Home Region Focus and Technical Efficiency of Multinational Enterprise

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.