A three-stage theory of international expansion: the link between multinationality and performance in the service sector

It is generally assumed that the performance of a firm improves with greater multinationality. Yet recent empirical studies have shown both a U-shaped relationship (which suggests an initially negative effect of international expansion on performance, before the positive returns of international expansion are realized) and an inverted-U-shaped relationship (which suggests that international expansion beyond an optimal level is again detrimental to performance, and results in a negative slope). This paper proposes a new unified three-stage theory of international expansion that incorporates both concepts in a sigmoid hypothesis. It then tests this on data from 11 service industries, highlighting the difference between knowledge-based and capital-intensive service sectors.