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 abr oad (multinationality in primary/secondary industries), to the corporate st ructures of a sample of leading EU manufacturing firms. This provides the f ramework for a sequential stochastic model of firms' decision making. Resul ts suggest that multinationality and diversification are, in general, compl ementary strategies. In differentiated-product industries, this implies tha t proprietary assets are a public good within the firm. In homogeneous-prod uct industries, however, there is some evidence of substitutability, in tha t the two strategies may be alternative routes for escaping constraints on growth. (C) 2001 Elsevier Science B.V. All rights reserved.