Question

Does multinationality enhance the performance of MNEs? --> there have been multiple relationships between the degree of internationalization and MNEs performance revealed in this literature --> the three stages of general internationalization theory.

Answer 1

A three-stage theory of international

expansion: the link between multinationality

and performance in the service sector

Farok J Contractor

1

Sumit K Kundu

2

Chin-Chun Hsu

2,3

1

School of Management, Rutgers University,

USA;

2

Boeing Institute of International Business,

John Cook School of Business, Saint Louis

University, USA;

3

The Overseas Chinese Institute

of Technology, Taiwan, ROC

Correspondence:

Dr Sumit K Kundu, Boeing Institute of

International Business, John Cook School

of Business, Saint Louis University, 3674

Lindell Blvd, St Louis, MO, USA

Tel: þ 1 314 977 3601;

Fax: þ 1 314 977 7188;

E-mail: kundusk@slu.edu

Received: 11 October 2001

Revised: 21 March 2002

22 August 2002

Accepted: 27 August 2002

Online publication date: 12 December 2002

Abstract

It is generally assumed that the performance of a firm improves with greater

multinationality. Yet recent empirical studies have shown both a U-shaped

relationship (which suggests an initially negative effect of international

expansion on performance, before the positive returns of international

expansion are realized) and an inverted-U-shaped relationship (which suggests

that international expansion beyond an optimal level is again detrimental to

performance, and results in a negative slope). This paper proposes a new

unified three-stage theory of international expansion that incorporates both

concepts in a sigmoid hypothesis. It then tests this on data from 11 service

industries, highlighting the difference between knowledge-based and capital-

intensive service sectors.

Answer 2

The question of whether multinationality enhances the performance of Multinational Enterprises (MNEs) is a complex and debated topic in international business research. The relationship between the degree of internationalization and MNEs' performance has been studied extensively in the literature, and various findings have been reported.

1. Positive Relationship: Some studies suggest that multinationality can positively impact the performance of MNEs. These studies argue that expanding operations into foreign markets can lead to increased revenue, access to new resources and markets, cost efficiencies, and diversification of risks. MNEs with a global presence may have a broader customer base and access to specialized resources and knowledge, which can contribute to improved performance.

2. U-Shaped Relationship: Other research has proposed a U-shaped relationship between multinationality and MNEs' performance. According to this perspective, there is an optimal level of internationalization beyond which further expansion may lead to diminishing returns or increased complexities. MNEs that strike the right balance between global reach and operational efficiency may outperform those with either limited international presence or excessive global expansion.

3. Non-Linear Relationship: Some studies suggest that the relationship between multinationality and performance is non-linear and depends on various contextual factors. MNEs' performance may be influenced by the specific industries they operate in, the countries they expand into, the timing of internationalization, and their capabilities to manage international operations effectively.

It's important to recognize that the impact of multinationality on MNEs' performance can be influenced by numerous factors, including the organization's strategy, management capabilities, industry dynamics, competitive landscape, and macroeconomic conditions.

Regarding the reference to "the three stages of general internationalization theory," it seems like you might be referring to the Uppsala Model, also known as the Internationalization Process Theory. This theory suggests that firms gradually increase their international involvement in three stages: the pre-committed stage, the experimental involvement stage, and the regular involvement stage. As firms gain experience and knowledge in international markets, they move from lower-risk to higher-risk operations, leading to increased multinationality.

In conclusion, the relationship between multinationality and MNEs' performance is complex and context-dependent. While some studies suggest positive effects, others propose a U-shaped or non-linear relationship. The impact of multinationality on performance may vary depending on various internal and external factors influencing the MNEs' operations and strategies.