Academic journal article Management International Review

A New Perspective on the Regional and Global Strategies of Multinational Services Firms

Academic journal article Management International Review

A New Perspective on the Regional and Global Strategies of Multinational Services Firms

Article excerpt

Abstract and Key Results

* We explore the differences in international strategy between multinational enterprises (MNEs) in services and manufacturing, especially in terms of their international diversification, as measured by their sales and asset dispersion.

* Our longitudinal data show that the largest MNEs in services have a much stronger home-region orientation than manufacturing MNEs. Large MNEs in the services sector average 83.9 percent of their sales in their home region, which is significantly higher than large manufacturing firms at 65.6 percent.

* We explore the possible reasons for the relative lack of globalization of services firms. The two main reasons are: the difficulty of adapting separately upstream activities and downstream activities in high distance host environments, and the difficulty of selecting activity locations as a function of supply side criteria.

* We offer a refinement of regional strategy theory applicable to services MNEs.

Key Words

Globalization * Regional Strategy * Services * Multinational Enterprise


Conventional Approaches to the Globalization of Services

Rugman and Verbeke (2004, 2007a) have demonstrated that most of the world's largest 500 companies pursue regional, rather than global strategies. They show that few firms actually have balanced sales across the broad Triad regions of Europe, North America and Asia. They define a global firm as a company with less than 50 percent of sales in its home Triad region and at least 20 percent in each of the two other Triad regions. The typical Fortune Global 500 company averages over 70 percent of its overall sales in its home region of the broad Triad, and substantially less than 20 percent of its overall sales in each of the two other regions. Such discrepancy in sales performance is then mostly reflected in regionally adapted strategies and structures (Rugman/Verbeke 2007b). The home-region orientation of most multinational enterprises (MNEs) implies that the reality of globalization has been vastly exaggerated. Here, we extend Rugman and Verbeke's (2004, 2007a) regional strategy analysis in two ways, namely by adding the parameter of asset dispersion, and by focusing on the differences, if any, between manufacturing and services industries.

First, Rugman and Verbeke's (2004, 2007a) original data did not address the geographic dispersion of production activities. Yet, low sales dispersion could be accompanied by high asset dispersion, for example if MNEs engage in substantial off-shoring. MNEs may want to tap into attractive (sometimes low cost) input markets in host regions, and subsequently import components or finished products for sale in their home region. A similar phenomenon occurs in services provision, as with off-shored software development or call-centers.

For MNEs pursuing a strategy of sourcing in host regions to support sales in the home region, one might observe a higher interregional dispersion of assets than sales. However, the normative implications of sales dispersion versus asset dispersion are different. High sales dispersion (assuming this occurs profitably) can be interpreted as effective performance in providing value to customers irrespective of geographic boundaries. High sales dispersion also reflects successful risk diversification at the downstream end of the value chain (even in the special case whereby foreign markets are penetrated to compensate for declining success at home). In contrast, high asset dispersion, covering both the upstream and downstream segments of the value chain, reflects the capability to manage a network of assets across borders. High asset dispersion is only an intermediate variable, not necessarily instrumental to improved performance (as compared to a situation of low asset dispersion) in terms of providing value to customers internationally or reducing risks. In fact, high asset dispersion, though often heralded as a managerial instrument to achieve flexibility, may lead to internal coordination challenges, and the loss of scale economies if a single value chain activity is performed in several locations. …

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