Are multinationality and diversification complementary or substitute strategies? An empirical analysis on European leading firms

This paper models the multinationality and diversification of firms jointly. It applies a new typology, distinguishing diversification at home and abroad (multinationality in primary/secondary industries), to the corporate structures of a sample of leading EU manufacturing firms. This provides the framework for a sequential stochastic model of firms' decision making. Results suggest that multinationality and diversification are, in general, complementary strategies. In differentiated-product industries, this implies that proprietary assets are a public good within the firm. In homogeneous-product industries, however, there is some evidence of substitutability, in that the two strategies may be alternative routes for escaping constraints on growth. (C) 2001 Elsevier Science B.V. All rights reserved.