When geography matters: International diversification and firm performance of Spanish multinationals

Abstract

This paper studies how the nature and shape of the relationship between international diversification (ID) and performance (P) may vary according to a firm's geographical focus of internationalization. Using a sample of Spanish multinational firms for the 2004–2012 period we find an M-shaped relationship. However, significant differences are found when the different geographical foci of internationalization are considered. Strong support is found when firms adopt a regional focus (an inverted S-curve when the ID measure refers to the number of foreign countries and an M-curve when it refers to the size of the network of foreign subsidiaries), a biregional focus (an S-curve) and a semiglobal focus (an inverted S-curve but also an M-curve with foreign subsidiaries). These findings and their pattern suggest the critical importance of the country of origin and the geographical focus of internationalization in explaining the relationship between ID–P.