Pace, rhythm, and scope: process dependence in building a profitable multinational corporation

• Published in: Strategic management journal Vol. 23; no. 7; pp. 637 - 653
• Main Authors: Vermeulen, Freek, Barkema, Harry
• Format: Journal Article
• Language: English
• Published: Chichester, UK John Wiley & Sons, Ltd 01.07.2002; John Wiley and Sons; Wiley; Wiley Periodicals Inc
• Subjects: Absorptive capacity; Applied sciences; Business management; Business strategies; Business structures; Competitive firms; Corporate strategies; Countries; development paths; Diseconomies; Enterprises; Exact sciences and technology; Expansion; Firm modelling; Foreign subsidiaries; Globalization; International business; international expansion; Internationalization; Management science; Marketing; Modeling; Multinational corporations; Multinational enterprises; Operational research and scientific management; Operational research. Management science; Profit; Profitability; Profitable firms; Strategic planning; Studies; Subsidiary companies; time compression diseconomies; Compression; Profitability; Irregularity; Globalization; International economy; Multinational corporation; Markets; Profit
• ISSN: 0143-2095; 1097-0266
• DOI: 10.1002/smj.243

Many potential benefits of foreign expansion have been identified in the literature, yet empirical support that multinational firms perform better than domestic firms is mixed. This paper takes a longitudinal perspective and argues that how much a firm benefits from having foreign subsidiaries depends on its process of internationalization. We argue that a firm's capacity to absorb expansion is subject to constraints: some expansion patterns increase profitability less than others, owing to diseconomies of time compression. We hypothesize that the speed of internationalization, the spread of the geographical and product markets entered, and the irregularity of the expansion pattern negatively moderate a firm's increase in profitability resulting from international expansion. Model estimations based on panel data raised strong support for these predictions.