Global vs Regional Geographic Diversification
The geographic scope of the firm is an important dimension in global strategy (Peng and Delios 2006). Determining the ‘global-ness’ of a firm is not a new ambition. Perlmutter (1969) attempted to tackle a similar challenge 40 years ago, when he looked at the multinationality of a multinational firm. At that time, being multinational was seen as prestigious – just as being considered a ‘global’ firm is today. Interestingly, Perlmutter found that the ‘difficulty in defining the degree of multinationality comes from the variety of parameters along which a firm doing business overseas can be described’ (1969, 11). Rather than focusing on the locations of subsidiaries, headquarters or location of sales in addressing the issue of multinationality, Perlmutter built on his three concepts that international business scholars are now very familiar with – ethnocentric, polycentric and geocentric – by turning inward and examining the internal attributes of the firm that may attribute to its classification as a multinational. In part thanks to Levitt (1983), the term ‘global’ became mainstream in the 1980s, as firms were encouraged to ‘go global’ by both media and academics. However, in 1985, Hamel and Prahalad noted that the perspective on global competition and globalization of markets was incomplete and misleading. Hamel and Prahalad (1985) found that neither executives nor analysts fully understood what global competition entailed, and they subsequently developed a global competitive framework.4 Recent debate centers on an interesting and somewhat surprising finding first presented by Rugman and Verbeke (2004). They found that even among the largest Fortune Global 500 MNEs, few are truly ‘global’. In their study, Rugman and Verbeke found only nine MNEs to be ‘global’ and only 25 to be ‘bi-regional’.5 The majority of the remaining MNEs in the Fortune Global 500 are actually home region oriented (or in essence ‘regional’) – signaling the mislabeling of ‘global’ attributed to these firms. Having established that many ‘regional’ MNEs are incorrectly labeled ‘global’, the empirical evidence for regionalization suggests two important implications. First, much of the international activity of MNEs is conducted at the intra-regional rather than the inter-regional (in other words, ‘global’) level (Rugman and Verbeke 2008; Schlegelmilch 2007). Second, Current debates in global strategy 56 © 2009 The Authors Journal compilation © 2009 Blackwell Publishing Ltd and British Academy of Management many MNE operations are organized at the regional level as opposed to the global level (Rugman and Verbeke 2007). Guided by the fact that liability of foreignness (Zaheer 1995) does exist, one of the main reasons we see more activity at the intra-regional level is due to the lower liability of foreignness within a region than between regions (Rugman and Verbeke 2004). Additionally, one of the reasons international operations continue to organize regionally is due to the difficulty in managing an internal network spanning more than one region – the cultural and/or institutional distance remains substantial (Rugman and Verbeke 2007). Supporting this view, a recent study on regional diversification and firm performance suggests that firms that are regionally focused are more likely to maximize their performance (Qian et al. 2008). While Rugman and Verbeke’s (2004) findings are based on a global sample of MNEs based in all three regions of the Triad, supportive evidence on the regional character of Asia-based MNEs is reported by Collinson and Rugman (2007, 2008) and Oh and Rugman (2007). However, despite the widespread acknowledgement and interest in these findings, the Rugman and Verbeke perspective is not without critics. Critics make two points. First, while overall, Dunning et al. (2007) supported Rugman and Verbeke’s (2004) findings, Dunning et al. found that the regional concentration of MNE activity is more reflective of GDP and trade than of a distinctive MNE strategy. Additionally, Osegowitsch and Sammartino (2008) called into question the classification criteria used by Rugman and Verbeke (2004) and in an empirical study demonstrate that, in using different schema, a significant proportion of firms attain global status. Thus, the main criticism seems to be one of measurement and taxonomy. Second, the data supporting the ‘regional’ view only capture a snapshot in time (Osegowitsch and Sammartino 2008). Considering this, while it is true that most MNEs may be more correctly labeled ‘regional’ as opposed to ‘global’, how do we correctly classify MNE international strategies? Is it a relative measure? If we look at it longitudinally, are there different levels of regional diversification? Moreover, how do we define a region? There are multiple ways to define a region. While Rugman and Verbeke (2004, 2007) stand by their use of the broadTriad (Asia, EU and NAFTA), which is fairly geographic in nature, regions can also be defined through cultural or institutional similarities or through the World Value Survey. In discussing the global economy, recent research suggests a lingering trend towards forms of interregionalism (Aggarwal and Fogarty 2004). Specifically, these authors identify a rise of bilateralism, regional agreement, sectoral accords and interregionalism taking place across the globe. Given the political realities of the world, it is plausible to support the argument that MNEs compete within a multiplex of regions, most of which are not integrated (Ghemawat 2007). Of course, there is an issue as to whether the definition of a region is economically, politically or culturally driven.6 For example, in considering a politically defined region, it may be the case that MNEs are able to take advantage of and use political resources that rest between the home and host country, despite a large cultural or institutional distance (Frynas et al. 2006). Therefore, regions defined politically may provide a different explanation in understanding the geographical patterns of diversification of MNEs. Interestingly, since this debate arose due to the increased pace of globalization, it has reopened the debate on globalization and how poorly it is understood. This leads us to the next ongoing debate: whether we are witnessing convergence or divergence in corporate governance.