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

This paper modes 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 mode 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.