Global expansion all about give and take, study finds

July 25, 2012

The key to successful global business expansion is spreading operations across multiple countries, rather than trying to dominate a region or market, according to a new study led by Michigan State University researchers.

In addition, since global expansion is costly for service industries, will profit most, said Tomas Hult, director of MSU's International Business Center.

Led by Hult and Ahmet Kirca, associate professor of marketing, the study is the largest ever conducted to examine the effect of multinationality on , Hult said. It incorporates data from nearly 48,000 firms.

The results are published in the latest edition of Global Strategy Journal. This is the third and final study conducted by Hult, Kirca, colleagues and graduate students. The other two articles were published in the and in the .

"It's very clear, through this research, that the more multinational you are, the more likely you are to perform well over time," Hult said. "Being multinational today is much more important than it was 10 or 15 years ago, partly because of the knowledge economy that we're in."

But only a handful of companies are truly global, he said. Often misunderstood among management, global strategy means coordinating efforts across all in which the business practices, not just running a business from a headquarters.

"It would be highly inefficient if a business is in 100 countries and everything has to go through one place," Hult said. "You have much more leverage and synergy if you have a coordinated effort among countries you're in, so there's learning and give and take. What works? What doesn't? "

While there's no magic number of countries that determines success, if a operates in more than a dozen countries, and especially in more than 30, companies must have a global strategy, Hult said.

The researchers also found that firm, industry and country characteristics define the relationship between multinationality and performance.

Specifically, if a country expands internationally for the right reasons – to diversify, not to extend the life of an obsolete product, for example – there's a better chance of success. And if there's good infrastructure to support expansion, such as physical infrastructure, government resources and human resources, that helps.

As such, firms from advanced economies will fare better than those from developing economies, Hult said. But there are only about 30 countries with infrastructure similar to the U.S.

Other key findings:

-- Globalization will generate revenue, but not necessarily maximize profit.
-- Companies will benefit most in the intermediate stages of internalization, rather than in the early and late stages.
-- Firm size doesn't affect the success of multinationality.

Explore further: New research can help product manufacturers effectively shift to service-centric business strategies

Related Stories

Global competition: Combating emerging market multinationals

July 12, 2012

(Phys.org) -- Fast-growing companies in emerging markets pose a serious threat to established global firms in North America, Europe and Japan, but big corporations in the West have many advantages to help thwart the new competition, ...

Recommended for you

Early human diet explains our eating habits

August 31, 2015

Much attention is being given to what people ate in the distant past as a guide to what we should eat today. Advocates of the claimed palaeodiet recommend that we should avoid carbohydrates and load our plates with red meat ...

Just how good (or bad) is the fossil record of dinosaurs?

August 28, 2015

Everyone is excited by discoveries of new dinosaurs – or indeed any new fossil species. But a key question for palaeontologists is 'just how good is the fossil record?' Do we know fifty per cent of the species of dinosaurs ...

Fractals patterns in a drummer's music

August 28, 2015

Fractal patterns are profoundly human – at least in music. This is one of the findings of a team headed by researchers from the Max Planck Institute for Dynamics and Self-Organization in Göttingen and Harvard University ...

0 comments

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.