The MNE as a Portfolio: Interdependencies and Path-Dependence in MNE Location Choices
Posted: 2 Sep 2008 Last revised: 19 Jul 2017
Date Written: August 31, 2008
We conceptualize the MNE as a portfolio of interdependent sub-units and view the portfolio itself as a major determinant of subsequent action. We apply this conceptualization to the international growth trajectory of MNEs and model their location moves with explicit reference to their existing location portfolios. This approach entails that location choices are path-dependent and thus determined by forces that are endogenous to the MNEs making them, in addition to exogenous characteristics of countries and moves of other firms. We test the resulting model on a unique dataset that details all the international location moves undertaken by US legal service MNEs. Our findings show that after controlling for country- and firm-characteristics, the fit between the characteristics of the portfolio and those of subsequent locations significantly affect location moves in a non-linear fashion. The portfolio exercises stronger impact on entry than on exit, suggesting that path-dependence processes are more influential on MNE expansion than on their contraction. The characteristics of the portfolio and those of the MNEs concerned moderate these relationships. We argue that the conceptualization of the MNE as a portfolio requires corresponding strategic and organizational responses, and outline central elements for the management of the MNE as a portfolio.
Keywords: Location portfolio, MNE location choices, path dependence, international expansion, legal service MNEs
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