Journal of International Business Studies

, Volume 44, Issue 5, pp 451–474 | Cite as

How well do supranational regional grouping schemes fit international business research models?

  • Ricardo FloresEmail author
  • Ruth V Aguilera
  • Arash Mahdian
  • Paul M Vaaler


International business (IB) research has long acknowledged the importance of supranational regional factors in building models to explain phenomena such as where multinational corporations (MNCs) choose to locate. Yet criteria for defining regions based on similar factors vary substantially, thus undermining consensus regarding which regional grouping schemes fit IB research models better. In response, we develop and empirically validate a theory of comparative regional scheme assessment for model-building purposes assuming that: (1) schemes can be classified based on their source of similarity; and (2) schemes within the same similarity class can be assessed for their structural coherence, based on group contiguity and compactness. Schemes with better structural coherence will also exhibit better fit with IB research models. We document support for our theory in comparative analyses of regional schemes used to explain where US-based MNCs locate operations around the world. Geography-, culture- and trade and investment-based schemes with better structural coherence exhibit better initial fit with MNC location models and less change in fit after modest scheme refinement using a simulated annealing optimization algorithm. Our approach provides criteria for comparing similar regional grouping schemes and identifying “best-in-class” schemes tailored to models of MNC location choice and other IB research models.


theory–method intersection multinational corporations (MNCs) and enterprises (MNEs) foreign direct investment regional strategy or strategies simulation 



We thank Randy Westgren and the University of Illinois at Urbana-Champaign Center for International Business Education and Research for financial support. We thank the University of Illinois at Urbana-Champaign Supercomputing Center, the University of Minnesota Office of Information Technology and Karl Smelker for technical support. Earlier drafts of this paper benefited from presentation at the Academy of International Business annual meeting, the Carlson School of Management and the Humphrey School of Public Administration at the University of Minnesota, the Henley Business School at Reading University, and the Fox School of Business at Temple University. Mark Casson, Isaac Fox, Martin Ganco, Robert Kudrle, Alan Rugman, Andrew Van de Ven, Richard Wang and Joel Waldfogel offered helpful comments, criticisms and suggestions for revision. We also thank to the co-editors of this special issue, Soerd Beugelsdijk and Ram Mudambi, as well as the three anonymous reviewers who helped us improve this manuscript. All errors are ours.


  1. Aerts, J. C., & Heuvelink, G. B. 2002. Using simulated annealing for resource allocation. International Journal of Geographical Information Science, 16 (6): 571–587.CrossRefGoogle Scholar
  2. Agnew, J. 1999. Regions on the mind does not equal regions of the mind. Progress in Human Geography, 23 (1): 91–96.CrossRefGoogle Scholar
  3. Akaike, H. 1974. A new look at the statistical model identification. IEEE Transactions on Automatic Control, 19 (6): 716–723.CrossRefGoogle Scholar
  4. Alrefaei, M. H., & Andradóttir, S. 1999. A simulated annealing algorithm with constant temperature for discrete stochastic optimization. Management Science, 45 (5): 784–764.CrossRefGoogle Scholar
  5. Angel, J. L. 2001. Directory of American firms operating in foreign countries. New York: Simon & Schuster.Google Scholar
  6. Antràs, P., Desai, M., & Foley, F. 2007. Multinational firms, FDI flows and imperfect capital markets. Quarterly Journal of Economics, 124 (3): 1171–1219.CrossRefGoogle Scholar
  7. Arregle, J. L., Miller, T. L., Hitt, M. A., & Beamish, P. W. 2013. Do regions matter? An integrated institutional and semiglobalization perspective on the internationalization of MNEs. Strategic Management Journal, first published online 22 March. doi: 10.1002/smj.2051.Google Scholar
  8. Asmussen, C. G. 2009. Local, regional or global? Quantifying MNE geographic scope. Journal of International Business Studies, 40 (7): 1192–1205.CrossRefGoogle Scholar
  9. Banalieva, E. R., & Dhanaraj, C. 2013. Home-region orientation in international expansion strategies. Journal of International Business Studies, 44 (2): 89–116.CrossRefGoogle Scholar
  10. Banalieva, E. R., & Eddleston, K. A. 2011. Home-region focus and performance of family firms: The role of family vs non-family leaders. Journal of International Business Studies, 42 (8): 1060–1072.CrossRefGoogle Scholar
  11. Bartlett, C. A., & Ghoshal, S. 1991. Global strategic management: Impact on the new frontiers of strategy research. Strategic Management Journal, 12 (S1): 5–16.CrossRefGoogle Scholar
  12. Berkowitz, D., Pistor, K., & Richard, J.-F. 2003. Economic development, legality and the transplant effect. European Economic Review, 47 (1): 165–195.CrossRefGoogle Scholar
  13. Beugelsdijk, S., McCann, P., & Mudambi, R. 2010. Introduction: Place, space and organization – Economic geography and the multinational enterprise. Journal of Economic Geography, 10 (4): 485–493.CrossRefGoogle Scholar
  14. Breschi, S., & Lissoni, F. 2009. Mobility of skilled workers and co-invention networks: An anatomy of localized knowledge flows. Journal of Economic Geography, 9 (4): 439–468.CrossRefGoogle Scholar
  15. Buckley, P. J., & Ghauri, P. N. 2004. Globalisation, economic geography and the strategy of multinational enterprises. Journal of International Business Studies, 35 (2): 81–98.CrossRefGoogle Scholar
  16. Carley, K. M., & Svoboda, D. M. 1996. Modeling organizational adaptation as a simulated annealing process. Sociological Methods & Research, 25 (1): 138–168.CrossRefGoogle Scholar
  17. Clark, T., & Knowles, L. L. 2003. Global myopia: Globalization theory in international business. Journal of International Management, 9 (4): 361–372.CrossRefGoogle Scholar
  18. Clark, T., Knowles, L. L., & Hodis, M. 2004. Global dialogue: A response to the responders in the special globalization issue of JIM. Journal of International Management, 10 (4): 511–514.CrossRefGoogle Scholar
  19. Clougherty, J., & Grajek, M. 2008. The impact of ISO 9000 diffusion on trade and FDI: A new institutional analysis. Journal of International Business Studies, 39 (4): 613–633.CrossRefGoogle Scholar
  20. Cuervo-Cazurra, A. 2008. The effectiveness of laws against bribery abroad. Journal of International Business Studies, 39 (4): 634–651.CrossRefGoogle Scholar
  21. DCE. 2012. Dictionary of contemporary English. Longman, Accessed 15 June 2012.
  22. Donnenfeld, S. 2003. Regional blocs and foreign direct investment. Review of International Economics, 11 (5): 770–788.CrossRefGoogle Scholar
  23. Dunning, J. H. 2000. Regions, globalization, and the knowledge-based economy. Oxford: Oxford University Press.Google Scholar
  24. Dyck, A., Volchkova, N., & Zingales, L. 2008. The corporate governance role of the media: Evidence from Russia. Journal of Finance, 63 (2): 1093–1135.CrossRefGoogle Scholar
  25. Estrella, A. 1995. Measures of fit with dichotomous dependent variables: Critical review and a new proposal. New York: Federal Reserve Bank of New York.Google Scholar
  26. Fawn, R. 2009. “Regions” and their study: Wherefrom, what for and whereto? Review of International Studies, 33 (S1): 5–34.CrossRefGoogle Scholar
  27. Flores, R. G., & Aguilera, R. V. 2007. Globalization and location choice: An analysis of US multinational firms in 1980 and 2000. Journal of International Business Studies, 38 (7): 1187–1210.CrossRefGoogle Scholar
  28. Fortune. 2001. The fortune 500: Our annual list of the largest US corporations. Fortune, 143 (8): F1–F23.Google Scholar
  29. Fox, I., Srinivasan, S., & Vaaler, P. 1997. A descriptive alternative zto cluster analysis: Understanding strategic group performance with simulated annealing. In M. Ghertman, J. Obadia, & J.L. Arregle (Eds) Statistical models for strategic management. Norwell, MA: Kluwer Academic Publisher.Google Scholar
  30. Fratianni, M. 2009. The gravity equation in international trade. In A.M. Rugman (Ed) The Oxford handbook of international business. Oxford: Oxford University Press.Google Scholar
  31. Fratianni, M., & Oh, C. H. 2009. Expanding RTAs, trade flows and the multinational enterprise. Journal of International Business Studies, 40 (7): 1206–1277.CrossRefGoogle Scholar
  32. Friedman, T. L. 2005. The world is flat: A brief history of the twenty-first century. New York: Farrar, Straus and Giroux.Google Scholar
  33. Fryer, R. G., & Holden, R. 2011. Measuring the compactness of political districting plans. Journal of Law & Economics, 54 (3): 493–535.CrossRefGoogle Scholar
  34. Fukuyama, F. 1992. The end of history and the last man. New York: Avon Books.Google Scholar
  35. Furnham, A., Kirkcaldy, B., & Lynn, R. 1994. National attitudes to competitiveness, money and work amongst young people: First, second and third world differences. Human Relations, 47 (1): 119–132.CrossRefGoogle Scholar
  36. Gatignon, H., & Kimberly, J. R. 2004. Globalization and its challenges. In H. Gatignon, J.R. Kimberly, & R.E. Gunther (Eds) The INSEAD-Wharton alliance on globalizing strategies for building successful global business. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  37. Geringer, J. M., Beamish, P. W., & da Costa, R. C. 1989. Diversification strategy and internationalization: Implications for MNE performance. Strategic Management Journal, 10 (2): 109–119.CrossRefGoogle Scholar
  38. Ghemawat, P. 2003. Semiglobalization and international business strategy. Journal of International Business Studies, 34 (2): 138–152.CrossRefGoogle Scholar
  39. Ghoshal, S. 1987. Global strategy: An organizing framework. Strategic Management Journal, 8 (5): 425–440.CrossRefGoogle Scholar
  40. Goffe, W. L., Ferrier, G. D., & Rogers, J. 1994. Global optimization of statistical functions with simulated annealing. Journal of Econometrics, 60 (1–2): 65–99.CrossRefGoogle Scholar
  41. Gupta, V., Hanges, P. J., & Dorfman, P. 2002. Cultural clusters: Methodology and findings. Journal of World Business, 37 (1): 11–15.CrossRefGoogle Scholar
  42. Han, B. 1994. Optimal file management for a stage system using magnetic and optical disks. Information and Decision Technologies, 19 (3): 393–412.Google Scholar
  43. Hofstede, G. 2001. Culture's consequences: Comparing values, behaviors, institutions and organizations across nations, (2nd edn). Thousand Oaks, CA: Sage.Google Scholar
  44. House, R., Javidan, M., Hanges, P. J., & Dorfman, P. 2002. Understanding cultures and implicit leadership theories across the globe: An introduction to project GLOBE. Journal of World Business, 37 (1): 3–10.CrossRefGoogle Scholar
  45. Katrishen, F. A., & Scordis, N. A. 1998. Economies of scale in services: A study of multinational insurers. Journal of International Business Studies, 29 (2): 305–323.CrossRefGoogle Scholar
  46. Kirkman, B. L., Lowe, K. B., & Gibson, C. B. 2006. A quarter century of Culture's Consequences: A review of empirical research incorporating Hofstede's cultural values framework. Journal of International Business Studies, 37 (3): 285–320.CrossRefGoogle Scholar
  47. Kirkpatrick, S., Gellatt, C., & Vecchi, M. 1983. Optimization by simulated annealing. Science, 220 (4598): 671–680.CrossRefGoogle Scholar
  48. Kogut, B. 2009. Methodological contributions in international business and the direction of academic research activity. In A.M. Rugman (Ed) The Oxford handbook of international business. Oxford: Oxford University Press.Google Scholar
  49. Kogut, B., & Singh, H. 1988. The effect of national culture on the choice of entry mode. Journal of International Business Studies, 19 (3): 411–432.CrossRefGoogle Scholar
  50. Kwok, C. C.-Y., & Tadesse, S. 2006. National culture and financial systems. Journal of International Business Studies, 37 (2): 227–247.CrossRefGoogle Scholar
  51. La Porta, R., López-de-Silanes, F., & Shleifer, A. 2008. The economic consequences of legal origins. Journal of Economic Perspectives, 46 (2): 285–332.Google Scholar
  52. Lewis, M. W., & Wigen, K. 1997. The myth of continents: A critique of metageography. Berkeley, CA: University of California Press.Google Scholar
  53. Long, S. J., & Freese, J. 2006. Regression models for categorical dependent variables using Stata. College Station, TX: Stata Press.Google Scholar
  54. Madhavan, R., & Iriyama, A. 2009. Understanding global flows of venture capital: Human networks as the “carrier wave” of globalization. Journal of International Business Studies, 40 (8): 1241–1259.CrossRefGoogle Scholar
  55. McFadden, D. 1974. Conditional logit analysis of qualitative choice behavior. In P. Zarembka (Ed) Frontiers in econometrics. New York: Academic Press.Google Scholar
  56. Metropolis, N., Rosenbluth, A., Rosenbluth, M., Teller, A., & Teller, E. 1953. Equation of state calculations by fast computing machines. Journal of Chemical Physics, 21 (6): 1087–1092.CrossRefGoogle Scholar
  57. Nachum, L., Zaheer, S., & Gross, S. 2008. Does it matter where countries are? Proximity to knowledge, markets and resources, and MNE location choices. Management Science, 54 (7): 1252–1265.CrossRefGoogle Scholar
  58. Niemi, R., Groffman, B., Calucci, C., & Hofeller, T. 1990. Measuring compactness and the role of a compactness standard in a test for partisan and racial gerrymandering. The Journal of Politics, 52 (4): 1155–1181.CrossRefGoogle Scholar
  59. North, D. C. 1990. Institutions, institutional change and economic performance. New York: Cambridge University Press.CrossRefGoogle Scholar
  60. Ohmae, K. 1985. Triad power: The coming sharp of global competition. New York: Free Press.Google Scholar
  61. Osegowitsch, T., & Sammartino, A. 2008. Reassessing (home-)regionalisation. Journal of International Business Studies, 39 (1): 184–196.CrossRefGoogle Scholar
  62. Poon, J. 1997. The cosmopolitanization of trade regions: Global trends and implications, 1965–1990. Economic Geography, 73 (4): 390–404.CrossRefGoogle Scholar
  63. Reynolds, T. H., & Flores, A. 1989. Foreign law: Current sources of codes and basic legislation in jurisdictions in the world. Littleton, CO: F. B. Rothman.Google Scholar
  64. Ronen, S., & Shenkar, O. 1985. Clustering countries on attitudinal dimensions: A review and synthesis. Academy of Management Review, 10 (3): 435–454.Google Scholar
  65. Rugman, A. M., & Oh, C. H. 2012. Why the home region matters: Location and regional multinationals. British Journal of Management, first published online 28 February, doi: 10.1111/j.1467-8551.2012.00817.x.Google Scholar
  66. Rugman, A. M., & Verbeke, A. 2004. A perspective on regional and global strategies of multinational enterprises. Journal of International Business Studies, 35 (1): 3–18.CrossRefGoogle Scholar
  67. Rugman, A. M., Li, J., & Oh, C. H. 2009. Are supply chains global or regional? International Marketing Review, 26 (4/5): 384–395.CrossRefGoogle Scholar
  68. Schwarz, G. E. 1978. Estimating the dimension of a model. Annals of Statistics, 6 (2): 461–464.CrossRefGoogle Scholar
  69. Semmler, W., & Gong, G. 1996. Estimating parameters of real business cycle models. Journal of Economic Behavior & Organization, 30 (3): 301–325.CrossRefGoogle Scholar
  70. Simmons, B. A., Elkins, Z., & Guzman, A. 2006. Competing for capital: The diffusion of bilateral investment treaties, 1960–2000. International Organization, 60 (4): 811–846.CrossRefGoogle Scholar
  71. Singh, J. 2005. Collaborative networks as determinants of knowledge diffusion patterns. Management Science, 51 (5): 56–70.CrossRefGoogle Scholar
  72. Slangen, A., & Beugelsdijk, S. 2010. The impact of institutional hazards on foreign multinational activity: A contingency perspective. Journal of International Business Studies, 41 (6): 980–995.CrossRefGoogle Scholar
  73. Slangen, A., Beugelsdijk, S., & Hennart, J.-F. 2011. The impact of cultural distance on bilateral arm's length exports: An international business perspective. Management International Review, 51 (6): 875–896.CrossRefGoogle Scholar
  74. Sorenson, O., & Baum, J. A. C. (eds) 2003. Editors’ introduction: Geography and strategy: The strategic management of space and place. In Geography and strategy. Advances in Strategic Management. Vol. 20: 1–19. Bingley, UK: Emerald Group.Google Scholar
  75. The MathWorks. 2012. MATLAB 7.14 (R2012a). Natick, MA: The MathWorks Inc.Google Scholar
  76. United Nations (UN). 2007. Composition of macro geographical (continental) regions, geographical sub-regions, and selected economic and other groupings., accessed 30 July 2012.
  77. UNCTAD. 2002. World investment report 2002: Transnational corporations and export competitiveness. New York: United Nations.Google Scholar
  78. Vaaler, P. M. 2008. How do MNCs vote in developing country elections? Academy of Management Journal, 51 (1): 21–43.CrossRefGoogle Scholar
  79. Vaaler, P. M. 2011. Immigrant remittances and the venture investment environment of developing countries. Journal of International Business Studies, 42 (9): 1121–1149.CrossRefGoogle Scholar
  80. Vaaler, P. M., & McNamara, G. 2004. Crisis and competition in expert organizational decision-making: Credit rating agencies and their response to turbulence in emerging economies. Organization Science, 15 (6): 687–703.CrossRefGoogle Scholar
  81. Wagenmakers, E. J., & Farrell, S. 2004. AIC model selection using Akaike weights. Psychonomic Bulletin & Review, 11 (1): 192–196.CrossRefGoogle Scholar
  82. Walter, B., & Bernard, F. 1978. Ash pile or rising phoenix: A review of the status of regional geography. Journal of Geography, 77 (5): 192–197.CrossRefGoogle Scholar
  83. Wei, S. J. 2000. How taxing is corruption on international investors? The Review of Economic and Statistics, 82 (1): 1–11.CrossRefGoogle Scholar
  84. Wolfram Research. 2012. Mathematica edition: Version 9.01. Champaign, IL: Wolfram Research, Inc.Google Scholar
  85. Xu, D., & Shenkar, O. 2002. Institutional distance and the multinational enterprise. Academy of Management Review, 27 (4): 608–618.Google Scholar
  86. Yip, G. S. 1992. Total global strategy: Managing for worldwide competitive advantage. Englewood Cliffs, NJ: Prentice Hall.Google Scholar
  87. Zwinkels, R. C. J., & Beugelsdijk, S. 2010. Gravity equations: Workhorse or Trojan horse in explaining trade and FDI patterns across time and space? International Business Review, 19 (1): 102–115.CrossRefGoogle Scholar

Copyright information

© Academy of International Business 2013

Authors and Affiliations

  • Ricardo Flores
    • 1
    Email author
  • Ruth V Aguilera
    • 2
    • 3
  • Arash Mahdian
    • 4
  • Paul M Vaaler
    • 5
  1. 1.School of Management, Australian School of Business, University of New South WalesSydneyAustralia
  2. 2.Department of Business AdministrationCollege of Business, University of Illinois at Urbana-ChampaignUSA
  3. 3.ESADE Business SchoolBarcelonaSpain
  4. 4.Wolfram ResearchChampaignUSA
  5. 5.Department of Strategic Management and EntrepreneurshipCarlson School of Management, University of MinnesotaMinneapolisUSA

Personalised recommendations