Geographically Diversified Growth, R&D Intensity, and Mne Performance: A Dynamic Internalization Perspective

Abstract

One of the principles of internalization theory is that the dynamics of multinational enterprise (MNE) growth are based on a continuous process of innovation that stems from R&D, leading to a curvilinear (inverted U-shape) relationship between R&D intensity and MNE performance. We extend the third principle of internalization theory with a dynamic perspective and submit that geographically diversified growth will decrease the optimal level of R&D intensity, however, higher-order routines developed for industry diversified growth can be redeployed to integrate the geographically differentiated resources with their R&D. We test our predictions by performing a general linear mixed model (GLMM) estimation on a panel data set of 14,347 investments in the diversified growth of 2,588 MNEs. Our results show in line with internalization theory that the optimal level of R&D decreases with geographically diversified growth. However, consistent with our dynamic perspective this effect becomes insignificant for firms with high industry-diversified growth.

Keywords: Geographically diversified growth, Industry diversified growth, Internalization Theory, R&D intensity, MNE performance