The impact of companies’ regional expansion on global performance

An estimation based on the firm heterogeneity model

Abstract

This study estimates the impact of companies’ regional expansion on their global performance using the estimation model that incorporates firm heterogeneity. Many studies have examined the relationship between the regional expansion of multinational firms and their global performance. However, the results have not been consistent. They reported mixed results: positive, negative or non-linear effects. This inconsistency is partly because the previous studies ignore firm heterogeneity in estimating the impact of their overseas expansion.

To address firm heterogeneity, this study uses the hierarchical Bayesian model to estimate the impact of overseas expansion using the dataset of 453 Japanese manufacturing companies from 2012 to 2016. The data include information about firms’ regional assets, which serves as an indicator of firms’ operational experience in three regions: Asia, North America, and Europe.

The empirical results suggest that the effects of regional expansion result in the bimodal distribution in all regions, and depend on firm characteristics and other factors. The results also show that the effects of regional expansion differ across the three regions. North America is similar to Japan. Entering Asia leads to improved performance for a company only after its sales have grown, indicating that successful entry into the region is dependent on the operational expansion of the company.