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