evidence supporting a positive correlation between internationalization and various measures of firm risk.

  • This study suggests that these results are inconclusive because of their narrow conceptualization of international strategy as a one-dimensional construct. This paper suggests that two dimensions implicit in the configuration patterns of MNC networks and their respective interaction may have distinct effects on performance volatility.

  • Regression results using a sample of 320 U.S. firms from 133 SIC segments provide evidence supporting this view. Consistent with the earlier literature, the empirical results support the reduction in volatility derived from a greater dispersion of international operations. In addition, the global integration dimension of an MNC network configuration increases exposure to potential performance swings. Lastly, the interaction term between global integration and geographic dispersion tends to be negatively associated with volatility. These results help reconcile the prior literature and provide evidence for the multidimensional nature of the internationalization construct.

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Notes

  1. This sample period was selected to assure consistency in the reporting of geographic segment information by U.S. firms. After 1998, U.S. companies followed FAS 131 to disclose their segment information. During the period 1992 to 1997 U.S. firms followed FAS 14.

  2. As suggested by an anonymous reviewer, we added R&D and advertising intensities as control variables in separate regression models. These controls capture the propensity of international firms to internalize activities due to difficulties in transferring specific assets outside the firm. More specifically, R&D intensity measures the presence of firm-specific competences associated with developing new technology, while advertising intensity measures marketing competencies and brand image. Although the correlation of R&D intensity and the index of global integration had a high value of 0.51, the regression coefficients for both dispersion variables, as well as the global integration index and interaction terms, were similar to those reported in Table 2.

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Authors and Affiliations

  1. Department of Management, Haub School of Business, Saint Joseph’s University, Philadelphia, USA

    Alfredo J. Mauri

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Correspondence to Alfredo J. Mauri.

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Mauri, A. Influence of MNC Network Configuration Patterns on the Volatility of Firm Performance. Manag Int Rev 49, 691–707 (2009). https://doi.org/10.1007/s11575-009-0015-6

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  • DOI: https://doi.org/10.1007/s11575-009-0015-6

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