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How well do supranational regional grouping schemes fit international business research models?

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Abstract

International business (IB) research has long acknowledged the importance of supranational regional factors in building models to explain phenomena such as where multinational corporations (MNCs) choose to locate. Yet criteria for defining regions based on similar factors vary substantially, thus undermining consensus regarding which regional grouping schemes fit IB research models better. In response, we develop and empirically validate a theory of comparative regional scheme assessment for model-building purposes assuming that: (1) schemes can be classified based on their source of similarity; and (2) schemes within the same similarity class can be assessed for their structural coherence, based on group contiguity and compactness. Schemes with better structural coherence will also exhibit better fit with IB research models. We document support for our theory in comparative analyses of regional schemes used to explain where US-based MNCs locate operations around the world. Geography-, culture- and trade and investment-based schemes with better structural coherence exhibit better initial fit with MNC location models and less change in fit after modest scheme refinement using a simulated annealing optimization algorithm. Our approach provides criteria for comparing similar regional grouping schemes and identifying “best-in-class” schemes tailored to models of MNC location choice and other IB research models.

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  1. The geography-based regional grouping scheme adapted from the general scheme used by Vaaler and McNamara (2004) includes the following regions (in CAPITALS) and countries: AFRICA AND MIDDLE EAST: Algeria, Azerbaijan, Bahrain, Benin, Burkina Faso, Burundi, Democratic Republic of Congo, Egypt, Ethiopia, Gambia, Ghana, Guinea, Iran, Iraq, Israel, Ivory Coast, Jordan, Kenya, Kuwait, Lebanon, Liberia, Libya, Malawi, Mali, Morocco, Namibia, Niger, Nigeria, Oman, Pakistan, Qatar, Saudi Arabia, Senegal, Sierra Leone, South Africa, Sudan, Syria, Tanzania, Tunisia, Turkey, Uganda, United Arab Emirates, Yemen, Zambia; ASIA: China, Hong Kong, India, Indonesia, Japan, Malaysia, Philippines, Singapore, South Korea, Sri Lanka, Thailand; CENTRAL AND EASTERN EUROPE: Albania, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Russian Federation, Serbia and Montenegro, Slovenia; LATIN AMERICA: Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Panama, Peru, Suriname, Uruguay, Venezuela; NORTH AMERICA AND CARIBBEAN: Canada, Dominican Republic, Jamaica, Mexico; OCEANIA: Australia, Fiji, New Zealand; WESTERN EUROPE: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom.

  2. The geography-based regional grouping scheme adapted from the full partition of worldwide regions in the world according to the information provided in the United Nations website includes the following regions (in CAPITALS) and countries: AUSTRALIA AND NEW ZEALAND: Australia, New Zealand; CARIBBEAN: Dominican Republic, Jamaica, CENTRAL AMERICA: Costa Rica, El Salvador, Guatemala, Mexico, Panama; EASTERN AFRICA: Burundi, Ethiopia, Kenya, Malawi, Tanzania, Uganda, Zambia; EASTERN ASIA: China, Hong Kong, Japan, South Korea; EASTERN EUROPE: Bulgaria, Czech Republic, Hungary, Poland, Romania, Russian Federation; Melanesia: Fiji; MIDDLE AFRICA: Democratic Republic of Congo; NORTHERN AFRICA: Algeria, Egypt, Libya, Morocco, Sudan, Tunisia, NORTHERN AMERICA: Canada; NORTHERN EUROPE: Denmark, Estonia, Finland, Ireland, Latvia, Lithuania, Norway, Sweden, United Kingdom; SOUTH AMERICA: Argentina, Brazil, Chile, Colombia, Ecuador, Peru, Suriname, Uruguay, Venezuela; SOUTH-EASTERN ASIA: Indonesia, Malaysia, Philippines, Singapore, Thailand; SOUTHERN AFRICA: Namibia, South Africa; SOUTHERN ASIA: India, Iran, Pakistan, Sri Lanka; SOUTHERN EUROPE: Albania, Croatia, Greece, Italy, Portugal, Serbia and Montenegro, Slovenia, Spain; WESTERN AFRICA: Benin, Burkina Faso, Gambia, Ghana, Guinea, Ivory Coast, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone; WESTERN ASIA: Azerbaijan, Bahrain, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, Turkey, United Arab Emirates, Yemen; WESTERN EUROPE: Austria, Belgium, France, Germany, Luxembourg, Netherlands, Switzerland.

  3. The geography-based regional grouping scheme adapted from the scheme presented by United Nations website based on continents includes the following regions (in CAPITALS) and countries: AFRICA: Algeria, Benin, Burkina Faso, Burundi, Democratic Republic of Congo, Egypt, Ethiopia, Gambia, Ghana, Guinea, Ivory Coast, Kenya, Liberia, Libya, Malawi, Mali, Morocco, Namibia, Niger, Nigeria, Senegal, Sierra Leone, South Africa, Sudan, Tanzania, Tunisia, Uganda, Zambia; AMERICAS: Argentina, Brazil, Canada, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Jamaica, Mexico, Panama, Peru, Suriname, Uruguay, Venezuela; ASIA: Azerbaijan, Bahrain, China, Hong Kong, India, Indonesia, Iran, Iraq, Israel, Japan, Jordan, Kuwait, Lebanon, Malaysia, Oman, Pakistan, Philippines, Qatar, Saudi Arabia, Singapore, South Korea, Sri Lanka, Syria, Thailand, Turkey, United Arab Emirates, Yemen; EUROPE: Albania, Austria, Belgium, Bulgaria, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Netherlands, Norway, Poland, Portugal, Romania, Russian Federation, Serbia and Montenegro, Slovenia, Spain, Sweden, Switzerland, United Kingdom; OCEANIA: Australia, Fiji, New Zealand.

  4. The culture-based regional grouping scheme adapted from the general scheme developed by Ronen and Shenkar (1985) includes the following groupings (in CAPITALS) and countries: ANGLO: Australia, Canada, Ireland, New Zealand, South Africa, United Kingdom; ARAB, Bahrain, Kuwait, Oman, Saudi Arabia, United Arab Emirates; FAR EASTERN: Hong Kong, Indonesia, Malaysia, Philippines, Singapore, Thailand; GERMANIC: Austria, Germany, Switzerland; INDEPENDENT: Brazil, India, Israel, Japan; LATIN AMERICA: Argentina, Chile, Colombia, Mexico, Peru, Venezuela; LATIN EUROPEAN: Belgium, France, Italy, Portugal, Spain, NEAR EASTERN: Greece, Iran, Turkey; NORDIC: Denmark, Finland, Norway, Sweden; OUTSIDE (Countries not included in this scheme): Albania, Algeria, Azerbaijan, Benin, Bulgaria, Burkina Faso, Burundi, China, Costa Rica, Croatia, Czech Republic, Democratic Republic of Congo, Dominican Republic, Ecuador, Egypt, El Salvador, Estonia, Ethiopia, Fiji, Gambia, Ghana, Guatemala, Guinea, Hungary, Iraq, Ivory Coast, Jamaica, Jordan, Kenya, Latvia, Lebanon, Liberia, Libya, Lithuania, Luxembourg, Malawi, Mali, Morocco, Namibia, Netherlands, Niger, Nigeria, Pakistan, Panama, Poland, Qatar, Romania, Russian Federation, Senegal, Serbia and Montenegro, Sierra Leone, Slovenia, South Korea, Sri Lanka, Sudan, Suriname, Syria, Tanzania, Tunisia, Uganda, Uruguay, Yemen, Zambia.

  5. The culture-based regional grouping scheme adapted from the general scheme used by Gupta and colleagues (GLOBE, 2002) Reference includes the following grouping (in CAPITALS) and countries: ANGLO: Australia, Canada, Ireland, New Zealand, South Africa, United Kingdom; ARAB: Egypt, Kuwait, Morocco, Qatar, Turkey; CONFUCIAN ASIA: China, Hong Kong, Japan, Singapore, South Korea; EASTERN EUROPE: Albania, Greece, Hungary, Poland, Russian Federation, Slovenia; EUROPEAN NORDIC: Denmark, Finland, Sweden; GERMANIC: Austria, Germany, Netherlands; LATIN AMERICA: Argentina, Brazil, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Mexico, Venezuela; LATIN EUROPE: France, Israel, Italy, Portugal, Spain, Switzerland; SOUTHERN ASIA: India, Indonesia, Iran, Malaysia, Philippines, Thailand; SUB-SAHARA AFRICA: Namibia, Nigeria, Zambia; COUNTRIES NOT INCLUDED: Algeria, Azerbaijan, Bahrain, Belgium, Benin, Bulgaria, Burkina Faso, Burundi, Chile, Croatia, Czech Republic, Democratic Republic of Congo, Dominican Republic, Estonia, Ethiopia, Fiji, Gambia, Ghana, Guinea, Iraq, Ivory Coast, Jamaica, Jordan, Kenya, Latvia, Lebanon, Liberia, Libya, Lithuania, Luxembourg, Malawi, Mali, Niger, Norway, Oman, Pakistan, Panama, Peru, Romania, Saudi Arabia, Senegal, Serbia and Montenegro, Sierra Leone, Sri Lanka, Sudan, Suriname, Syria, Tanzania, Tunisia, Uganda, United Arab Emirates, Uruguay, Yemen.

  6. The trade and investment-based regional grouping scheme adapted from the general scheme used by Donnenfeld (2003) includes the following groupings (in CAPITALS) and countries: ANDEAN: Chile, Colombia, Ecuador, Peru; ASEAN: Indonesia, Malaysia, Philippines, Singapore, Thailand; EU: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden; MERCOSUR: Argentina, Brazil, Uruguay; NAFTA: Canada, Mexico; PAN-ARAB: Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Sudan, Syria, Tunisia, United Arab Emirates, Yemen; NOT AFFILIATED TO A TRADE AGREEEMENT IN 2000: Albania, Algeria, Australia, Azerbaijan, Benin, Bulgaria, Burkina Faso, Burundi, China, Costa Rica, Croatia, Czech Republic, Democratic Republic of Congo, Dominican Republic, El Salvador, Estonia, Ethiopia, Fiji, Gambia, Ghana, Guatemala, Guinea, Hong Kong, Hungary, India, Iran, Israel, Ivory Coast, Jamaica, Japan, Kenya, Latvia, Liberia, Lithuania, Malawi, Mali, Namibia, New Zealand, Niger, Nigeria, Norway, Pakistan, Panama, Poland, Romania, Russian Federation, Senegal, Serbia and Montenegro, Sierra Leone, Slovenia, South Africa, South Korea, Sri Lanka, Suriname, Switzerland, Tanzania, Turkey, Uganda, United Kingdom, Venezuela, Zambia.

  7. The trade and investment-based regional grouping scheme adapted from the general scheme used by Rugman and Verbeke (2004) includes the following groupings (in CAPITALS) and countries: ASIA PACIFIC: Australia, Azerbaijan, Bahrain, China, Hong Kong, India, Indonesia, Iran, Iraq, Israel, Japan, Jordan, Kuwait, Lebanon, Malaysia, New Zealand, Oman, Pakistan, Philippines, Qatar, Saudi Arabia, Singapore, South Korea, Sri Lanka, Syria, Thailand, Turkey, United Arab Emirates, Yemen; EUROPE: Albania, Austria, Belgium, Bulgaria, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Netherlands, Norway, Poland, Portugal, Romania, Russian Federation, Serbia and Montenegro, Slovenia, Spain, Sweden, Switzerland, United Kingdom; NORTH AMERICA: Canada, Mexico; COUNTRIES NOT INCLUDED IN EXTENDED TRIAD: Algeria, Argentina, Benin, Brazil, Burkina Faso, Burundi, Chile, Colombia, Democratic Republic of Congo, Costa Rica, Dominican Republic, Ecuador, Egypt, El Salvador, Ethiopia, Fiji, Gambia, Ghana, Guatemala, Guinea, Ivory Coast, Jamaica, Kenya, Liberia, Libya, Malawi, Mali, Morocco, Namibia, Niger, Nigeria, Panama, Peru, Senegal, Sierra Leone, South Africa, Sudan, Suriname, Tanzania, Tunisia, Uganda, Uruguay, Venezuela, Zambia.

  8. Both measures require group redefinition as a polygon closely approximating the actual shape. To measure contiguity, we then compare all pairs of perimeter points on a group polygon and choose the pair yielding the longest geodesic distance. To measure compactness, we use the following mathematical expression: Compactness=4πa/p2, where a is the area and p is the perimeter of the group polygon.

  9. Mathematically, MF-A Ps R2 can be summarized in the following expression:

    where is the estimated log likelihood for a model with all parameters, k, and is the estimated log likelihood for the same model with an intercept only.

  10. Mathematically, AIC can be summarized in the following expression:

    where k is the number of parameters, and is the estimated log likelihood. Let AICminimum be the “best” (minimizes information loss) model in a class of models; then the likelihood that another model i in the same class also minimizes information loss is given by exp[(AICminimum−AIC i )/2].

  11. ESS is calculated according to the following expression:

    where n is the number of observations, and x i is the value of observation i.

  12. Mathematically, the Metropolis criterion for accepting non-intuitive changes in a partition, P s new , can be summarized in the following expression: . P Accept is the 0–1 probability that the simulated annealing algorithm will replace old partition, P s old , with new partition, P s new . The acceptance (replacement) probability is 1 (certain) if ESS new < ESS old . If ESS new > ESS old , then acceptance depends on comparison of a pseudo-randomly generated value R, where 0 < R < 1 to number to . ΔESS is the difference between ESS old and ESS new . T is the temperature of the annealed system. If > R then a non-intuitive (ESS new > ESS old ) move is accepted, and the simulated annealing algorithm moves “uphill”. Lower T and/or larger ΔESS renders this inequality less likely, and thus acceptance of non-intuitive moves less likely.

  13. We illustrate this process in a figure available electronically at: http://www.csom.umn.edu/faculty-research/vaal0001/Paul_M_Vaaler.aspx

  14. The Mathematica and Matlab program codes are available electronically at: http://www.csom.umn.edu/faculty-research/vaal0001/Paul_M_Vaaler.aspx

  15. We illustrate regional grouping scheme refinement processes based on simulated annealing in maps for each of seven schemes evaluated. They are available electronically at: http://www.csom.umn.edu/faculty-research/vaal0001/Paul_M_Vaaler.aspx

  16. We obtain similar results supporting Hypothesis 1 when we replace MF-A Ps R2 with an alternative pseudo-R2 proposed by Estrella (1995), and when we replace AIC with an alternative Bayesian information criterion proposed by Schwarz (1978). These results are available electronically at: http://www.csom.umn.edu/faculty-research/vaal0001/Paul_M_Vaaler.aspx

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Acknowledgements

We thank Randy Westgren and the University of Illinois at Urbana-Champaign Center for International Business Education and Research for financial support. We thank the University of Illinois at Urbana-Champaign Supercomputing Center, the University of Minnesota Office of Information Technology and Karl Smelker for technical support. Earlier drafts of this paper benefited from presentation at the Academy of International Business annual meeting, the Carlson School of Management and the Humphrey School of Public Administration at the University of Minnesota, the Henley Business School at Reading University, and the Fox School of Business at Temple University. Mark Casson, Isaac Fox, Martin Ganco, Robert Kudrle, Alan Rugman, Andrew Van de Ven, Richard Wang and Joel Waldfogel offered helpful comments, criticisms and suggestions for revision. We also thank to the co-editors of this special issue, Soerd Beugelsdijk and Ram Mudambi, as well as the three anonymous reviewers who helped us improve this manuscript. All errors are ours.

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Authors and Affiliations

  1. School of Management, Australian School of Business, University of New South Wales, Sydney, Australia

    Ricardo Flores

  2. Department of Business Administration, College of Business, University of Illinois at Urbana-Champaign, USA

    Ruth V Aguilera

  3. ESADE Business School, Barcelona, Spain

    Ruth V Aguilera

  4. Wolfram Research, Champaign, USA

    Arash Mahdian

  5. Department of Strategic Management and Entrepreneurship, Carlson School of Management, University of Minnesota, Minneapolis, USA

    Paul M Vaaler

Authors
  1. Ricardo Flores
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  2. Ruth V Aguilera
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  3. Arash Mahdian
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  4. Paul M Vaaler
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Corresponding author

Correspondence to Ricardo Flores.

Additional information

Accepted by Sjoerd Beugelsdijk and Ram Mudambi, Guest Editors, 6 March 2013. This paper has been with the authors for three revisions.

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Flores, R., Aguilera, R., Mahdian, A. et al. How well do supranational regional grouping schemes fit international business research models?. J Int Bus Stud 44, 451–474 (2013). https://doi.org/10.1057/jibs.2013.16

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  • DOI: https://doi.org/10.1057/jibs.2013.16

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