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Home Region Focus and Technical Efficiency of Multinational Enterprise

The Moderating Role of Regional Integration

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Abstract

  • The transaction costs economics (TCE) perspective on regionalization suggests that multinational enterprises (MNEs) would experience advantages from regionalization and, hence, greater technical efficiency from a high home region focus (HRF). We extend this TCE perspective by proposing that whether a regional (i.e., higher HRF) or global (i.e., lower HRF) strategy leads to greater technical efficiency depends on the degree of regional integration (i.e., economic and policy) of the MNEs’ home regions.

  • This is the first study in the regional/global strategies literature to analyze the effects of HRF and regional integration (economic and policy) on firms’ technical efficiency performance. We suggest that advantages from regionalization arise when firms align their HRF strategy with the degree of regional integration; disadvantages from regionalization can arise when the two are misaligned.

  • Our empirical analysis on a sample of 645 manufacturing Triad MNEs during 2000–2006 provides overall support for our conceptual framework.

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Notes

  1. Since some of the explanatory variables contained 0 values of which ln cannot be taken, we followed prior scholarship (e.g., Li2008) and assigned a minimal number (+ 0.001) instead of the 0 values in order to allow for the proper ln-transformation.

  2. Since the cost of employees was not consistently reported for all the firms in our sample, we assigned a zero value for such missing cases to avoid unnecessary sample reduction. We followed Vorhies et al. (2009) and took the ln of (− 1/variable) in the cases where some of the variables had a negative value. This helped avoid unnecessary loss of observations and preserve the continuity of the transformed variables.

  3. We considered APEC to be a pre-FTA type of agreement because “APEC is much less institutionalized and cohesive than, say, the EU and NAFTA. The current unity within APEC is certainly looser than the unity in a typical FTA with binding rules, the first stage of economic integration, not to mention the unity in a more advanced stage such as a customs union or a common market” (Park and Lee2009). Even though the U.S. belongs to APEC as well, we assigned the U.S. to NAFTA as we were interested in capturing the effect of the most advanced type of RTA for each home country’s MNEs, and NAFTA is a more advanced type of RTA than APEC.

  4. Model 2 produced a warning of a flat likelihood function, so its results should be interpreted with caution.

  5. We thank an anonymous reviewer for suggesting this point.

  6. We searched the World Trade Organization’s Regional Trade Agreements database for all existing trade agreements that Japan is a member of as of May 2011. The database lists that Japan has signed a number of agreements with several Asian partners, including ASEAN, Indonesia, Malaysia, Philippines, Thailand, and Viet Nam, but they came into effect after the 2000–2006 period of our sample, and hence we could not use them in our analyses.

  7. We thank an anonymous reviewer for this insight.

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Acknowledgements

We thank Lei Li, the editor, and the anonymous reviewers for their very useful and insightful feedback.

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Authors and Affiliations

  1. Gary Gregg Research Fellow International Business & Strategy Group, College of Business Administration, Northeastern University, Boston, USA

    Elitsa R. Banalieva

  2. College of Business and Economics, Lehigh University, Bethlehem, USA

    Michael D. Santoro

  3. School of Business Administration, Oakland University, Rochester, USA

    Joy Ruihua Jiang

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  1. Elitsa R. Banalieva
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Correspondence to Elitsa R. Banalieva.

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Banalieva, E.R., Santoro, M.D. & Jiang, J.R. Home Region Focus and Technical Efficiency of Multinational Enterprise. Manag Int Rev 52, 493–518 (2012). https://doi.org/10.1007/s11575-011-0127-7

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