Effects of Firm Resources on Growth in Multinationality Author(s): Chiung-Hui Tseng, Patriya Tansuhaj, William Hallagan, James McCullough Reviewed

work(s): Source: Journal of International Business Studies, Vol. 38, No. 6 (Nov., 2007), pp. 961-974 Published by: Palgrave Macmillan Journals Stable URL: http://www.jstor.org/stable/4540469 . Accessed: 29/10/2011 04:04
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of Business (2007) journalInternational Studies 38,961-974 C2007 Academyof International Business Allrightsreserved 0047-2506 $30.00
www.jibs.net

Effects

of

firm

resources

on

growth

in

multinationality

Chiung-Hui Tseng', Patriya Tansuhaj2, WilliamHallagan3 and JamesMcCullough4

of National Business, 'Institute International Tainan,Taiwan, ChengKungUniversity, R.O.C.; Business 2lInternational Institute, Washington State University, Pullman, USA; Washington, of State 3School Economic Sciences,Washington 4School Pullman, USA; University, Washington, of Business Leadership, and of University Puget USA Sound,Tacoma,Washington,

Abstract
refersto the extent to which firms' business activitiesspan Multinationality acrossnationalborders.Movingbeyond prioremphasison the consequences of multinational expansion,this study sheds light on the antecedents analyzing by how firm resources influence changes in multinationality.Building on the resource-basedview of the firm, we propose a frameworkthat consists of resourcedeterminants two categories:knowledge-basedand property-based in resources. Empiricalresults obtained from a sample of publicly held US manufacturingcompanies show that knowledge-based resources generate faster and longer-lastinginfluences on internationalgrowth than propertybased resources.Specifically, resourcesrelatedto technologicaland marketing slack and knowledge, and property-basedresourcesrelated to organizational internallygenerated profits,are found to be significantdrivingforces behind This growth in multinationality. study not only advancesour understandingof the antecedents of multinational and expansion,but also providesimplications avenues for future research. of Business Studies(2007) 38, 961-974. Journal International I0. I057/palgrave.jibs.8400305 doi: international resource-based view Keywords:multinationality; growth;

Correspondence: of Chiung-Hui Tseng,Institute International National Business, ChengKungUniversity, 1, Ta-Hsueh Road,Tainan 701, R.O.C. Taiwan, Tel: + 886 6 275 7575 ext. 53512; Fax:+ 886 6 276 6459; E-mail: ctseng@mail.ncku.edu.tw

Received: May2002 29 Revised: 24 March 2006 7 2006 Accepted: November Onlinepublication date: 19 July2007

Introduction The extent to which business activities span across national is boundaries, namely multinationality, a critical decision confrontfirms during the current era of globalization. Since Vernon ing (1971) brought this issue to our attention, interest in multinationality has generated a large volume of studies (e.g., Grant, 1987; Daniels and Bracker,1989; Tallman and Li, 1996; Hitt et al., 1997; Gomes and Ramaswamy, 1999; Geringer et al., 2000; Capar and Kotabe, 2003; Contractor et al., 2003; Lu and Beamish, 2004). Centered on the ongoing debate of whether benefits from foreign operations outweigh costs, previous studies have paid much heed to the consequences operating abroad, notably the multinationof - profitability linkage. Such research has largely overlooked ality the antecedentsdriving multinational expansion. Given the strategic importance of overseas expansion to firm growth (Hitt et al., 1997; Autio et al., 2000; Tan and Mahoney, 2005), this lack of theoretical and empirical attention to the preconditions of multinationality seems particularly surprising. Managers at a firm aiming to expand through the international trajectory, for instance, would be bound to first find out 'what determines how much further their firm can proceed internation-

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Chiung-Hui et al Tseng

ally' and 'why rivals show different pace of multinational expansion'. To address these intriguing but unanswered questions, we extend prior work by looking backwards at the antecedents affecting changes in multinationality. Drawing upon the resource-based view (RBV),we argue that resource availability plays a pivotal role in determining a firm's international growth. The RBV logic is insightful and pertinent in answering our queries for two main reasons. First, foreign expansion demands more resources to buffer costs and risks incurred overseas due to greater managerial complexity and liability of foreignness. Firms, however, face resource constraints; more important, the seriousness of this limitation hinges on the type of resources to be deployed abroad. Thus it is relevant to assess what resources are more useful in launching foreign business activities. Second, the RBV conceives a firm as a collection of resources (Penrose, 1959; Wernerfelt, 1984), and highlights the impact of the firm's resource heterogeneity, rather than the external environment, on its competitive position (Barney, 1991). Accordingly, the fact that some firms are superior to others in the marketplace is ascribable to their possession of unique resources (Peteraf, 1993). Along this line of thinking, we believe that variations in international involvement among firms emanate from differences in resource availability. On the following pages, we first use the RBVas the theoretical foundation to develop hypotheses that relate the resource-based determinants to growth in multinationality. Next, we describe the research methods, followed by our empirical results. Finally, we draw implications and suggest directions for future research. The thinking of the RBVowes its origins to early economic models of Chamberlin (1933) and Kaldor (1934), who first acknowledged the importance of
organization-specific resources to firm success, a concept that was later developed more thoroughly by Penrose (1959) and Demsetz (1973). Not until the mid-1980s did the theory gain its popularity in the strategy literature as, among others, Wernerfelt (1984) and Barney (1991) have made significant contributions to its development (see Foss (1997) for a detailed account of the evolution of the theory). In essence, the RBV regards resources and competitive advantages as factors specific to a firm, rather than general to the industrial environment

in which the firm operates, which challenges the market-based view that had long been held by many economists. More specifically, the RBV presumes that firms within an industry are heterogeneous in the valuable resources they control, and such firm heterogeneity persists over time insofar as those resources are not perfectly mobile across firms (Barney,1991). Strategiesare therefore asserted to be based more on firm-specific attributes than on general market structures, and are devised by the firm to identify, protect, and exploit its unique skills and proprietary assets (Tallman, 1991). Consequently, the firm directs its strategy crafting based on resources that it has amassed (Barney, 1996; Oliver, 1997). Meanwhile, the firm also chooses a strategy that can better utilize the pool of resources (Madhok, 1997). The two fundamental tenets underlying the RBV - that is, firm heterogeneity and resource immobility - are just as germane to an international context as they are to the domestic milieu (e.g., Ekeledo and Sivakumar,2004; Knight and Cavusgil, 2004; Tan and Mahoney, 2005). Laying these presuppositions on the case of multinational expansion, firms within a single industry exhibit a different level of international growth, thanks mainly to inherent idiosyncrasy in the resources they own. Further, the resources, which may be transferable across nations within the boundary of a firm, are not perfectly mobile across firms. Indeed, for a multinational firm contemplating an expansion strategy across national boundaries, its existing inventory of resources inevitably will limit the range of strategic possibilities. As the internal conditions of firms are emphasized, the RBV has taken into account constraints on organizational

growth (Ramanujam and Varadarajan,1989),

which in turn offers valuable insights into the rate

Theoretical background and hypotheses

of internationalexpansion. Synthesizing prior notions (Wernerfelt,1984;

Barney, 1991; Amit and Schoemaker, 1993), resourcesin this paper refer to the input factors that, if employed properly, impose positive impacts on firms' strategies and business objectives. Given that resources embedded in organizations can range widely, in order to classify various firm resources into categories and systematically examine their influences we follow a typology developed

by Miller and Shamsie

(1996),

which

divides

resources resources into two kinds: knowledge-based relate to particular know-how and skills, and resourcesrelate to specific and wellproperty-based defined assets. Accordingly, we define knowledge-

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Chiung-Hui et al Tseng 963

basedresources collective as goodswithin the firm that can be shared by multiple agents without diminishing their value or the amount available for others. For instance, a patent or reputable brand name can be employed by more than one foreign agent or subsidiary without necessarily hampering its use by others. In comparison, property-based resources described as privategoods in the sense are that their use by one party will, on a one-to-one basis, reduce the possibility of being used by others. Private-good resources, unlike collective-good resources, cannot be recycled for repeated consumption. For example, an overseas expansion using financial resources will reduce the financial resources remaining for other expansion activities. Collective-good resources are intangible and invisible, such as 'goodwill' or 'trade secrets', whereas private-good resources have more easily measured values such as 'retained earnings' or 'inventory'. Adhering to this conceptualization, we draw upon the RBV literature to identify two types of knowledge-based resources (collective goods) technologicaland marketingresources which have been shown to have pronounced effects on firms' operations and decisions (Kim and Hwang, 1992; Erramilliet al., 1997; Kotabe et al., 2002; Song et al., 2005), and three types of property-based resources (private goods): slack as well as internallygenerated and externallyraisedfinancial resources, which represent primary financial sources for various corporate activities (Bourgeois, 1981; Greenley and Oktemgil, 1998; Tan and Peng, 2003). Below, we develop a set of hypotheses that link these resourcesto growth in multinationality.

Knowledge-basedresources(collective goods)
Technologicalresources Technological resources refer to the assets used to develop new products or formulate innovative manufacturing processes (Moorman and Slotegraaf, 1999; Silverman, 1999). Unlike physical or financial
assets, technological resources have a collectivegood characteristic, and can be replicated and shared among several sites without incurring the full costs of re-creating them in every transfer (Caves, 1971, 1996; Martin and Salomon, 2003). Such strength, as a result, motivates firms to increase their international presence in order to make better use of the resources in more foreign locations (Buckley and Casson, 1976). Some evidence consistent with this insight has been documented in the literature. For instance,

entrepreneurial studies have observed that hightechnology companies are more likely than lowtechnology companies to engage in multinational operations (Jones, 1999; Crick and Jones, 2000). Much of the research on born-global firms has also been connected with high-technology sectors (Autio et al., 2000; Burgel and Murray, 2000). Besides, studies of foreign direct investment have found that R&D intensity, a widely used surrogate for technological resources, plays a substantial role in shaping firms' expansion behaviors across national borders (Davidson and McFetridge, 1985; Gatignon and Anderson, 1988; Chen and Hennart, 2002). In addition, there are three more reasons why technological resources tend to boost international growth. First, some foreign countries offer strongly attractive locations, such that technologies developed in the home country may be better exploited there. To optimize technology exploitation, firms need to go beyond domestic markets and continue to look for markets where their proprietary knowhow can be best created and utilized. This is to gain so-called 'location-specific advantage' (Dunning, 1981). Second, and related to the first, firms may find it beneficial to combine their technological resources with specific factors or market conditions in host countries (e.g., labor availability, production facilities, distribution channels, and so forth; Chen, 2005). To take preemptive advantage of such combinations, and lock other firms out of such advantage, technology-intensive firms have to expand overseas in an accelerated manner. Third, in general, firms with greater technological intensity put more effort into cultivating new ideas and innovating products. To attain necessary sales volumes before the innovations become obsolete or imitated by others, a process of rapid internationalization to access a wider market base may be essential. In the export literature, for instance, it has been found that high-tech firms have a greater involvement in exporting activities (e.g., Cavusgil
and Nevin, 1981; Diamantopoulos and Inglis, 1988; Genttirk and Kotabe, 2001). Thus: Hypothesis 1: There is a positive relationship between levels of technological resources and growth in multinationality. Marketing resources Marketing resources are the assets used to differentiate products from competitors and build positive brand images (Erramilli et al., 1997; Kotabe

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Tseng Chiung-Hui et a

et al., 2002). Through steering the resources into the development of marketing programs (marketing mix) and marketing management practices (the process implemented to manage marketing programs), firms can render products distinctive and raise brand recognition. As the worldwide marketplace is increasingly homogenized, firms are better able to offer common marketing programs and practices on a global basis (Chung, 2003). This suggests that firms can draw upon the experience and expertise of operating in their source country and/or other foreign countries, and make the set of marketing resources available to foreign locations at relatively low costs (Dunning and McQueen, 1981). Accordingly, to achieve global marketing efficiency, the possession of marketing resources will drive firms to expand into more foreign markets. The standardization of marketing practices also enables firms to provide more consistent offerings to their customers, and more uniform marketing planning and control procedures to their overseas operations (Chung, 2003). Such application of marketing resources to a global setting has great potential to increase the strength of brand images, facilitate achievement of scale economies in marketing, and enhance bargaining power with distributors and consumers (Levitt, 1983; Plotkin, 1993). Coupled with the growth of global communication network lately, the favorable reputation of a brand may spill over to foreign markets even more rapidly, hence encouraging the brand owner to expand overseas. Nonetheless, there are some obstacles to the worldwide deployment of marketing resources that may limit the degree to which a firm can expand abroad. Although the world economy has become increasingly integrated, cross-country or cross-cultural differences still remain. International marketing researchers have observed that national distinctions, such as consumer preferences, marketing environments, and infrastructures, can be harmful to the application of existing marketing
skills in foreign lands, and will slow down a firm's pace of entering a new market (Whitelock and Pimblett, 1997). Likewise, international business scholars have also suggested that replicating firms' know-how in different environmental settings can sometimes be difficult, owing to differences between home and host contexts, labeled as 'location-specific disadvantage' (Erramilli et al., 1997; Madhok, 1997). This location disadvantage will especially limit the successful international of marketing resources, which, application

compared with the international deployment of technologies, is more sensitive and confined to local institutional factors, such as consumer tastes or channel networks, and thus tempers the velocity of multinational expansion. In addition, a highly differentiated product or remarkably strong brand name is often closely aligned with the national identity of a firm's home country, which does not always contribute positively to the product image. When entering a foreign market that maintains a hostile relationship with a firm's home country, the firm with such brand 'strength' will need to exercise additional care in the local market and face possible consumer boycotts or distastes. In this case, undue marketing resourceswill be detrimental to foreign expansion. Taken together, greater marketing resources push firms to set foot in the international arena for pursuit of marketing efficiency, but excessive use of marketing resources overseas is vulnerable to both location disadvantage and unfavorable consumer response that, in turn, undermine expansion activities. Accordingly, we reason that there is an optimal level of marketing resources for firms' international growth. Therefore we expect: Hypothesis 2: An inverted U-shaped relationship exists between levels of marketing resources and growth in multinationality. Property-based resources (private goods) Organizational slack Introduced by Cyert and March (1963) in A Behavioral Theory of the Firm, the concept of organizational slack and its use in theories have evolved in two quite different dimensions. Slack can be treated either as surplus that promotes success or as evidence of inefficiency. Among various positive definitions for the term, Bourgeois's (1981) treatment, adapted from Cyert and March (1963), is probably the most often cited in the literature:
cushion of actual or potential resources which allow an organization to adapt successfully to internal pressuresfor adjustment or to external pressuresfor change in policy, as well as to initiate changes in strategy with respect to the external environment. (p 30)

In this definition, organizational slack serves as a buffer that allows the firm to adjust to dramatic shifts or discontinuities in the environment with minimal trauma, and also as a catalyst that enables the firm to initiate new strategic postures in

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response to environmental changes. Such capacity to both shield the firm's core from changes and stimulate the firm to change in reaction to external influences is particularly important for multinational expansion. As the business community becomes more globally integrated, it is common for some parts of a value chain to be dispersed in different places where they can be performed most efficiently or where they can create the greatest value. Such geographical relocation of value-chain activities usually forces the firm to make a corresponding international move with its suppliers or customers in order to survive in the industry. Since moving overseas requires and consumes resources, by viewing organizational slack as extra resources available to an organization it stands to reason that slack allows the firm to interact or compete in international markets with less binding constraints. In addition to this reactive response to the pressurefor expanding internationally, organizational slack also plays a proactive role in promoting international growth. As slack is generated, the firm can literally afford to experiment with new strategies by, for example, entering a new market (Bourgeois, 1981). Slack makes possible the exploration or exploitation of foreign opportunities, and fosters the pursuit of goals outside the realm of those dictated by domestic optimization principles (Bourgeois, 1981; Greenley and Oktemgil, 1998). Although organizational slack may offer the foregoing purported benefits, excessively high levels of slack can reflect inefficiency of the firm. In this respect, slack is a pool of resources that exceeds the minimum necessary for normal operation, and has not yet been optimally deployed (Nohria and Gulati, 1996). Cyert and March (1963) indicated that in standard neoclassical economics, which equates equilibrium with efficiency, slack appears only when the firm is not in equilibrium. Sharfman et al. (1988) further suggested that there is an optimal level of slack for any given firm. If a
firm possesses slack beyond that level, the excess slack will be associated with low firm performance (Sharfman, 1985). Insofar as its role as a buffer is concerned, organizational slack may also have a negative impact on firms. Instead of providing managers with the leeway to pursue new strategic opportunities, slack may actually weaken or slow the firm's adaptive response to sudden environmental shifts (Cheng and Kesner, 1997). When slack is high, the firm can afford to be less responsive to environmental volatility, thus dulling

its motive for strategic adjustments. In the case of multinational expansion, firms with slack as a cushion can become less sensitive to foreign demands or changes in world market conditions, and show little zealousness in pursuing new international business opportunities. While arguments can be made for either the positive or the negative effect of organizational slack in the international setting, these need not be competing hypotheses. We suggest that too little slack may be insufficient to support a repertoire of potential solutions to the challenges arising from increasing global competition; too much slack can lead to waste and organizational indiscipline, and consequently become a deterrent for a firm faced with overseas opportunities. This is to say that an increased level of slack contributes to firms' international growth up to a certain optimal level, beyond which greater slack decelerates firms' growth in multinational expansion. Accordingly, the hypothesized relationship between organizational slack and growth in multinationality is curvilinear, in the form of an inverse U-shape. Hypothesis 3: An inverted U-shaped relationship exists between levels of organizational slack and growth in multinationality.

raised financial Internally generatedand externally resources

Financial resources are essential to multinational expansion (Doukas and Lang, 2003). Theoretically, affluent financial resources give firms a greater degree of freedom to contemplate wide-ranging foreign expansion possibilities without necessarily compromising among opportunities, and make the expansion process much smoother and less problematic (Ito and Rose, 2002; Mishina et al., 2004). Thus failing to maintain a sufficient level of financial resources may limit a firm's international presence, which in turn leads to a lag behind rivals in the race of pursuing global leadership. However,
financial resources possessed by a firm derive from various sources, which relate to disparate cost concerns and required-to-meet obligations for deploying the resources. As a result, the firm is required to synchronize its pace of global expansion with the expectations of different resource providers, which suggests that sources of financial resources will influence the internationalization behavior of a firm. Broadly speaking, financial resources can be yielded inside or outside organizations, of which

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the resources generated internally are constituted chiefly by the profits from a firm's present investments, whereas those raised externally are obtained through capital markets or financial institutions, and can be used for future investments. Normally, internal funding is more unfettered in usage owing to fewer cost concerns, and can be instantly ploughed back into the firm to optimize ongoing foreign operations, continue local expansion, and then strengthen the firm's position in host markets. Besides, as a constant and more predictable source of finance, internal profits serve as the mainstay or momentum for achieving long-term corporate objectives, of which continuous international growth is usually of prime importance for many firms under the trend of globalization. Moreover, possession of internal resources tends to confer upon a firm greater prowess to plan ahead and proceed along the scheduled trajectory of international development with fewer untoward interruptions, lending the firm more confidence in accelerating its entry into new foreign markets. In comparison, external funding, no matter whether raised in the form of equity or of debt, entails considerable costs of capital deployment, and is usually resorted to when firms cannot finance business activities themselves. In a simplistic sense, which does not take into account the case of special government loans, the costs of raising capital externally embrace dividend payout on equity and interest payment on debt. In particular, firms using debt financing are required to repay a specific portion of the loan amount on a regular basis, irrespective of how much profit they are making. Such pressuresto meet the debt obligation and to remain lucrative frequently force firms to relinquish risky strikes in foreign markets, and prohibit them from making bold movements into international landscapes. Furthermore, managerial actions are often disciplined and monitored by creditors and shareholders (Jensen, 1986). As multinational operations are thought to be replete
with more uncertainties and risks than domestic ones, and firms face liability of foreignness vis-di-vis

Knowledge-BasedResources resources Technological

Inverted-U

resources Marketing

Property-Based Resources
Inverted-U

Organizational slack Growth in

multinationality

Internallygenerated financial resources

Externally raised financial resources

Control Variables - Firm size - Firm age

- Industry segment

Figure 1 Firmresources and growth in multinationality.

which are likely to lead to a decelerating progressof internationalization. In sum, internally generated and externally raised financial resourceshave discernible effects on firms' international growth. Hence: Hypothesis 4: There is a positive relationship between levels of internally generated financial resources and growth in multinationality. Hypothesis 5: There is a negative relationship between levels of externally raised financial resources and growth in multinationality. Figure 1 summarizes the hypotheses. Within the knowledge-based category, levels of technological resources are positively related to growth in multinationality, while levels of marketing resources have a non-linear and inverted U-shaped relationship with growth in multinationality. In terms of the impact of the property-basedgroup, an inverted U-shaped influence is suggested for organizational slack, a positive effect for internally generated profits, and a negative impact for externally raised capital.

local companies, it is not uncommon for external

fund providers to be reluctant to finance expansion into distant and unknown overseas markets, which may cause instability in firms' future earnings. Such fund providers may even request firms to withdraw from unprofitable overseas operations to ensure their ability to repay loans. With high financial leverages, firms will accordingly engage in global operations with more caution and possible delays,

Methods The sample

The above conceptual framework is tested on a sample that comprises US public firms in manufacturing sectors ranging from Standard Industrial

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Classification (SIC) 3000 to 3999. This sampling frame is selected for two reasons. First, using only US firms ensures that multinational expansion would not be subject to variations in national laws and regulations in different home countries (Shrader et al., 2000). Second, SIC 3000-3999 has been employed as the sample by prior studies (e.g., Reuerand Leiblein, 2000) because a large proportion of firms operating within this SIC range are major players in the international business community. Using this SIC spectrum, we compiled a list of firms from the 2001 edition of Directory Corporate of Affiliations and cross-verified the list with the COMPUSTAT database where the data of interest were obtained. These procedures generated a sample of 814 US public manufacturers.Note that firms with no international business involvement between 1995 and 2000 were not ruled out. Lack of multinational expansion reflects the probability of insufficient firm resources, which may in turn constrain international participation. Besides, firms that were founded during or after this examined period were dropped from the sample automatically since they do not carry complete data for all variables. To probe firms' changes in overseas expansion over time, we selected a time span between 1995 and 2000. This period was chosen because it represents a duration when the global business climate was relatively expansive (UNCTAD, 2001; World TradeOrganization, 2001), which provides a superb template for analyzing the differences among firms in responding to foreign opportunities. Because of the longitudinal nature of this study, all variables are required to have complete data throughout the examined period. After deletion of cases with missing values and a few extreme data points with values beyond four standard deviations from the mean, the final samples consist of 286, 257, 243, and 242 manufacturing firms, which are used for no lag, 1-yearlag, 2-year lag, and 3-year lag regression models, respectively. The
mainspring for the lag conduct is that the causal links between the dependent variable and independent variables can be better indicated by lag relationships (Grant, 1987; Grant et al., 1988). Because the four sets of firms in the final samples exclude a considerable number of firms from the

firms was assessed against the distribution for firms excluded using two-independent-sample tests. No significant difference between the two distributions is evident at the 0.05 level, indicating that the final samples are representative of the total population.

The dependent variable

Consistent with the majority of prior studies, the concept of multinationality is operationalized as the percentage of foreign sales (e.g., Grant, 1987; Habib and Victor, 1991; Tallman and Li, 1996; Capar and Kotabe, 2003). In turn, the growth in multinationality is the change in percentage of foreign sales between 1995 and 2000. Although a few scholars, such as Sullivan (1994), have suggested the use of a multi-item scale, it has been argued that aggregating a set of indicators in which each could potentially result in different effects is questionable and, instead, a good single estimator may be more justifiable (Ramaswamy et al., 1996). In effect, besides the foreign sales ratio, we also noticed other indicators frequently employed in previous research, including the percentage of foreign assets (e.g., Daniels and Bracker,1989), the number of foreign subsidiaries (e.g., Stopford and Wells, 1972), and the number of countries where the firm operates (e.g., Reuer and Leiblein, 2000). database does not Nevertheless, the COMPUSTAT include complete information on these measures for most of our sample firms. Limited by both data availability and comparison necessity, we adopt foreign sales as a percentage of total sales in this study. Following Grant (1987) and his colleagues' suggestion (Grant et al., 1988), the independent variables in this study are lagged in addition to the no-lag estimation to better manifest causality. Lag effects are analyzed by 1 year, 2 years, and 3 years. More specifically, the independent variables are calculated as firms' average resource conditions between
the periods 1995-2000, 1993-1998, 1994-1999, and 1992-1997. As to their measurement, technological and marketing resources are gauged by conventional measures, the ratio of R&D expenses to total sales (Davidson and McFetridge, 1985; Gatignon and Anderson, 1988; Erramilli et al., 1997), and the ratio of marketing-related expenses to total sales (Gatignon and Anderson, 1988; Vachani, 1995; Erramilli et al., 1997), respectively. As slack can be stored in an organization by different forms, prior studies have broadly classified

Independentvariables

initial sampling frame, it is necessary to evaluate

whether firms in the final samples neous with those excluded as far as tion toward international operations The distribution of multinationality are homogetheir disposiis concerned. for included

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it into two categories: available (unabsorbed) and unavailable (absorbed) slack (Sharfmanet al., 1988; Mone et al., 1998; Tan and Peng, 2003). Their main difference lies in whether the slack resources are already committed within the organization. Basically, available slack corresponds to the uncommitted resource(s) readily available to support new initiatives. This type of slack features a capacity that can be easily redeployed elsewhere and thus allows for greater managerial discretion. In contrast, unavailable slack amounts to the excess costs incurred in a firm. Because this slack has been absorbed into the cost structureof the firm, it is not available for discretionary use and is difficult to redeploy. Herein, we focus on available slack, provided that such resource is more readily and instantly employable for managers to buttress foreign business activities. Guided by the studies of Bourgeois (1981) and Tan and Peng (2003), we measure organizationalslack by retained earnings, that is, the excess earnings left in a firm, which are indicative of the uncommitted nature of the resources. The variable of internally generated financial is resources appraised by the return on investment, which denotes the internal profits generated from present investment. The variable of externallyraised financial resourcesis assessed by the ratio of cash flow to invested capital. The data for cash flow are extracted from COMPUSTAT under the item of financing activities, which calculates cash received from or paid to financing-related transactions, such as cash dividends, issuance or reduction of longterm debt, addition of equity stock, and so on. Control variables Three variables that are likely to affect the growth in multinationality are controlled. They are firm size, firm age, and industry segment in which firms participate. Firm size is measured by employee count (Geringer et al., 2000), in the logarithmic form in order to remedy the significant positive skew, which is evident for the pre-transformed count measure (Tabachnick and Fidell, 2001). Similar to the independent variables, the average numbers of employees for the four periods 19952000, 1994-1999, 1993-1998, and 1992-1997 are calculated. Firm age is calculated by firms' existence period from founded year to 2000, 1999, 1998, and 1997 (Autio et al., 2000; Guthrie, 2001). Likewise, a logarithmic form is also taken owing to the positive skew of firm age. Industry effects are controlled for by using nine dummy variables, representing 10

industrial subsectors (I1=SIC30, I2=SIC 31, I3=SIC 32, I4=SIC 33, Is-=SIC34, I6=SIC 35, I7=SIC 36, I8=SIC 37, I9=SIC 38). The sector SIC 39 is the residual dummy variable that signifies when all I's=0.

Results
Table 1 presents the means, standard deviations, and correlations among variables in the analyses. The correlation between marketing resources and its squared term and the correlation between organizational slack and its squared term are notably high. To further examine the severity of multicollinearity, variance inflation factors (VIFs) are reported. As shown in the second parentheses of Table 2, the VIFsfor all model variables are within acceptable tolerance, indicating that the correlated independent variables do not have undue influences on the regression estimates. Normal probability plots, residual plots, and the KolmogrovSmirnov test also suggest no violation of the regression assumptions of normality and homoscedasticity. Table 2 shows the results of the multiple regression analysis. The general models for the four lag periods are all supported, as indicated by the significant F-values. In regard to individual variables, technological resources are shown to have a positive and significant relationship with growth in multinationality throughout the four models, bearing out Hypothesis 1 across time periods. Hypothesis 2, which predicts an inverted U-shaped relationship between marketing resources and growth in multinationality, also finds support in all four regression models, confirming our conjecture that increased marketing resources accelerate multinational expansion only up to a certain optimal level. Hypothesis 3 posits that the linkage between organizational slack and growth in multinationality is also inverted U-shaped. The curvilinear tendency of the relationship is shown in all models. However, the parameter estimates are statistically significant only in Model 1 and Model 2 (1-year lag and 2-year lag), but not in the other two models (no lag and 3-year lag). Hence Hypothesis 3 is partially supported. In concert with our prediction, internally generated financial resources are reported to be positively associated with growth in multinationality throughout the four lag periods. Nevertheless, akin to organizational slack, the parameter estimates are statistically significant only in Model 1 and Model 2 (1-year lag and 2-year lag), but not in

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969

Table 1 Descriptivestatisticsand correlationmatrixa Variableb 1. Growthin multinationality 2. Technologicalresources 3. Marketing resources 4. Marketing resources(squared) 5. Organizational slack Mean 11.25 5.06 1.34 741.84 455.30 s.d. 17.51 4.74 0.23 654.49 1314.48 0.46 1 2 3 4 5 6 7 8 9

(0.00)
0.18 0.16 0.58 0.66 0.04 (0.56) 0.07 (0.32) -0.11 (0.10) -0.12 (0.06) -0.23 (0.00) ( -0.41 (0.00) 0.83 -0.08 (0.23) -0.05 (0.48) -0.09 (0.15) -0.20 (0.00) -0.40 (0.00) -0.26 (0.00) -0.11 (0.09) -0.07 (0.27) -0.15 (0.02) -0.21 (0.00) -0.36 (0.00) -0.27 (0.00)

(0.01) (0.00)

(0.01) (0.00) (0.00)

-0.08 (0.22) 6. Organizational slack(squared) 1,928,017 10,183,882 -0.04 (0.53) 7. Internally 7.98 16.42 -0.05 generatedfinancialresources (0.42) 8. Externally raisedfinancialresources 15.82 9.82 -0.10 (0.12) 9. Firmsize 0.77 -0.26 0.38 (0.00) 10. Firmage 1.61 0.33 -0.30 (0.00) 0.92 (0.00) 0.08 (0.24) 0.22 (0.00) 0.55 (0.00) 0.21 (0.00)

0.08 (0.20) 0.17 (0.01) 0.37 (0.00) 0.11 (0.10)

0.58 (0.00) 0.16 (0.01) 0.06 (0.36)

0.31 (0.00) 0.10 0.46 (0.12) (0.00)

here.Correlations no lagged(1995-2000), 1-year of variables also examined. are lagged(1994-1999), and 2-yearlagged(1993-1998) independent Thereis a consistent of acrossthe fourperiods. levelsare in the parentheses. pattern correlations Significance in is bFirm and firm age are constructed the logarithmic size form, and firmsize beforetransformation expressedin thousandsof employees. slack The value of marketing resources this correlation in matrixportrayed the 3-yearlagged for Organizational is expressedin milliondollars. variables formto remedy highVIF a term. (1992-1997) is in the logarithmic independent Allsignificance of correlation two-tailed. tests are

aForpresentation simplicity, the descriptive only statistics correlation and matrix the 3-yearlaggedindependent for variables (1992-1997) aregiven

the other two models (no lag and 3-year lag). Thus Hypothesis 4 is partially supported, too. Finally, the regression results provide partial support for Hypothesis 5, which postulates a negative relationship between externally raised financial resources and growth in multinationality, as the parameter estimates are statistically significant in Model 1 and Model 2 (1-year lag and 2-year lag), but not in Model 0 and Model 3 (no lag and 3-year lag). With respect to the control variables, both firm size and firm age demonstrate negative relationships with growth in multinationality, and the relationship is statistically significant for firm size in all four analyses but is significant for firm age in only two models. The industrial sectors in which firms participate do not have a significant effect on growth in multinationality across the four periods. This insignificant industry effect speaks for the generalizability of the results across different industrial segments. Discussion It is important to understand how foreign expansion activities are determined by internal resource factors, given the broad spectrum of firms

implementing such a business approach as a strategic alternative for organizational growth. Yet, to date, there is still a paucity of literature on this prominent issue, and we know relatively little about what causes firms to expedite their international journeys. The objective of this study is therefore to assess the influences that firm resources may wield on the change in levels of international involvement over time. In all, empirical results conform to our arguments on the importance of organizational resources for international growth. Specifically, within the knowledge-based category, technological and marketing resources are both found to significantly affect growth in multinationality across all lag periods: technological resources have a positive impact; marketing resources impose a non-linear (inverted U-shaped) effect. All three resources in the property-based group are also found to profoundly influence growth in multinationality but, interestingly, the effects are statistically significant only in the 1-year lag and 2-year lag models. Respectively, a non-linear (inverted U-shaped) effect on growth in multinationality is shown for organizational slack, a positive effect for internally

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Table 2 Resultsof ordinaryleast square regressionanalysisa Hypothesis Variableb Model 0 Model 1 Model2 Model 3

(0-year lag) 1 resources Technological 0.70*** (0.26) (4.22) 0.15 (0.17)

(5.91)

(1-yearlag) 0.62*** (0.29) (4.90) 0.12 (0.17)

(6.45)

(2-year lag) 0.82*** (0.30) (5.62) 0.20 (0.03)

(6.10)

(3-year lag) 0.61*** (0.30) (2.20) 0.03 (8.41)

(4.14)

resources Marketing

resources (squared) Marketing

-0.71*** (0.00) (6.38) 0.03 (0.00) (8.66) -0.06 (0.00)

(6.63)

-0.67*** (0.00) (7.50) 0.39** (0.00) (9.81) -0.29** (0.00)

(7.44)

-0.88*** (0.00) (8.26) 0.39** (0.00) (11.49) -0.30* (0.00)

(8.60)

-0.36** (0.00) (4.15) 0.06 (0.00) (10.73) -0.08 (0.00)

(8.19)

slack Organizational

slack Organizational (squared)

resources Internally generatedfinancial

0.01 (0.00)
(1.05)

0.28** (0.17)
(5.34)

0.35** (0.18)
(5.51)

0.03 (0.07)
(1.57)

resources financial raised Externally

-0.01 (0.04) (1.20) -0.16* (2.01)

(2.48) -0.14**

-0.27** (0.22) (5.70) -0.42** (2.00)

(2.61) -0.17**

-0.36** (0.22) (5.91) -0.35*** (2.00)

(2.72) -0.06

-0.04 (0.13) (1.70) -0.22** (2.01)

(2.61) -0.04

Firm size

Firmage

(3.80)
(1.47) Adjusted R2 0.26

(3.61)
(1.53) 0.36

(3.76)
(1.58) 0.25

(3.74)
(1.61) 0.28

F-statistic N

6.91*** 286

9.30*** 257

5.82*** 243

6.38*** 242

inflation factors in the secondparentheses. are variance errors in the firstparentheses; are are Standard aThe coefficients standardized. blndustrydummy variablesare included in the models, but for presentation simplicity regression coefficients are not shown. *P<0.10; **P<0.05;***P<0.001.

generated financial resources, and a negative impact for externally raised financial resources. The results reveal at least four remarkableinsights that constitute the major contributions of this study. First, the current research aids in understanding how individual resources stretch or contract a firm's international growth. As far as are technologicalresources concerned, a firm's technology profile has long been thought to play a key role in several international business issues, such as

entry strategy and mode of operations (e.g., Bradley and Gannon, 2000; Guillen, 2003), and international performance (e.g., Kotabe et al., 2002). Our study adds to the literature by extending the efficacy of technological resources to the topic of multinationality. In regard to marketingresources, our finding provides an appropriateexplanation for why some previous studies have disagreed about the usefulness of marketing resources in the international context by showing that an optimal level

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Chiung-Hui et al Tseng 971

of marketing resources contributes most to international growth. Implications are also deduced from the finding on the impact of organizational slack. We find that the best interest for a firm that aspires to expand abroadis to maintain an adequate level of slack. Excessive slack, to a large extent, signals managerial incompetence and sloth, thus dulling a firm's initiative to expand its international operations. As to internally generatedfinancial resources, they are demonstrated to be conducive to international growth, showing that it is important for firms that seek global expansion to maintain a greater level of return from current operations as the bedrock for marching overseas. In comparison, slow down multiexternallyraisedfinancial resources national expansion, indicating that firms borrowing money from outside are bounded by capital costs and, to some extent, are dictated to by the capital providers who attempt to keep firms away from perilous foreign operations. This finding is in concert with that of Henderson and Cool (2003), which demonstrates significant impact of different financing channels on firms' investment behaviors. Second, by classifying resources into two categories, we find that knowledge-based resources (collective goods) have more immediate and longerlasting influences on international growth than property-based resources (private goods). Both knowledge-based resources are shown to have consistent, significant impact on the change in multinationality throughout all lag periods, whereas the effects of all three property-based resources do not appear in the no-lag model and have vanished in the 3-year lag model. These findings affirm the intrinsic differences between the two strains of resources as defined in the theory development section, and lend support to the volume of international business literature that emphasizes the important role of knowledge-intensive inputs in foreign operations. In fact, it is conceivable that the effects of technological and marketing resources endure longer, thanks mainly
to their feature of permitting recurrent consumption (i.e., their present use will not inhibit subseelsewhere). However, this quent consumption collective-good characteristic is very likely to suffer from free-riding problems, and requires firms to exploit the resources instantly before they are leaked to or imitated by other firms, thus contributing to international growth with little time lag. In addition, the zero-lag impact of knowledgebased resources also speaks for the possibility of a two-way causality, in which growth in multination-

ality motivated by knowledge-based resources may, at the same time, foster accumulation of the resources. In other words, a firm's amassing of the resources and its increase in international involvement occur in tandem. Such speculation is in line with the notions proposed by the Uppsala model (Johanson and Wiedersheim-Paul, 1975; Johanson and Vahlne, 1977) and the innovation model (Cavusgil, 1980; Cavusgil and Nevin, 1981) that internationalization results from and also leads to a series of firm-specific and managerial factors with the progression of experiential learning. Third, this study contributes to the integration of the literature on international business and strategic management. Generally, international business research has suggested the complexity of foreign expansion for business organizations (e.g., Hitt et al., 1997), whereas strategic management studies have buttressed the importance of the resource-based approach for corporatedecisions (e.g., Barney, 1996; Oliver, 1997). This study contributesto bridgingthese two strands of theoretical interests by showing how the intricate multinationality decision is affected by internal resource conditions. Furthermore,the current research extends the explanatory power of the RBVto geographicaldiversification,which, compared with product diversification, has received relatively less attention from the RBV theorists. Our results indicate that the theory is equally helpful in explaining a firm's decision on the spread of geographical coverage across national borders. Finally, this study is likely to impress upon managers the critical need to accumulate specific assets for swift international growth. Facedwith the trend toward economic globalization and the constraint of firm resources, managers often need to make decisions on the extent to which their companies should engage in business expansion overseas. Unfortunately, the topic of what determines growth in multinationality has not received a systematic examination. This study has the potential to help decision-makers understand the major
internal forces driving international growth. This in turn can guide them in making the decisions of foreign expansion. Moreover, this study empirically demonstrates the usefulness of specific resources, such as technological resources, in supporting growth in multinationality. Managers striving for further international expansion would be wise to build a stronger inventory of knowledge-based resources that promote international growth. The main limitations of this study come from the archival nature of the secondary data. The

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limitations, however, point to opportunities for future researchin this area. To begin with, there has not been a uniform method for measuring multinationality of firms in the literature. Our reliance on a single-item indicator, the percentage of foreign sales, is based on prior studies as well as driven by database. data availability from the COMPUSTAT We would like to make a plea that future research replicates this study using alternative measures of multinationality, thereby testing the robustness of the relationships discovered in this study or examining other valuable implications of multinationality. Another potential direction for future research is to broaden the concept of multinationality. Multinationality of a firm in effect consists of two facets, upstream sourcing of input and downstream sales of output, of which the downstream aspect is stressed by most extant research. This downstream emphasis has become more of a problem in recent years, in part because of the growing trend of global value-chain dispersion, as foreseen by Porter (1986). Accordingly, there is a need to include upstream activities in the multinationality concept, particularly when outsourcing has become more and more prevalent among multinational firms. To do so, future research may construct a measure of multinationality that captures not only the portion of the sales generated overseas, but also the fraction of the value created abroad. Further, our empirical results are derived from a sample of US large manufacturing firms. While this sampling frame controls for firm size, industry background, and parent nationality, it raises the issue of research generalizability. Future studies are encouraged to cross-validate our findings in other contexts where our research falls short. Finally, this study is restricted to an analysis of the impact of internal dimensions on growth in

multinationality using a small set of resource variables. Future research can investigate a wider range of internal resources, and perhaps with a more ambitious research goal of combining the effects of both internal and external determinants in a more complete model to explore the causes of firm multinationality. We believe that these suggestions should provide ample opportunities for future scholars to advance the research on internationalization of firms and make more contributions to practitioners and academicians alike.

Conclusion
of Going beyond prior attention to the consequences multinational expansion, this study focuses on the antecedents by analyzing how changes in multinationality are determined by the internal resourcebased forces. Distinguishing between the effects of knowledge-based and property-based resources, we demonstrate that both categories of resources significantly impact on international growth, although the knowledge-based resources have more instant and longer-lasting influences than the property-basedones. To our knowledge, the current study is among the very first to use the RBV to investigate empirically the factors driving multinationality. While the findings have enriched our understanding of the determinants affecting how much further firms can go internationally, and their differential pace of multinational expansion, we also identify several promising niches for future studies in the hope of moving this line of inquiry forward. Thispaperdrawson the dissertationof the firstauthor. We thank departmental editor Nicolai J. Foss, two anonymous reviewers, and Shih-Fen Chen for their valuablecomments.

Acknowledgements

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About the authors

Chiung-Hui Tseng is Assistant Professor of International Business at National Cheng Kung University, Taiwan. Her research interests include foreign entry modes, international entrepreneurship, and issues of resource allocation and international diversification in the contexts of both small businesses and large corporations. Patriya Tansuhaj is Professor of Marketing at Washington State University. She served as Director of the International Business Institute. Her research on international business strategies and crossnational marketing practices has been published in Journal of Marketing, Journal of International Marketing, and International Marketing Review, among others. William Hallagan is Associate Professor of Economics in the School of Economic Sciences at Washington State University, Pullman, Washington. James McCullough is George F Jewett Distinguished Professor of International Business and Director of the School of Business at the University of Puget Sound in Tacoma, Washington.

7 Acceptedby Nicolai Juul Foss, DepartmentalEditorand Arie Y Lewin, Editor-in-Chief, November2006. This paper has been with the authors for three revisions.

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