Academic journal article Management International Review

Understanding 'Misfits': Aspirations and Systematic Deviations from Firm-Specific Optimal Multinationality

Academic journal article Management International Review

Understanding 'Misfits': Aspirations and Systematic Deviations from Firm-Specific Optimal Multinationality

Article excerpt

Abstract Transaction cost and internalization theory predicts that there are firm-specific optimal levels of multinationality, and deviations from firm-specific optimal multinationality should decrease performance. However, one important unanswered question is why some firms continuously deviate from their firm-specific optimal levels of multinationality. In this conceptual analysis, I argue that continuous deviations from firm-specific optimal levels of multinationality can be explained by decision-makers' use of aspirations. Specifically, if a firm deviates from its optimal level of multinationality and performance decreases, but aspirations are still being met, decision makers will not perceive a problem and will not engage in search processes to identify and implement changes that align the firm with its optimal level of multinationality. In addition, decision makers in smaller firms may respond to shortfalls between aspirations and actual performance with greater rigidity. Additionally, narcissistic decision makers, and decision makers who are highly accountable to external audiences, may retrospectively revise aspirations in the face of shortfalls in actual performance.

Keywords Multinationality and performance . Aspirations . Transaction cost and internalization theory . Multinationality alignment

1 Introduction

For several decades, a large and growing body of literature has sought to assess links between multinationality and performance (M-P) (e.g., Almodovar 2012; Contractor et al. 2003; Grant 1987; Shaked 1986). This research has helped us to understand the multinationality and performance constructs (e.g., Goerzen and Beamish 2003; Verbeke et al. 2009), but empirical results have been inconsistent and this research has been criticized for lacking theoretical clarity (Hennart 2007, 2011; Verbeke and Brugman 2009; Verbeke et al. 2009). Additionally, much of the M--P research treats multinationality as a random exogenous construct. Yet, it is reasonable to argue that decision makers within organizations will have various motives, and will consider firm resources and attributes when making decisions, such as decisions about multinationality, to optimize performance (Dastidar 2009; Powell 2014; Verbeke et al. 2009). As a result, it is reasonable to acknowledge that firm multinationality is not a random construct. Instead, individual firm factors should influence internationalization decisions. Furthermore, any claim for a "general" relationship between absolute levels of multinationality and performance is questionable.

Alternatively, Hennart (2011) has highlighted the potential for an approach rooted in transaction cost and internalization (TCI) theory (Buckley and Casson 1976; Hennart 1982). TCI theory offers that 'firm-specific' assets determine when it is beneficial to internalize foreign operations to protect against freeriding that can chip away at a firm's reputation, to ensure that knowledge is not transferred to potential competitors, and to reduce transaction costs in other ways (Hennart 2001, 2010). This emphasis on 'firm-specific' transaction cost factors means that optimal levels of multinationality will also be 'firm-specific' When a firm is aligned with its specific optimal level of multinationality, performance should be optimal. Alternatively, deviation from firm-specific optimal levels of multinationality should be negatively related to performance (Hennart 2001, 2011; Powell 2014). Unlike the extensive body of M--P research, TCI theory offers a functional theoretical chain with clear implications, and as a result, it is important to explore key questions within this promising, but still nascent, approach.

In particular, Hennart (2011) asks why some firms systematically deviate from their firm-specific optimal levels of multinationality, and offers two possible explanations. First, "misfits" may be temporarily misaligned, as the ability to quickly adjust to optimal levels will differ between firms. …

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