The use of network options to mitigate country risk: A comparison of advanced and emerging multinational enterprises’ resources and internationalisation into African countries

Abstract

The Multinational Enterprise (MNE) is a network of equity-linked subsidiaries (intra-firm network) that also has external and non-equity-linked (extra-firm) networks. One of the ways that intra- and extra-firm networks can be understood is that each network has obligation-free rights which can be seen as options. While options afforded by the intra- and extra-firm network have different resources and risk mitigation implications, most studies have explored MNE internationalisation using equity options akin to intra-firm network options. Yet, the lower resource commitment in the extra-firm networks is probably important for less-resourced firms. Emerging market MNEs (EMNEs) have typically fewer resources than advanced market MNEs (AMNEs). Thus, it is likely that these MNEs will internationalise using different resource and risk mitigation options into African countries, which have varying risks associated with differing levels of institutional development. The relationships between MNE resources, internationalisation network options and country risk, were evaluated using secondary historical data of publicly listed MNEs in African countries for the period, 1997-2021. The study makes a methodological contribution to the development of the Network Index to evaluate relative intra- and extrafirm network internationalisation options. Hypotheses were evaluated using hierarchical regression analysis. I highlight the intra and extra-firm network options in the MNE portfolio for internationalisation. This is important in explaining AMNE and EMNE internationalisation using network options. The findings indicate support for real options theory predictions of higher firm resources association with the exercise of intra-firm network internationalisation options. I establish the boundary of real options theory in risk mitigation predictions for internationalisation into emerging markets of African countries. Both EMNEs and AMNEs did not exercise lower-resourced, extra-firm network internationalisation options in the presence of increasing country risk. I find that risk mitigation likely involves a combination of network diversity and internalisation of institutional functions within each network. However, the use of group level MNE data may also contribute to this finding.