Title: Regional Heads at the Top: An Unexplored Micro-foundational Factor for Inter-regional Growth in Multinational Enterprises
Abstract: Most of the world's largest multinational enterprises (MNEs) concentrate their economic activities in the regional area in which they are headquartered – the so-called regionalization phenomenon. This phenomenon occurs in the effort of MNEs to mitigate the risks of operating across regions and has been regarded as a factor that contributes to economic inequalities and regional fragmentation – urging scholars to examine how this regionalization tendency can be overcome by MNEs. Combining the Penrosean theory of growth with the microfoundational view of international business (IB), we examine a largely neglected yet important microfoundational factor that drives MNEs to grow in regions beyond their own – i.e., the presence of top management team (TMT) members with regional responsibility (i.e., regional heads). We postulate that the presence of regional heads in the MNE's upper-echelons allows corporate decision makers at the head office to overcome their bounded rationality and bounded reliability challenges of operating across regions – thus enabling them to overcome regionalization tendencies and achieve MNE growth in host regions. We also postulate that this effect becomes more pronounced when the CEO is foreign to the country in which the MNE is headquartered. Data from a unique dataset of international automotive companies between 2003-2019 support our predictions.