Determinants of Corporate International Expansion Beyond the Home Region: An Empirical Examination of U.S. Multinational Enterprises Expansion to Europe and Asia‐Pacific

Abstract

Research SummaryThis study extends Rugman and Verbeke (2001)'s model by examining how firm‐specific advantages (FSAs) and host region conditions affect multinational enterprise expansion at the inter‐regional level. We examine the impact of their three constructs (non‐location‐bound FSAs, location‐bound FSAs, and complementary resources in the host regions) on U.S. MNEs’ sales in Europe and Asia/Pacific. We also suggest and examine the impact of two additional factors (host market efficiency and FSA fragmentation). For empirical testing, we use U.S. industry‐ and firm‐level panel data and compare results from both datasets. We find that location‐bound FSAs and fragmented FSAs hinder expansion to other regions, while non‐location‐bound FSAs, host region complementary resources, and host market efficiencies facilitate expansion to other regions. Results from the two datasets are highly consistent.Managerial summaryThis study aims to provide guidelines for multinational enterprise (MNE) managers seeking to expand to areas beyond their home region. Some firm capabilities “travel” well to distant countries, to different cultures, and across economic levels, i.e., they are transferable. Others are not, i.e., they are more embedded in the firm's home‐country environment. Expansion of U.S. MNEs to Europe and Asia/Pacific is facilitated by (a) higher levels of intrafirm transfers, (b) access to complementary resources abroad, and (c) relative host market efficiencies. In contrast, such expansion is hindered by (a) higher productivity of labor at home relative to that abroad and (b) fragmentation of its product portfolio. This analysis is helpful for managers interested in building the systems, conditions, and mechanisms that increase the MNE's geographic reach. Copyright © 2017 Strategic Management Society.