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Performance Management Best Practice

Multinationality and Financial Performance

by Alan Rugman

Executive Summary

  • Senior executives, especially finance officers, need to be aware that standardized metrics to evaluate international performance are only applicable when firms operate globally. Now that research shows that large firms actually operate regionally, it is necessary to use new regional metrics to measure performance.

  • Regional variables are important new measures that supplement the traditional measures of multinationality; indeed, the regional measure is a superior measure of the financial performance of multinational enterprises (MNEs).

  • There is evidence that MNEs perform in an intraregional manner, on the basis of both sales and assets; there are strong intraregional effects across all industry sectors.

  • Analysis of multinationality and financial performance needs to take into account the new metrics available on regional sales and assets, and the return on foreign assets.


Most of the world’s 500 largest firms have extensive international operations; indeed, these firms average 35% of their sales in other countries. Finance officers and senior executives involved in strategic management usually assume that such firms are operating globally. This is a bad mistake, since recent academic research has demonstrated that the vast majority of the foreign sales of these firms are actually made within the firm’s home region of the broad triad of the European Union, North America, and Asia–Pacific. In other words, the world’s largest firms are actually operating regionally rather than globally.

The regional nature of business means that the traditional financial and accounting metrics used to evaluate international performance need to be revised. These measures assume that firms operate globally, such that financial performance can assume standardized operations across the world. (Globalization is usually defined as worldwide economic integration leading to standardization and commonality.) Instead, financial performance needs to be measured within the home region and not globally. Large firms face additional risks in expanding operations beyond their home region. Such additional risks need to be compensated by a better performance on interregional sales in contrast to the less risky intraregional sales. In this article we outline the nature of regional activity and the new regional metrics required to measure the financial performance of large firms.

The Regional Dimension of Multinationality and Performance

Recent empirical research has established that MNEs operate regionally rather than globally. It was shown by Rugman and Verbeke (2004) that only nine of the world’s 500 largest firms operate globally, i.e. in all three regions of the broad triad of North America, Europe, and Asia–Pacific. In contrast, of the 380 firms that provide data for the year 2001 on the geographic scope of their sales, 320 average 80% of such sales in their home region. In Rugman (2005) some 60 cases were examined to establish the robust nature of this regional effect. It was also demonstrated that whenever data on assets were provided by firms these upstream production data also revealed a regional rather than a global effect. The implications are that the MNEs are more likely to source through regional clusters than through a global supply chain. However, robust testing of the asset data remains to be undertaken.

We shall now present data on both sales and assets. These data are presented for the five-year time period 2001–05. The purpose of these data will be to demonstrate that the regional effect is applicable over time and that there appears to be no trend towards globalization. Rather, these data indicate that there is a longitudinal argument that regionalization is now a stable phenomenon.

Table 1 reports data on intraregional sales and assets for the period 2001–05. This is for a set of the world’s largest 500 firms. Among 500 firms, geographic sales and assets data are available for 386 firms during this period. The data are compiled from the annual reports of these publicly traded companies. These annual reports are now available on the internet under each company’s name. This table updates and supplements the data for 2001 reported in Rugman and Verbeke (2004) and in Rugman (2005). In Table 2 data are reported for the ratio of regional to total sales (R/TS) and also for the ratio of regional to total assets (R/TA). In addition the table reports the conventional measure of multinationality in previous empirical research. This is (F/TS), i.e. the ratio of foreign (F) to total (T) sales. The table also reports the ratio of foreign to total assets (F/TA). For more detail, see Rugman (2007).

Table 1. Foreign and intraregional sales and assets of large firms, 2001–05

Sales Assets  
F/TS (%)R/TS (%)F/TA (%)R/TA (%)

The table reports that the average (R/TS) for the world’s largest firms is 75.7%. There is almost no variation over time. Next the table reports that the average (R/TA) is 76.7%. Again, there is very little variation over time. These data suggest that the world’s largest firms are slightly more regional on assets than on sales. Table 2 also reports that the average (F/T) for sales is 35.2%, while the average (F/T) for assets is 32.5%.

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Further reading


  • Rugman, A. M. The Regional Multinationals: MNEs and “Global” Strategic Management. Cambridge, UK: Cambridge University Press, 2005.
  • Rugman, A. M. (ed). Regional Aspects of Multinationality and Performance. Oxford: Elsevier, 2007.


  • Rugman, A. M., and A. Verbeke. “A perspective on regional and global strategies of multinational enterprises.” Journal of International Business Studies 35:1 (2004): 3–18.
  • Rugman, A. M., and A. Verbeke. “Liabilities of regional foreignness and the use of firm-level versus country-level data: A response to Dunning et al.” Journal of International Business Studies 38:1 (2007): 200–205.
  • Rugman, A. M., George S. Yip, and S. Jayaratne. “A note on return on foreign assets and foreign presence for UK multinationals.” British Journal of Management 19 (2008): 162–170.

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