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A three-stage theory of international expansion: the link between multinationality and performance in the service sector

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Abstract

It is generally assumed that the performance of a firm improves with greater multinationality. Yet recent empirical studies have shown both a U-shaped relationship (which suggests an initially negative effect of international expansion on performance, before the positive returns of international expansion are realized) and an inverted-U-shaped relationship (which suggests that international expansion beyond an optimal level is again detrimental to performance, and results in a negative slope). This paper proposes a new unified three-stage theory of international expansion that incorporates both concepts in a sigmoid hypothesis. It then tests this on data from 11 service industries, highlighting the difference between knowledge-based and capital-intensive service sectors.

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Author information

Authors and Affiliations

  1. School of Management, Rutgers University, USA

    Farok J Contractor

  2. Boeing Institute of International Business, John Cook School of Business, Saint Louis University, USA

    Sumit K Kundu & Chin-Chun Hsu

  3. The Overseas Chinese Institute of Technology, Taiwan, ROC

    Chin-Chun Hsu

Authors
  1. Farok J Contractor
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  2. Sumit K Kundu
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  3. Chin-Chun Hsu
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Corresponding author

Correspondence to Sumit K Kundu.

Additional information

Accepted by Tom Brewer, outgoing Editor, 11 October 2001. This paper has been with the author for 2 revisions.

Appendix 1

Appendix 1

Whereas the existing literature uses at least a curvilinear quadratic specification, we adopted a referee's strong suggestion to show, in Table 8, results using only a first-order specification for DOI. The three columns in the table, for Models A, C and K, correspond to Tables 5, 6 and 7 above.

Table a1 Results with linear specification for DOI only
Full size table

These results, as expected, show that performance is positively affected by multinationality. However, lacking the second- and third-order terms for DOI, the more complex relationship between these two variables cannot be seen.

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Contractor, F., Kundu, S. & Hsu, CC. A three-stage theory of international expansion: the link between multinationality and performance in the service sector. J Int Bus Stud 34, 5–18 (2003). https://doi.org/10.1057/palgrave.jibs.8400003

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  • DOI: https://doi.org/10.1057/palgrave.jibs.8400003

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