Includes a synthesis of advances in the theory of the multinational enterprise, with a focus on internalization and international diversification issues. This research volume proposes important extensions of multinational enterprise theory, especially as regards the importance of geography to multinational strategy.

One possible explanation for home bias is that investors may obtain indirect international diversification benefits by investing in multinational firms rather than by investing directly in foreign markets. This paper employs mean-variance spanning tests to examine the diversification potential of multinational firms and foreign market indices for investors domiciled in Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. We find that in most countries and most time periods, the portfolio of domestic stocks spans the risk and return opportunities of a portfolio that includes domestic and multinational stocks. However, there is weak evidence that U.S. multinationals provided global diversification benefits in the full 1984-92 sample and in the post-1987 subsample. We also find that the addition of foreign market indices to a domestic portfolio - inclusive of multinationals - provides diversification benefits. The economic importance of the shift of the portfolio frontier - measured as the utility gain from diversification - varies considerably from market to market and often reflects the benefits of large short positions in certain markets.

Based on data from Japan, the book examines the combined effect of product, geographic, and network diversity on multinational enterprise performance. A new measure for geographic scope is developed, one that considers the related elements of international asset dispersion and country environment diversity. The book also introduces a new concept of network diversity, and examines how it is strategically linked to performance. Perhaps most importantly, the book is able to empirically and theoretically demonstrate that a larger, more diverse network of alliances is not necessarily a good idea. These are important findings, with far reaching implications for practice and theory.