Academic journal article Researchers World

Multinationality -Performance Relationship: A Review and Research Agenda

Academic journal article Researchers World

Multinationality -Performance Relationship: A Review and Research Agenda

Article excerpt

INTRODUCTION:

The multinationality-performance relationship has developed an important interest in the research about international business. It has been a relevant topic studied by scholars around the world from 30 years ago (Contractor, 2012; Kirca, et al. 2011; Ruigrok & Wagner, 2003). However, despite this relevance, a narrow consensus has been given by the empirical literature (Kirca, Roth, Hult & Cavugsil, 2012).Besides, it is important to point out that the terms: "internationalization degree', "international diversification', "geographical diversification' and "international expansion' refers to the same phenomena. It means that it is possible to find studies with these names (Kirca et al., 2011).

How was explained the multinationality and performance relationship is an important iss ue in international business literature, so the topic is a relevant phenomenon to review.Answer the questions what has been done? And which are the main gaps about this topic?, are the main aims of this paper. Due to this, the paper is organized as follows: first, the theoretical support about this phenomenon is shown. Second, an extensive review of empirical studies carried out by different scholars around the world in the last 20 years is presented. And third, according with the literature review results, the future research agenda about this phenomenon is explained.

KEY CONCEPTS AND THEORETICAL SUPPORT:

The multinationality-performance relationship is a relevant topic in the international business theory. This phenomenon has been studied from 30 years ago (Contractor, 2012). In accordance with this, the empirical evidence has identified five forms of this relationship, such as:

Positive linear relationship: Higher levels of multinationality are related with positive revenues (Vernon, 1971).

Negative linear relationship: Higher levels of multinationality are linked with negative earnings (Gomes & Ramaswamy, 1999; Michel & Shaked, 1986).

U-Curve: Multinationality- performance relationship is non-linear and results in a U shaped -curve (Lu & Beamish, 2001; Capar & Kotabe, 2003; Ruigrok &Wagner, 2003).

Inverted U-Curve: Other researchers likewise discovery the multinationality - performance relationship to be non-linear but to result in an inverted U-curve (Daniels & Bracker, 1989; Geringer et al. 1989; Hitt, Hoskinson & Kim, 1997; Gomes & Ramaswamy, 1999; Li & Qian, 2005). Inverted U - shaped relationships can be clarified by the incremental Uppsala model (Johanson & Vahlne, 1977) which hypothesizes that multinationality starts on geographically nearby countries, in which the business environment is more familiar to firms, and returns are likely to be positive. However, when entering into more complex markets, firms begin to face managerial problems that end up in compromising returns. Therefore, in the end the marginal cost of multinationality will exceed the marginal benefits and negatively compromise firm performance (Li, 2007).

S-Curve Hypothesis: Lately, endeavoring to mix the results resulting in inverted U - and U-shaped relationships, other surveys verified and found support for a horizontal S -shaped relationship (Sullivan, 1994; Contractor et al., 2003; Lu & Beamish, 2004; Li& Quian, 2005).

Likewise, Contractor, Kumar & Kundu, (2007) suggests that the empirical surveys seem inconsistent. The major part of the results found the S-curve hypothesis, according to which multinationality produces positive revenues up to certain grade of investment in operations abroad, i.e. as large as the degree of multinationality does not exceed a critical threshold.

Moreover, i.e. if the degree of multinationality grow up, there is an increase in managerial costs, and the minimal product of multinationality becomes negative. Therefore, there is a dynamic interaction among the costs and revenues of multinationality, so the resulting relationship with the performance become a cyclical S-curve. …

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