Abstract
This study examines the effect of international dispersion on profitability. We use an institution-based approach to propose that increases in international dispersion lead, on average, to profitability downturns. We also argue that this liability of foreignness will affect multinationals from infrastructure industries to a lesser extent because in these industries: (1) the importance of cultural fit in products is low; (2) firms possess regulatory expertise; and (3) firms have limited aggregation opportunities at the regional level. We test our hypotheses on a panel of Spanish listed firms (1986–2007). Our findings point to a negative linear relationship between international dispersion and profitability, which is flatter for infrastructure multinationals. These results contribute to a more context-based understanding of internationalization that highlights the shortcomings of establishing a dispersed international footprint.
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Notes
Based on Fernández-Méndez et al. (2015), we define infrastructure firms as those operating in electricity, water, oil, gas, transportation, telecommunications, and construction.
Phrase used by The Economist to title an article on this topic (The retreat of the global company), published on 28 January 2017.
Please note that in this paragraph we have only featured those works defining performance in terms of profitability. However, additional papers have used either market measures (e.g., Collins 1990; Michel and Shaked 1986) or a combination of both market and accounting measures (e.g., Dittfeld 2017; Lu and Beamish 2004; Thomas and Eden 2004) as their dependent variables of performance.
For the purposes of this study, we follow Asmussen and Goerzen’s (2013) definition of dispersion; that is, the extent to which the international operations differ in their proximity to the home base of the focal multinational.
Example extracted from: Cola Cao abandona China: Idilia Foods vende su planta de GaoLeGao al filipino Liwayway, La Vanguardia, 17 December 2015.
Nutrexpa in China, ICEX, 13 June 2013. Available at https://www.youtube.com/watch?v=IAAv8pcZfvQ. Last accessed 6 September 2019.
La financiación es el gran reto de las constructoras en el exterior, El Economista, 3 October 2015.
Example extracted from: Aprender a hacer negocios en China, El País, 26 June 2005; and Cuentos y cuentas en China, El País, 22 May 2005.
Example extracted from Guillén and García-Canal (2010).
Lopez (Mango): “Aumenteremo il reshoring in Spagna e Italia”, Pambianco News, 23 March 2017.
César Alierta, CEO of Telefónica, Diario 155, 26 June 2001, p. 21.
At this point, we shall note that our panel-data sample is not balanced. Some of the companies included in our study got delisted or merged during the period of analysis. In addition, there are some non-systematic missing observations.
A previous version of this first stage appears in García-García et al. (2017).
We retrieved the financial data from COMPUSTAT, DATASTREAM, the Spanish Securities Market Commission, and the firms’ websites. We gathered the data on proprietary technology from ESPACENET. This platform is available online at https://worldwide.espacenet.com/ (Last accessed 6 September 2019). We extracted the data to build the ownership and management variables from press releases, directories (DICODI, DUNS, The Maxwell Espinosa Shareholders Directory), and the works of Vergés (1999, 2010).
This variable only includes domestic mergers with other companies from our sample. We ran a robustness test by excluding the firms involved in mergers from our regressions. The pattern of results remained unchanged. We do not report the findings due to space restrictions. However, they are available upon request.
We exclude firms operating in banking and financial services from our analyses because they normally have specific accounting standards (Lemmon and Lins 2003).
We define soft services as those that require simultaneous production and consumption. Consequently, the firm and the customer base must be co-located (Guillén and García-Canal 2010).
Hard services are those in which production and consumption can be separated. Therefore, they can be exported at arm’s length (Erramili 1990).
This database is available at the Penn Lauder CIBER webpage.
We followed the UNCTAD and IMF classifications to categorize countries according to their degree of development. In the Developed category, we only included those countries considered as developed by both organizations. All other countries fell in the Developing category. It shall be acknowledged that all developing countries are located outside of the EU-15 boundaries.
The Economist discusses this new attitude of multinationals in the article The retreat of the global company, published on 28 January 2017.
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Acknowledgements
We thank the comments and suggestions received from Álvaro Cuervo-Cazurra, Kimberly Eddleston, Jedrzej George Frynas, Anthony Goerzen, Rajneesh Narula, Xavier Martin and the anonymous reviewers and conference participants at the 2016 Strategic Management Society Annual Conference and the 44th AIB (UK&I) and 6th Reading IB Conference 2017. We are grateful for the funding provided by the Spanish Ministry of Economy (project ECO2017-86101-P). Raquel García-García would also like to acknowledge the financial support received from the FPI program of the Ministry of Economy in which she was enrolled. Esteban García-Canal likewise appreciates the support of Fundación Banco Sabadell, through the Cátedra de Crecimiento e Internacionalización Empresarial.
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García-García, R., García-Canal, E. & Guillén, M.F. International Dispersion and Profitability: An Institution-Based Approach. Manag Int Rev 59, 855–888 (2019). https://doi.org/10.1007/s11575-019-00402-w
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DOI: https://doi.org/10.1007/s11575-019-00402-w