Exploitation-exploration balance and its performance outcomes: A study of FDI portfolio decisions of new multinationals

Abstract

Objective: The objective of the article is to explore how new multinationals construct their FDI location portfolios and what the performance outcomes of these decisions are.

Research Design & Methods: Building our conceptual framework on the organisational learning theory, we conduct regression analysis based on data from 394 subsidiaries of new Polish multinationals.

Findings: We find that the possession of superior capabilities by new multinationals enhances their ability to reap benefits from investing in more advanced markets in their portfolios and hence engaging in higher ambidexterity, i.e. the combination of exploration and exploitation. This effect is further reinforced by experience with foreign investment.

Implications & Recommendations: Investment in more advanced economies as compared to the home country entails the possession of higher-order capabilities, as it requires higher ambidexterity from new multinationals.

Contribution & Value Added: A lot of existing IB research focused on discrete location choices in internationalisation, remaining oblivious of the broader strategic logic. Moreover, it has been assumed that – particularly for new multinationals from emerging countries – entries into advanced host countries are related to exploration rather than exploitation, whereby the latter is the domain of similar or less developed markets.

Keywords

new multinationals, location choices, portfolio perspective, firm capabilities, firm performance, Central and Eastern Europe

Author Biography

Piotr Trąpczyński

Associate Professor at the Poznań University of Economics and Business, Department of International Competitiveness at the Institute of International Business and Economics. His research interests include foreign direct investments and divestments, export performance and export exits, along with business models. Correspondence to: dr hab. Piotr Trąpczyński, prof. UEP, Department of International Competitiveness, Poznań University of Economics and Business, al. Niepodległości 1, 61-875 Poznań, Poland.

Tilo Halaszovich

Professor of Global Markets and Firms at the Jacobs University Bremen, Germany. His research is mostly focused on quantitative analysis in entrepreneurship and international business. He is especially interested in the competitiveness of foreign and domestic firms in developing countries. Correspondence to: Prof. Dr. Tilo Halaszovich, Jacobs University Bremen, Business Studies & Economics, Campus Ring 1, Research IV, 28759 Bremen, Germany.

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