The effect of multinationality on firm performance: An examination of Japanese service firms

This article examines the relationship between multinationality and performance using a panel data set of more than 300 major Japanese service firms from 2003 to 2007. This relationship has been extensively examined in manufacturing firms in international business studies, but rarely so in service firms. We review how factors related to performance change with the progress of multinationality. We test the hypothesis that the impact of multinationality on the performance of Japanese service firms depends upon the stage of multinationality. Specifically, we examine the so-called ‘S-curve’ relationship: a negative relationship in the early and final stages and a positive one in the middle stage. The empirical results based upon panel data analysis do not provide statistical evidence to support the S-curve relationship in the cubic model. On the other hand, they demonstrate a U-shaped relationship in the estimated curvilinear model. Multinationality may have different impacts on firm performance at different stages and may yield net costs in the early stage and net benefits in later stages.