Academic journal article Multinational Business Review

A Commentary on Home-Region Internationalization in Financial Groups from Emerging Economies

Academic journal article Multinational Business Review

A Commentary on Home-Region Internationalization in Financial Groups from Emerging Economies

Article excerpt

Introduction

Recent papers by [46] Wolf et al. (2012) and [44] Verbeke and Kano (2012) in this journal offer an analysis to explain the home-region orientation phenomenon of large firms. Here we apply this thinking to the internationalization of financial services. Before the 1970s, the operations of the multinational banks mainly took the form of establishing branches, offices or subsidiaries abroad to support the activities of non-financial companies. In response to foreign market opportunities made available by deregulation and globalization, many financial firms have increased their foreign direct investment (FDI) and acquired other companies in part because of the belief that only very large players will have the cost advantages necessary to remain competitive in emerging global markets[1] .

The question of whether and how internationalization of activities affects the performance of a firm is also one of the most addressed research problems in strategic management and international business ([19] Glaum and Oesterle, 2007; [24] Hejazi and Santor, 2010). International diversification can be defined as a firm's expansion beyond the borders of its home country across different countries and geographical regions. Firms with strong competencies that are developed at home can utilize these in international markets ([4] Bartlett and Ghoshal, 1989) to generate growth, but it has also been suggested that international diversification tends to take place in markets that are physically and culturally close and that other factors such as logistics and trade barriers are likely to increase the cost of operations rather than providing economies of scale ([26] Katrishen and Scordis, 1998).

The controversy over globalization and its implications has been debated in the literature ([32] Rugman, 2005; [36], [37], [38] Rugman and Verbeke, 2004, 2005, 2008; [16] Dunning et al. , 2007; [46] Wolf et al. , 2012). [36] Rugman and Verbeke (2004) showed that a large percentage of companies were oriented within their own home region and that only a small percentage of companies were truly global. Several other studies have confirmed these basic findings ([33] Rugman and Brain, 2003; [13] Delios and Beamish, 2005; [3] Banalieva and Dhanaraj, 2013). In the financial services sector, [22] Grosse (2005) found that the majority of the largest institutions were expanding their business in the home region of the triad in which they are headquartered. One institution (HSBC) earned the bulk of its income in two regions (Asia and Europe), which is explained by its historical orientation towards Asia. A similar result was reported by [30] Outreville (2007) for the 50 largest financial institutions in the world. Financial groups from the USA have a dominant presence in Latin America and the Caribbean (LAC), and Canadian banks are prevalent in the Caribbean as well. The Spanish banks, Banco Santander and Banco Bilbao Vizcaya Argentaria, have the largest proportion of their affiliates in LAC.

In recent years, there has been a strong increase in the demand for financial services in emerging markets. At the same time, FDI in the financial sector of emerging economies surged in the 1990s as some countries were eager to attract a number of FDI-based activities by financial groups. [47] Yin and Choi (2005) explored the patterns of inward FDI into China, and they found that the majority of such investments stem from Asia. This is an important result, since one might expect that in rapidly growing emerging economies, a more even distribution across regions might exist.

There have been only a few empirical studies about the determinants of the number of branches and offices a bank will have abroad. [21] Goldberg and Johnson (1990) examined factors, which determine the presence of US banks abroad. [29] Moshirian's (2001) study is the first one that uses data on FDI in banking to measure US bank's activities abroad. [30] Outreville (2007) examines where the largest financial firms are expanding their operations and documents some of the factors that may explain the most-favored locations of these financial groups. …

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