Journal of International Business Studies

, Volume 39, Issue 2, pp 197–214

Regional diversification and firm performance



This study examines how regional diversification affects firm performance. The results indicate that regional diversification has linear and curvilinear effects on firm performance. Regional diversification enhances firm performance linearly up to a certain threshold, and then its impact becomes negative. The results also show that firms of developed countries maximize their performance when they operate across a moderate number of developed regions and a strictly limited number of developing regions. This explains why internationalization by most international firms is regional rather than global.


multinational enterprises regional diversification firm performance 


  1. Alvarez, S. A., & Busenitz, L. W. 2001. The entrepreneurship of resource-based theory. Journal of Management, 27 (6): 755–775.CrossRefGoogle Scholar
  2. Arellano, M., & Bond, S. 1991. Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies, 58 (2): 277–297.CrossRefGoogle Scholar
  3. Barkema, H. G., & Vermeulen, F. 1998. International expansion through start-up or acquisition: A learning perspective. Academy of Management Journal, 41 (1): 7–26.CrossRefGoogle Scholar
  4. Barney, J. B. 1986. Strategic factor markets: Expectations, luck and business strategy. Management Science, 32 (10): 1231–1241.CrossRefGoogle Scholar
  5. Barney, J. B. 1991. Firm resources and sustained competitive advantage. Journal of Management, 17 (1): 99–120.CrossRefGoogle Scholar
  6. Berry, H. 2004. The influence of location, multinationality and knowledge on MNE performance. Working paper, University of Pennsylvania.Google Scholar
  7. Berry, H. 2006. Shareholder valuation of foreign investment and expansion. Strategic Management Journal, 27 (12): 1123–1140.CrossRefGoogle Scholar
  8. Bond, S. R., Klemm, A., Newton-Smith, R., Syed, M. H., & Vlieghe, G. 2002. The roles of expected profitability, Tobin's q and cash flow in econometric models of company investment, Mimeo, Institute for Fiscal Studies, London.Google Scholar
  9. Brewer, H. L. 1981. Investor benefits from corporate international diversification. Journal of Financial and Quantitative Analysis, 16 (1): 113–126.CrossRefGoogle Scholar
  10. Buckley, P. J., Dunning, J. H., & Pearce, R. B. 1978. The influence of firm size, industry, nationality, and degree of multinationality on the growth and profitability of the world's largest firms, 1962–1972. Weltwirtschaftliches Archiv, 114 (2): 243–257.CrossRefGoogle Scholar
  11. Buckley, P. J., Dunning, J. H., & Pearce, R. B. 1984. An analysis of the growth and profitability of the world's largest firms 1972 to 1977. Kyklos, 37 (1): 3–26.CrossRefGoogle Scholar
  12. Bühner, R. 1987. Assessing international diversification of West German corporations. Strategic Management Journal, 8 (1): 25–37.CrossRefGoogle Scholar
  13. Campa, J. M., & Kedia, S. 2002. Explaining the diversification discount. Journal of Finance, 57 (4): 1731–1762.CrossRefGoogle Scholar
  14. Cho, K. R. 1988. Determinants of intra-firm trade: A search for a theoretical framework. The International Trade Journal, 3 (2): 167–186.CrossRefGoogle Scholar
  15. Contractor, F. J., Kundu, S. K., & Hsu, C. C. 2003. A three-stage theory of international expansion: The link between multinationality and performance in the service sector. Journal of International Business Studies, 34 (1): 5–18.CrossRefGoogle Scholar
  16. Daniels, J. D., & Bracker, J. 1989. Profit performance: Do foreign operations make a difference? Management International Review, 29 (1): 46–56.Google Scholar
  17. Delios, A., & Beamish, P. W. 1999. Geographic scope, product diversification and the corporate performance of Japanese firms. Strategic Management Journal, 20 (8): 711–727.CrossRefGoogle Scholar
  18. Denis, D. J., Denis, D. K., & Yost, K. 2002. Global diversification, industrial diversification, and firm value. Journal of Finance, 57 (5): 1951–1979.CrossRefGoogle Scholar
  19. Eisenhardt, K., & Martin, J. A. 2000. Dynamic capabilities: What are they? Strategic Management Journal, 21 (Special Issue): 1105–1121.CrossRefGoogle Scholar
  20. Errunza, V. R., & Senbet, L. W. 1981. The effects of international operations on the market value of the firm: Theory and evidence. Journal of Finance, 36 (2): 401–417.CrossRefGoogle Scholar
  21. Errunza, V. R., & Senbet, L. W. 1984. International corporate diversification, market valuation, and size-adjusted evidence. Journal of Finance, 39 (3): 727–745.Google Scholar
  22. Ettlie, J. E. 1998. R&D and global manufacturing performance. Management Science, 44 (1): 1–11.CrossRefGoogle Scholar
  23. Evans, M., Hastings, N., & Peacock, B. 2000. Statistical distributions. New York: Wiley.Google Scholar
  24. Fatemi, A. M. 1984. Shareholder benefits from corporate international diversification. Journal of Finance, 39 (5): 1325–1344.CrossRefGoogle Scholar
  25. Geringer, J. M., Beamish, P. W., & daCosta, R. C. 1989. Diversification strategy and internationalization: Implications for MNE performance. Strategic Management Journal, 10 (2): 109–119.CrossRefGoogle Scholar
  26. Geringer, J. M., Tallman, S., & Olsen, D. M. 2000. Product and international diversification among Japanese multinational firms. Strategic Management Journal, 21 (1): 51–80.CrossRefGoogle Scholar
  27. Geyikdagi, Y. M., & Geyikdagi, N. V. 1989. International diversification in Latin America and the industrialized countries. Management International Review, 29 (3): 62–71.Google Scholar
  28. Goerzen, A., & Beamish, P. W. 2003. Geographic scope and multinational enterprise performance. Strategic Management Journal, 24 (13): 1289–1306.CrossRefGoogle Scholar
  29. Gomes, L., & Ramaswamy, K. 1999. An empirical examination of the form of the relationship between multinationality and performance. Journal of International Business Studies, 30 (1): 173–188.CrossRefGoogle Scholar
  30. Grant, R. M. 1987. Multinationality and performance among British manufacturing companies 1972–84. Journal of International Business Studies, 18 (3): 79–89.CrossRefGoogle Scholar
  31. Grant, R. M., Jammine, A. P., & Thomas, H. 1988. Diversity, diversification, and profitability among British manufacturing companies 1972–84. Academy of Management Journal, 31 (4): 771–801.CrossRefGoogle Scholar
  32. Haar, J. 1989. A comparative analysis of the profitability performance of the largest US, European and Japanese multinational enterprises. Management International Review, 29 (3): 5–18.Google Scholar
  33. Hausman, J. A. 1978. Specification tests in econometrics. Econometrica, 46 (6): 1251–1271.CrossRefGoogle Scholar
  34. Hill, C. W. L., & Jones, G. R. 1998. Strategic management: An integrated approach. Boston: Houghton Mifflin Company.Google Scholar
  35. Hitt, M. A., Hoskisson, R. E., & Ireland, R. D. 1994. A mid-range theory of the interactive effects of international and product diversification on innovation and performance. Journal of Management, 20 (2): 297–326.CrossRefGoogle Scholar
  36. Hitt, M. A., Hoskisson, R. E., & Kim, H. 1997. International diversification: effects on innovation and firm performance in product-diversified firms. Academy of Management Journal, 40 (4): 767–798.CrossRefGoogle Scholar
  37. Hsiao, C. 2003. Analysis of panel data. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  38. Hu, L. 2002. Estimation of a censored dynamic panel data model. Econometrica, 70 (6): 2499–2517.CrossRefGoogle Scholar
  39. Hyndman, R. J., & Fan, Y. 1996. Sample quantiles in statistical packages. American Statistics, 50 (4): 361–365.Google Scholar
  40. Ietto-Gillies, G. 1998. Different conceptual framework for the assessment of the degree of internationalization: An empirical analysis of various indices for the top 100 transnational corporations. Transnational Corporations, 7 (1): 17–39.Google Scholar
  41. Jung, Y. 1991. Multinationality and profitability. Journal of Business Research, 23 (2): 179–187.CrossRefGoogle Scholar
  42. Kim, W. S., & Lyn, E. O. 1987. Foreign direct investment theories, entry barriers, and reverse investments in US manufacturing industries. Journal of International Business Studies, 18 (2): 53–67.CrossRefGoogle Scholar
  43. Kim, W. C., Hwang, P., & Burgers, W. P. 1989. Global diversification strategy and corporate profit performance. Strategic Management Journal, 10 (1): 45–57.CrossRefGoogle Scholar
  44. Kim, W. C., Hwang, P., & Burgers, W. P. 1993. Multinationals’ diversification and the risk-return tradeoff. Strategic Management Journal, 14 (4): 275–286.CrossRefGoogle Scholar
  45. Kimberly, J. R. 1976. Issues in the design of longitudinal organizational research. Sociological Methods and Research, 4 (3): 321–347.CrossRefGoogle Scholar
  46. Kogut, B., & Zander, U. 1993. Knowledge of the firm and the evolution theory of the multinational enterprise. Journal of International Business Studies, 24 (4): 625–646.CrossRefGoogle Scholar
  47. Kohers, T. 1975. The effect of multinational corporations on the cost of equity capital of US corporations. Management International Review, 15 (2–3): 121–124.Google Scholar
  48. Kumar, M. S. 1984. Growth, acquisition and investment: An analysis of the growth of industrial firms and their overseas activities. Cambridge: Cambridge University Press.Google Scholar
  49. Lu, J. W., & Beamish, P. 2004. International diversification and firm performance: The S-curve hypothesis. Academy of Management Journal, 47 (4): 598–609.CrossRefGoogle Scholar
  50. Markides, C. C. 1995. Diversification, restructuring and economic performance. Strategic Management Journal, 16 (2): 101–118.CrossRefGoogle Scholar
  51. Markides, C. C., & Williamson, P. J. 1994. Related diversification, core competencies, and corporate performance. Strategic Management Journal, 15 (Special issue): 149–165.Google Scholar
  52. Maxwell, S. E., & Delaney, H. D. 1990. Designing experiments and analyzing data. Belmont, CA: Wadsworth.Google Scholar
  53. Michel, A., & Shaked, I. 1986. Multinational corporations vs domestic corporations: Financial performance and characteristics. Journal of International Business Studies, 17 (3): 89–101.CrossRefGoogle Scholar
  54. Miller, D., & Chen, M. -J. 1994. Sources and consequences of competitive inertia: A study of the US airline industry. Administrative Science Quarterly, 39 (1): 1–23.CrossRefGoogle Scholar
  55. Miller, J. C., & Pras, B. 1980. The effects of multinational and export diversification on the profit stability of US corporations. Southern Economic Journal, 46 (3): 792–805.CrossRefGoogle Scholar
  56. Mitchell, W., Roehl, T., & Slattery, R. J. 1995. Influences on R&D growth among Japanese pharmaceutical firms, 1975–1990. Journal of High Technology Management Research, 6 (1): 17–32.CrossRefGoogle Scholar
  57. Morck, R., & Yeung, B. 1991. Why investors value multinationality. Journal of Business, 64 (2): 165–187.CrossRefGoogle Scholar
  58. Palich, L. E., Cardinal, L. B., & Miller, C. C. 2000. Curvilinearity in the diversification–performance linkage: An examination of over three decades of research. Strategic Management Journal, 21 (2): 155–174.CrossRefGoogle Scholar
  59. Porter, M. E. 1990. The competitive advantage of nations. New York: Free Press.CrossRefGoogle Scholar
  60. Prahalad, C. K., & Hamel, G. 1990. The core competence of the corporation. Harvard Business Review, 68 (3): 79–91.Google Scholar
  61. Qian, G. 1997. Assessing product–market diversification of US firms. Management International Review, 37 (2): 127–149.Google Scholar
  62. Qian, G. 2000. Performance of US FDI in different world regions. Asia Pacific Journal of Management, 17 (1): 67–83.CrossRefGoogle Scholar
  63. Qian, G. 2002. Multinationality, product diversification, and profitability of emerging US small- and medium-sized enterprises. Journal of Business Venturing, 17 (6): 611–633.CrossRefGoogle Scholar
  64. Qian, G., & Li, J. 2002. Multinationality, global market diversification and profitability among the largest US firms. Journal of Business Research, 55 (4): 325–335.CrossRefGoogle Scholar
  65. Qian, G., Wang, D., Li, J., & Yang, L. 2000. US diversification in global markets: Strategic combinations and performance. Global Focus, 12 (3): 1–12.Google Scholar
  66. Ramaswamy, K. 1995. Multinationality, configuration, and performance: A study of MNEs in the US drug and pharmaceutical sector. Journal of International Management, 1 (2): 231–253.Google Scholar
  67. Riahi-Belkaoui, A. R. 1996. Internationalization, diversification strategy and ownership structure: Implications for French MNE performance. International Business Review, 5 (4): 367–376.CrossRefGoogle Scholar
  68. Riahi-Belkaoui, A. R. 1998. The effects of the degree of internationalization on firm performance. International Business Review, 7 (3): 315–321.CrossRefGoogle Scholar
  69. Rindfleisch, A., & Heide, J. 1997. Transaction cost analysis: Past, present and future applications. Journal of Marketing, 61 (4): 30–54.CrossRefGoogle Scholar
  70. Rugman, A. 2003. Regional strategy and the demise of globalization. Journal of International Management, 9 (4): 409–417.CrossRefGoogle Scholar
  71. Rugman, A. 2005. The regional multinationals. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  72. Rugman, A., & Verbeke, A. 2004. A perspective on regional and global strategies of multinational enterprises. Journal of International Business Studies, 35 (1): 3–18.CrossRefGoogle Scholar
  73. Ruigrok, W., & Wagner, H. 2003. Internationalization and performance: An organizational learning perspective. Management International Review, 43 (1): 63–83.Google Scholar
  74. Sambharya, R. B. 1995. The combined effect of international diversification and product diversification strategies on the performance of US-based multinational corporations. Management International Review, 35 (3): 197–218.Google Scholar
  75. Shaked, I. 1986. Are multinational corporations safer? Journal of International Business Studies, 17 (1): 75–80.CrossRefGoogle Scholar
  76. Siddharthan, N. S., & Lall, S. 1982. Recent growth of the largest US multinationals. Oxford Bulletin of Economics and Statistics, 44 (1): 1–13.CrossRefGoogle Scholar
  77. Solberg, C. A. 2000. Standardization or adaptation of the international marketing mix: The role of the local subsidiary/representative. Journal of International Marketing, 8 (1): 78–98.CrossRefGoogle Scholar
  78. Stopford, J., & Wells, L. 1972. Managing the multinational enterprise. New York: Basic Books.Google Scholar
  79. Sullivan, D. 1994. Measuring the degree of internationalization of a firm. Journal of International Business Studies, 24 (2): 325–342.CrossRefGoogle Scholar
  80. Tallman, S. B., & Li, J. 1996. Effects of international diversity and product diversity on the performance of multinational firms. Academy of Management Journal, 39 (1): 179–196.CrossRefGoogle Scholar
  81. Thomas, D. E., & Eden, L. 2004. What is the shape of the multinationality–performance relationship? Multinational Business Review, 12 (1): 89–110.CrossRefGoogle Scholar
  82. UNCTAD 1995. World investment report 1995: Transnational corporations and competitiveness. New York and Geneva: United Nations.Google Scholar
  83. Vernon, R. 1971. Sovereignty at bay: The multinational spread of US enterprises. New York: Basic Books.Google Scholar
  84. Wilcox, R. R. 1987. New designs in analysis of variance. Annual Review of Psychology, 38: 29–60.CrossRefGoogle Scholar
  85. World Bank 1995. World development report: Workers in a dynamic world: transforming institutions, growth, and quality of life. New York: Oxford University Press.Google Scholar
  86. World Bank 2002. World development report: Building incentives for markets. New York: Oxford University Press.Google Scholar
  87. Zaheer, S. 1995. Overcoming the liability of foreignness. Academy of Management Journal, 38 (2): 341–363.CrossRefGoogle Scholar

Copyright information

© Academy of International Business 2008

Authors and Affiliations

  1. 1.The Chinese University of Hong KongHong KongChina
  2. 2.York UniversityCanada
  3. 3.Hong Kong Baptist UniversityHong Kong
  4. 4.Xiamen UniversityXiamenChina

Personalised recommendations