operating flexibility global manufacturing and the option value of a multinational network the multinational corporation is a network of activities located in different countries the value of this network derives from the opportunity to benefit from uncertainty through the coordination of subsidiaries which are geographically dispersed we model this coordination as the operating flexibility to shift production between two manufacturing plants located in different countries a stochastic dynamic programming model treats explicitly this flexibility as equivalent to owning an option the value of which is dependent upon the real exchange rate the model is extended to analyze hysteresis effects and within country growth options we show that the management of across border coordination has led to changes in the heuristic rules used for performance evaluation and transfer pricing

real sectoral spillovers a dynamic factor analysis of the great recession abstract dynamic factor methods are used to identify the impact of common and idiosyncratic shocks on sixteen u s nonfarm business sectors this paper then studies changes in the transmission of these shocks across sectors during the great recession and evaluates the cross sectoral spillovers the great recession is found to be largely a time of heightened impact of common shocks which accounts for 3 4 of aggregate volatility and large spillovers of negative finance related shocks in addition prior to the recession aggregate fluctuations are mainly driven by sector specific shocks in contrast with findings from previous studies

direct estimation of synergy a new approach to the diversity performance debate this study examines the linkages between relatedness and synergy in the context of diversification among u s pharmaceutical firms for the period 1960 1980 rather than assume as in the entropy herfindahl and concentric indices of diversification that the levels of synergy generated by different related combinations of business units are identical we estimate synergy directly using a modified version of the concentric index in addition to estimating synergy using capital market performance of the firm as a whole we examine the effects of nondrug diversification on the innovative productivity of firms pharmaceutical divisions alone our two main findings are that production relatedness such as that between drugs and chemicals in fact did not imply synergy over the period of our study and that the patterns of synergy for different types of relatedness shifted over time with the industry life cycle

a framework for integrated risk management in international business treatments of risk in the international management literature largely focus on particular uncertainties to the exclusion of other interrelated uncertainties this paper develops a framework for categorizing the uncertainties faced by firms operating internationally and outlines both financial and strategic corporate risk management responses

platform investments and volatile exchange rates direct investment in the u s by japanese electronic companies this study examines the effects of previous entry on the subsequent decisions of japanese electronics companies to invest in the united states by gathering data at the firm level the empirical analysis provides a fine grain sorting out of firm and industry effects on foreign direct investment decisions the findings show that investment behavior is highly heterogeneous across firms and reflects their individual technological capabilities and their history of previous investments in the united states real exchange rate levels are also important the results suggest that initial investments serve as platforms for subsequent entry with the timing of entry triggered by movements in real exchange rates copyright 1996 by mit press

place space and geographical exposure foreign subsidiary survival in conflict zones this study focuses on the role of geography in foreign subsidiary survival in host countries afflicted by political conflict we argue that survival is a function of exposure to conflicts and depends on the characteristics of place the conflict zone and space geographic concentration and dispersion of other home country firms the roles of place and space are explored using street level analysis of geographic information systems data for 670 japanese multinational enterprises mne subsidiaries in 25 conflict afflicted host countries over 1987 2006 through dynamic modeling of conflict zones as stretchable and shrinkable places relative to subsidiary locations we develop a means of characterizing a foreign subsidiary s exposure to multiple threats in its geographic domain our results show that greater exposure to geographically defined threats in both a static and a dynamic sense reduces the likelihood of mne survival the findings indicate moreover that both concentration and dispersion with other firms affect survival however the effects depend on where the firm is spatially located whether the firm is in a conflict zone and with whom home country peers or sister subsidiaries

operational flexibility and market valuation of earnings this paper examines the association between the stock returns and accounting earnings of firms that have different levels of operational flexibility operational flexibility is a firm s ability to respond profitably to environmental fluctuations by shifting factors of production within a multinational network of subsidiaries the geographic breadth and depth of a firm s multinational network are used as indicators of operational flexibility we find a significantly greater coefficient relating stock returns and accounting earnings for multinational firms that operate in many countries but limit their concentration in any one foreign country than for other multinational firms or domestic firms this coefficient is significantly smaller for multinational firms whose foreign subsidiaries are highly concentrated in a few countries when all multinational firms are pooled together we find their earnings returns association does not differ from that of domestic firms copyright 1999 john wiley sons ltd

valuation of the operating flexibility of multinational corporations the returns to multinationality are estimated as the value of operating flexibility empirical measures of the return of multinationality require a precise specification of the extensiveness of the mnc s transnational network to measure the degree of multinationality this precise empirically grounded definition of multinationality has been absent from the academic literature to date we address this omission and we find that two characteristics of the transnational network its breadth number of foreign countries in which the mnc has operations and depth the concentration of foreign subsidiaries in a few countries are significant in explaining the value of operating flexibility in particular we find that the returns to multinationality are maximized for firms with networks that have breadth but not depth the role of market intangibles such as r d and advertising on mnc market valuation is shown to depend on the flexibility regime

subsidiary expansion contraction during times of economic crisis this paper compares two real options within country growth and across country operational flexibility to examine subsidiary expansion contraction during times of economic crisis specifically we examine how the real options orientations of individual subsidiaries interact with the general characteristics of multinational enterprise networks our main findings are that a economic crises can be detrimental for subsidiaries with stronger within country orientations and advantageous for those with stronger across country orientations and b network characteristics are not the sole determinants of subsidiary expansion contraction what really matters is how the real options orientations of individual subsidiaries mesh with the overall characteristics of the network they belong to

multinational investment under uncertainty in the chemical processing industries this study uses a sample of chemical processing industries to evaluate the effect of two types of uncertainty on the decision to invest in an industry it analyzes the effects of relative price uncertainty through exchange rates and input prices and demand uncertainty on the probability of expansion in a particular country the study then focuses on the behavior of individual companies and distinguishes companies by whether or not they are multinationals in the production of the product the results confirm previous evidence that exchange rate uncertainty has a negative effect on capacity expansions by domestic corporations and no effect on investment by multinational corporations finally the study also shows that expansions of production capacity in this industry are more likely to occur in those countries where capacity utilization is higher

the international control conundrum with exchange risk an eva framework principal agent problems between corporate parent and subsidiary operations are frequently exacerbated in international settings by exchange rate fluctuations between the foreign subsidiary s local currency and the parent multinational corporation s reference currency we develop a conceptual solution to this international control conundrum using economic value added as the sole performance numeraire our framework facilitates assessment of foreign subsidiary performance in emerging market countries in the presence of unexpected exchange related shocks

competitor analysis and foothold moves a foothold is a small position that a firm intentionally establishes within a market in which it does not yet compete we extend theory on competitive dynamics to examine relationships between comp

strategic growth options we provide a strategic rationale for growth options under uncertainty and imperfect competition in a market with strategic competition investment confers a greater capability to take advantage of future growth opportunities this strategic advantage leads to the capture of a greater share of the market either by dissuading entry or by inducing competitors to make room for the stronger competitor as a result of this strategic effect payoffs are in a rough sense more convex than in the case of no investment in a growth option when the strategic advantage is strong increased uncertainty encourages investment in growth options higher uncertainty means more opportunity rather than simply larger risk if the strategic effect is weak the reverse is true on the other hand an increase in systematic risk discourages the acquisition of growth options our results contradict the view that volatility is a strong disincentive for investment

investment in new foreign subsidiaries under receding perception of uncertainty research on foreign direct investment has focused considerable attention on the moment of market entry but less on the dynamics of investment in the post entry phase this paper centres the influence of uncertainty on investment and develops a growth options model to explain the sequence of investment in new foreign subsidiaries in a learning process that starts at entry investors perceive receding levels of uncertainty and shift their reason for investment from option values towards net present values the findings of a panel study of 634 german subsidiaries support the propositions and reveal the potential of the real options approach to improve the understanding of internationalisation processes

real options theory in international business the last quarter century has witnessed substantial growth in applications of real options theory rot to international business ib research in this review we explicate the core rot concepts in the ib context and discuss the contributions of rot based research to three core ib issues timing and scale of market entry or exit entry mode and governance form and the role of multinational networks based on our review we propose a holistic rot view of the multinational enterprise that synthesizes the insights of existing studies finally to move the field forward we highlight key questions and challenges in current rot based work provide a more precise definition of exogenous and endogenous uncertainty suggest empirical designs to test unique rot predictions and explore areas where rot can be combined with other theoretical perspectives to better understand ib phenomena

on the growth of foreign affiliates multinational plant networks joint ventures and flexibility we take a flexibility perspective to analyse employment growth in a large sample of japanese manufacturing affiliates in nine asian countries during the years leading up to and into the asian financial crisis 1995 1999 we find that joint ventures are less flexible than wholly owned affiliates in responding to changing environmental conditions in the focal country and underperform in high growth environments multinational enterprises mnes use the flexibility created by their multinational plant network to adjust affiliate employment in response to labour cost changes in other countries in which they operate plants however no evidence was found that the presence of joint ventures in multinational plant networks reduces this network flexibility our findings suggest that more research is needed on the heterogeneous responses of mnes and their affiliates to changing economic environments

the effect of recessions on firms boundaries the economic theory of the firm offers conflicting predictions of how the two major effects of recessions changes in demand and access to credit affect firm boundaries using data on norwegian firms in the recent recession we find support for both increased and reduced vertical integration of core activities in response to a recessionary shock further we find a negative interaction effect between reductions in access to credit and reductions in demand on insourcing of core activities but no such effect on outsourcing of core activities we argue that this finding may highlight a possible explanation for the conflicting theoretical predictions regarding vertical integration in response to demand and credit shocks

an empirical analysis of the integration responsiveness framework u s construction equipment industry firms in global competition in this study businesses competing as part of the global u s construction equipment industry were categorized into three subgroups according to the integration responsiveness framework i r in an attempt to further understand industry pressures confronting businesses that compete internationally the results show that three generic strategies suggested by the i r framework do appear in a single industry context globally integrated locally responsive and multifocal beyond providing additional insight into the nature of competition in a single global industry several broad extensions to the integration responsiveness framework are suggested

revocable commitment and sequential bargaining in this paper the author presents a noncompetitive bargaining model which unifies the two well known but distinct bargaining games due to j nash 1953 and a rubinstein 1982 moreover the author explores the robustness of the equilibrium set of these two bargaining games to a particular kind of perturbation in the commitment structure of the underlying extensive forms from a different perspective and interpretation of the model the author examines and studies the relationship between the equilibrium commitment levels and the costs to the bargainers of revoking their respective commitments copyright 1992 by royal economic society

the effect of domestic uncertainty on the real options value of international investments scholars have noted that international investments have the potential to provide firms with real options value under uncertainty to assess this issue prior studies have tended to focus primarily on exchange rate volatility although multinational firms face other types of uncertainty as well including those stemming from their domestic operating environment the role of such uncertainty for firms flexibility needs has not been previously considered in this study we compare the influence of both domestic economic uncertainty and exchange rate uncertainty on the real option value of international investments of korean firms over 16 years of varying uncertainty we find evidence that an international investment network characterized by greater breadth and lower depth is associated with higher firm value under domestic economic uncertainty exchange rate uncertainty however was not found to play a role in firms need for flexibility the results suggest that firms are able to hedge exchange rate uncertainty by using mechanisms such as forward contracts or derivatives thus potentially reducing the impact of this type of uncertainty on their operations

an empirical analysis of the integration responsiveness framework in global industries in this study businesses competing in global industries were categorized into three groups according to the integration responsiveness framework for conceptualizing industry pressures confronting business competing internationally using this framework contextual conditions associated with each group were examined competitive attributes distinguishing each group were then identified to clarify alternate business level strategies for competing within a global industry context beyond providing additional insight into the nature of competition in global industries several broad extensions to the integration responsiveness framework are suggested

firm strategy and economic exposure to foreign exchange rate movements this study examines the implications of differences in strategy and industry structure for firms economic exposures to foreign exchange rate movements in contrast with previous research using a single currency proxy this study estimates firms exposures using a multiple currency model the empirical evidence from u s manufacturing firms indicates that 13 to 17 percent of firms are exposed to foreign exchange rate movements results from cross sectional analyses reveal that foreign direct investment reduces economic exposure to foreign exchange rate movements

irreversible investments and volatile markets a study of the chemical processing industry this paper investigates the empirical effect of volatility on irreversible investments we use a sample of chemical products in the united states and the european union to test the impact of volatility on new investments in capacity we distinguish among three sources of volatility exchange rates input prices and product demand we find that the effects of volatility on the amount of capacity investment differ depending on the source of volatility input prices and product demand volatility do not appear to have a material and statistically significant effect in either the united states or the european union in contrast exchange rate volatility has a significant negative impact on investment by chemical manufacturers in the european union

do multinationals operate flexibly theory and evidence do multinational enterprises operate flexibly i e do they shift production in response to currency changes three theoretical perspectives are developed flexibility optimism premised on information and sunk cost advantages takes a macro efficiency perspective and predicts sizable responses flexibility pessimism premised on inertia and internal opportunism takes an organizational perspective and predicts sticky responses flexibility realism premised on the view that to be flexible in the current period multinational enterprises need to have planned and invested accordingly in previous periods predicts positive but relatively modest responses empirical analysis spanning the period 1977 1993 finds that multinational enterprises systematically exploit currency shifts but even in the face of large exchange rate changes their operational responses are relatively modest the results appear most consistent with flexibility realism and this hypothesis is selected over the alternatives considered

foreignness and exit over the life cycle of firms received wisdom indicates that owing to a liability of foreignness foreign firms exit with greater likelihood than do comparable domestic firms and that the difference attenuates as firms age and overcome the liability we posit that foreign firms are also intrinsically more volatile and footloose than domestic ones and that this leads to an increasing divergence between the exit rates of foreign and domestic firms empirically we find that the difference between exit rates of foreign firms and domestic firms increases with age as exit of foreign firms increases with age while that of purely domestic firms decreases exit rates of domestic based multinationals do not change significantly with age they are between those of foreign and purely domestic firms but are closer to the latter this suggests that the footlooseness observed for foreign firms is due to foreignness more than to multinationality

real options in multinational corporations organizational challenges and risk implications in this study we investigate how multinationality affects firms risk levels our investigation builds on the idea from real options theory that international operations offer switching options to multinational corporations yet we also emphasize different sources of coordination costs that can mitigate the benefits of operational flexibility the findings from tobit models accounting for self selection underscore the importance of unobserved heterogeneity in the relationships between international investments and risk levels consistent with the coordination costs surrounding international operations we find that the relationship between multinationality and downside risk is curvilinear risk first declines and then increases as a firm s portfolio of international investments becomes extensive in addition downside risk is an increasing function of the average cultural distance between a firm s home base and the host countries in which its foreign subsidiaries operate

real options and foreign affiliate divestments a portfolio perspective this paper develops a real options portfolio perspective on foreign affiliate divestments affiliates are less likely to be divested in response to adverse environmental change if they represent growth or switch option value to the multinational firm under conditions of macroeconomic uncertainty however the affiliate is partially redundant to the option value of the multinational firm s affiliate portfolio if the affiliate shares the manufacturing platform role in the host country with other affiliates or if macroeconomic conditions of the host country are highly correlated with those of other countries in which the multinational firm operates affiliates we find strong support for these arguments in tests on a comprehensive sample of 1078 asian manufacturing affiliates of japanese electronics multinationals

operational hedges and the foreign exchange exposure of u s multinational corporations this paper examines the impact of operational hedges of us multinational corporations mncs on their exchange rate exposure the two important contributions of this study are first it documents the importance of operational hedges as significant determinants of exchange rate risk as measured by breadth and depth dimensions of the mnc foreign subsidiary network second this finding remains robust even after examining the impact of operational hedges on exposure separately for negatively and positively exposed mncs

human capital in multinational enterprises does strategic alignment matter this research proposes a strategic human capital alignment framework to examine whether the alignment between subsidiary strategy i e export oriented vs local market oriented strategy and human capital i e parent firm vs local specific human capital is positively related to subsidiary performance in multinational enterprises mnes we further explore two important exogenous i e foreign exchange rate change and endogenous i e mne international experience boundary conditions since they may adjust the positive effect of strategic human capital alignment on performance the analysis based on 5604 subsidiary observations of 423 mnes from 1990 to 2012 confirms the positive synergic effect of aligning subsidiary strategy and human capital and shows the moderating effects of foreign exchange rate change and mne international experience by presenting the importance of subsidiary strategy global staffing alignment and the roles of external economic environments and internal organizational capabilities as boundary conditions the strategic human capital alignment framework suggests that what makes human capital valuable for the firm is its alignment with strategic orientation thus managers should carefully deploy the appropriate type of human capital to fulfill the requisite organizational strategy and take into account changing external and internal contextual conditions in applying the framework

a review of research on the growth of multinational enterprises a penrosean lens abstract we provide a comprehensive review of the growth of multinational enterprises mnes based on a quarter century 25 years of scholarly international business publications we synthesize research insights on the determinants of the growth of mnes through the lens of penrose s theory of firm growth which is the most influential theoretical perspective on firm growth the review takes stock of the research findings on the facilitators constraints and the trajectory of growth of mnes and elaborates on the commonalities and differences between research on the growth of mnes that draws on penrose s theory and research that does not this comparison highlights the opportunity to build an internally coherent theory of the growth of mnes that is a theory that connects what an mne is to what determines an mne s growth it also indicates that past research placed a strong emphasis on exogenous factors e g cross country distances as key constraints on growth even though the penrosean lens suggests a close consideration of endogenous factors that drive international growth as well as endogenizing the ostensibly exogenous growth determinants the review highlights the importance of firm specific managerial knowledge and learning which shapes the direction of the growth of mnes and ensures its administrative coherence