International diversification and firm performance: a four-stage model

Abstract

Purpose

The purpose of this paper is to investigate the relationship between international diversification (ID) and performance in multinational firms by proposing a new and unified theory of multinationality that incorporates, integrates and extends previous concepts and hypotheses.

Design/methodology/approach

The study relies on data concerning the world’s largest companies, derived from the Fortune Global 500. An OLS regression analysis has been carried out in order to test a four-stage relationship between ID and performance.

Findings

On a final sample of 391 multinationals, this paper provides an empirical evidence that support the existence of a four-stage theory by using a relevant sample of “top” multinational firms.

Research limitations/implications

This study has two main limitations: first, a single indicator was used to measure ID; second, some potential variables have had to be excluded due to data availability.

Practical implications

This paper offers some intriguing practical implications, as well: first, it points out to some thresholds where performances are higher at certain level of ID; second, it highlights that performance will face two kinds of decreases due to intra-regional and inter-regional liability of foreignness; finally, it individuates differences with regard to some firms’ characteristics such as home or host country’s behaviors and about the kind of industries in which they operate, as well.

Originality/value

This is one of the first studies that tests and finds positive evidences about a four-stage theory, regarding to the relationship between ID and performance. Moreover, it proposes other interesting results with regard to the differences between home vs host country-oriented firms and between manufacturing vs services multinational firms.

Citation

Ferraris, A., Bresciani, S. and Del Giudice, M. (2016), "International diversification and firm performance: a four-stage model", EuroMed Journal of Business, Vol. 11 No. 3, pp. 362-375. https://doi.org/10.1108/EMJB-10-2015-0048