1. ¹University of Victoria, Victoria, British Columbia, Canada
2. ²Department of Management, The Chinese University of Hong Kong, Shatin, NT, Hong Kong

Correspondence: A Goerzen, University of Victoria, Business and Economics Building (BEC), Room: 216, Victoria, British Columbia, Canada. Tel: +1 250 721 6414; Fax: +1 250 721 6067; E-mail: agoerzen@uvic.ca

Received 31 October 2005; Revised 15 May 2007; Accepted 8 June 2007; Published online 30 August 2007.

Abstract

This paper extends Chang's (1995) sequential investment theory to include multinational corporations (MNCs) in service industries, given this sector's large and growing impact on the global economy. To facilitate an examination of service MNC internationalization patterns, we develop a new typology of service investment (i.e., core-global, related-local, unrelated-global, and unrelated-local) based on business relatedness and location-specificity. We test this typology on a sample of large Japanese trading companies; our results suggest that the initial investments of service MNCs are closely related to their core businesses and are less location-specific, but that subsequent investments are less related to firms' core services and are more location-specific – a pattern similar to the traditional view on manufacturing MNCs. We extend our analysis to examine several case studies to provide a richer context for these findings. In addition, we examine the performance implications of internationalization. Our findings suggest that firms that internationalize through early investments that are closely related to their core activities outperform those in unrelated businesses over time, but that this performance gap between related and unrelated foreign investments diminishes in more advanced stages of internationalization.