When is FDI valuable to the multinational enterprise? The role of firm capabilities and international experience

Abstract

While the relationship between the internationalization degree of multinational enterprises (MNEs) and their performance has long been an important issue in international business research, empirical research has only generated heterogeneous outcomes (Li 2007). This can be related to the fact that the internationalization degree in itself is not an explanatory, but an intermediate, variable (Verbeke and Brugman 2009). Hence, in order to benefit from the advantages of internationalization, firms need to leverage their resources in different foreign settings (Lu et al. 2010). Thus, added value in MNEs is generated from contributions originating in different parts of a network of subunits, exposed to divergent characteristics of host countries (Verbeke et al. 2009), and having different roles in the MNE portfolio (Luo 1999b). Despite the focus of academic attention on foreign expansion, divestment processes and withdrawals from foreign markets are commonplace (Benito and Welch 1997). Thus, the relationship between firm internationalization and its performance is clearly a non-obvious one.