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International coherence and MNE performance

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Abstract

We introduce the concept of International Coherence (IC) to describe the degree of relatedness in a multinational enterprise (MNE). We propose that IC hinges on the interplay of the relatedness between any two MNE units and the linkages that tie them together. Linkages can be thought of as the often costly “pipes” that allow the “content”, that is, resources and information that define relatedness, to “flow”. We argue that greater IC increases the potential of an MNE to generate economies by facilitating resource sharing and diffusion, as well as learning and knowledge creation among MNE units while controlling corresponding bureaucratic costs. In turn, this will lead to superior MNE performance. We also hypothesize that firms facing high levels of competition will have greater incentives to capitalize on IC. To test our hypotheses, we first estimate the relatedness between units by the revealed unit relatedness using data on nearly a half a million global investments by all public MNEs worldwide. We then use this information and data on 960 US MNE units’ locations to estimate IC and find support for our hypotheses. Our results indicate the potential for IC as an important new facet of multinationality.

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Notes

  1. Note that an MNE can also be a conglomerate with fully independent units and no linkages.

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Acknowledgements

This paper is the recipient of the Temple/Academy of International Business Best Paper Award 2012, and was nominated for the Academy of Management/International Management Division Fundação Dom Cabral Best Paper in Strategy/IB Theory Award and the SKOLKOVO Best Paper Award.

We thank for feedback the participants of the INSEAD Strategy and Entrepreneurship Day, Kansas University and Northeastern University Seminar Series, Stav Fainshmidt, Mark Lehrer, Klaus Meyer, Ram Mudambi, Rajneesh Narula, William Newburry, Carlos Rufin, Steve Tallman, and Yannick Thams. Special thanks go to our editor Ulf Andersson, three anonymous reviewers, and JIBS’ Managing Editor Anne Hoekman. We are grateful for all their feedback and assistance and apologize for any omissions. Finally we thank David Teece, Richard Rumelt, Giovanni Dosi, and Sidney Winter for the inspiration.

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  1. Strategy and International Business Department, Sawyer Business School, Suffolk University, Boston, MA, USA

    Sokol Celo

  2. Department of Management and International Business, College of Business Administration, Florida International University, Miami, FL, USA

    Aya Chacar

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  1. Sokol Celo
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Correspondence to Aya Chacar.

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Accepted by Ulf Andersson, Area Editor, 16 January 2015. This Research Note has been with the authors for four revisions.

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Celo, S., Chacar, A. International coherence and MNE performance. J Int Bus Stud 46, 620–628 (2015). https://doi.org/10.1057/jibs.2015.4

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