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A new
A new framework for global framework for
expansion global expansion
A dynamic diversification-coordination (DDC)
model 131
Hwy-Chang Moon Received May 2007
The Graduate School of International Studies (GSIS), Seoul National University, Revised September 2007
Accepted October 2007
Seoul, Korea, and
Min-Young Kim
Department of Business Administration,
University of Illinois at Urbana-Champaign, Champaign, Illinois, USA

Abstract
Purpose – The main purpose of this paper is to introduce a comprehensive model explaining the
global expansion of firms and to find out viable strategies for firms to survive global competition.
Design/methodology/approach – Through the critical review over existing literature, this study
first introduces a new framework explaining the global expansion of firms at the level of functional
activities in the value chain, and then empirically tests the predictions of the new framework with data
in the motor industry.
Findings – Empirical findings confirm the new model’s predictions. First, each function in the value
chain has a unique way of global expansion: the global strategy is suitable for the production function,
while the multidomestic strategy is applicable to the marketing function. Second, each function follows
a dynamic path of global expansion from domestic to transnational via either global or multidomestic,
according to the innate characteristics of corresponding function. Finally, the degree of global
expansion of a firm is positively correlated with its financial performance.
Research limitations/implications – Focusing on developing a new framework on global
expansion, this study utilizes a rather small number of data and, therefore, requires readers’ discretion
when interpreting the results of statistical analyses.
Practical implications – With the dynamic diversification-coordination model, managers can
recognize the level and characteristics of their firms’ global expansion, not only at the firm level but also
at the functional level. This allows managers to establish a global strategy tailored to each function, thus
reconciling possible conflicts generated from different interests among different functions in the firm.
Originality/value – First, this article introduces a new perspective of analyzing the global
expansion of firms by shifting the level of analysis from the firm level to the functional level where the
new framework can reconcile the constant debates on globalization. Second, this article suggests an
intuitive and theory-based index measuring the degree of global expansion of firms.
Keywords Globalization, Marketing strategy, Functional management, Diversification
Paper type Research paper

Introduction
Multinational corporations (MNCs) globally expand their operations to take Management Decision
Vol. 46 No. 1, 2008
advantages in ownership, location, and internalization (Dunning, 1981, 1988, 2000), pp. 131-151
q Emerald Group Publishing Limited
0025-1747
The authors would like to thank anonymous reviewers for their constructive comments. DOI 10.1108/00251740810846789
MD and try to maximize the benefits from global expansion by implementing a series of
46,1 relevant strategies. Existing constructs and frameworks explaining these strategic
processes, however, have shown contradictions. In particular, the constant debates
over the validity of “globalization” have brought fundamental doubts on the existing
approaches to the global expansion of a firm. This paper introduces a new framework
of global expansion at the level of functional activities in the value chain and suggests
132 a new way of reconciling the confusing debates on the global expansion of a firm.
This paper begins with reviewing the existing models on global expansion and then
evaluates their relevance by introducing a new construct of functional division to the
global expansion of a firm. Based on the evaluation, this paper brings forth a new
framework of the dynamic diversification-coordination (DDC) model and empirically
tests the validity of the framework with statistical analyses. The results from the
empirical analyses support the predictions of the DDC model. First, each function in the
value chain has a unique way of global expansion: the Global strategy is suitable for
the production function, while the Multidomestic strategy is applicable to the
marketing function. Second, in the process of global expansion, each function follows a
dynamic path from Domestic to Transnational via Global or Multidomestic, according
to its innate characteristics. Finally, the degree of global expansion of a firm is
positively correlated with its financial performance.
For clear conceptualization, we employ a typology of global expansion as a
metalanguage representing the increasing involvement of a firm’s activities in global
scale. As each typology used interchangeably in the literature such as
internationalization, globalization, multinaltionalization, transnationalization, and
international diversification is actually introduced for its unique purpose in the specific
contexts and, consequently, may focus on certain aspects of the phenomenon more than
others, we use global expansion in this study as a neutral typology that encompasses all
the intended meanings of the existing terms to avoid any confusion and misinterpretation.

Exisiting models on global expansion

Among many studies on the global expansion of a firm, the
Configuration-Coordination model (Porter, 1986) and the Integration-Responsiveness
model (Prahalad and Doz, 1987) are the most popular and empirically supported
(Taggart, 1997). Many studies have analyzed the phenomenon with the
Configuration-Coordination model (Collis, 1991; Roth, 1992; Roth et al., 1991; Yip,
1992) and the Integration-Responsiveness model (Johnson, 1995; Roth and Morrison,
1990; Rugman and Hodgetts, 2001). Some studies extended the original models by
correcting the flaws in the models (Harzing, 2000; Moon, 1994; Rugman and Verbeke,
2006) or shifting the level of analysis (Makhija et al., 1997). It is worthwhile to take a
look over the details in these models and the histories of the extension for the better
understanding of fundamental characteristics of global expansion.
Prahalad and Doz (1987) explain the global expansion of a firm with two criteria:
Integration and Responsiveness. Integration represents the extent to which a firm
integrates its functional activities in global scale. On the other hand, Responsiveness is
the level of the adaptation to the local differences in customer preferences. The
Integration-Responsiveness model, however, cannot be said to be a general model
explaining global expansion, because each of the two criteria has different orientations.
As the main benefits of integrating activities in the value chain come from the
economies of scales and scope (Benito, 2003; Farrell, 2004; Grant, 1998; Rugman and A new
Hodgetts, 2001), Integration in the Integration-Responsiveness model is rather a framework for
production-oriented criterion. Likewise, as the criterion of Responsiveness accesses the
level of satisfaction of the customers in various locations (Benito, 2003; Harzing, 2000; global expansion
Roth, 1992), Responsiveness is also a marketing-oriented criterion. Consequently, the
Integration-Responsiveness model is not a general model but a one-sided model with
Integration focusing on the production side and Responsiveness on the marketing side. 133
On the basis of the typology of Bartlett and Ghoshal (1989), Harzing (2000) extends
the Integration-Responsiveness model and suggests a three-fold typology: Global,
Multidomestic, and Transnational. Her analysis using data from 166 subsidiaries of 37
MNCs empirically shows that these three typologies are significantly different from
each other. Her model, however, is not a general one because it is based on the original
Integration-Responsiveness model, thus inheriting the flaws in the model: though the
logic of her argument and the results of empirical tests are remarkable, Harzing (2000)
cannot be free from the criticism that each of the two criteria in the model,
Interdependence and Local Responsiveness, focuses on production and marketing,
respectively, in the same way as Prahalad and Doz (1987).
Porter (1986) introduces two criteria of Configuration and Coordination into the
explanation of global expansion strategy. Configuration of a firm’s activities is
geographical deployment of each function in the value chain, while Coordination is
mutual linkage or integration of the activities performed in different configurations. He
argues that a firm can enhance its competitive advantage with optimal combination of
the activities in the value chain in global scale.
Extending the Configuration-Coordination model, Moon (1994) criticizes the
Configuration-Coordination model in two aspects and suggests a generalized
framework for global expansion strategy. He criticizes Porter’s (1986) model in two
points. First, Porter mislabels the horizontal axis (Configuration). The horizontal axis
should measure the number of countries (one through many), not Configuration. Second,
as a matter of fact, Porter’s framework is a specific framework, not a general one, for the
same reason that the Integration-Responsiveness model is. He asserts that Porter’s model
is geared toward manufacturing industry, with Configuration on the production side and
Coordination on the marketing side. Toyota in 1970s can be a typical example. Therefore,
in Porter’s (1986) model, Configuration is for the production side and Coordination for the
marketing side. Like the Integration-Responsiveness model, the
Configuration-Coordination model is also one-sided.
Recognizing the shortcomings in the Configuration-Coordination model, Moon
(1994) extends the model into a generalized one. He argues that both the production
side and the marketing side of global expansion should be considered in one model to
fully understand the phenomena in global expansion, and shifts the
Configuration-Coordination model to a generalized one integrating three criteria into
a single framework: number of countries; production coordination; and marketing
coordination. The generalized framework is composed of two parts, one for
production-seeking global strategies and the other for marketing-seeking global
strategies.
Comparing the models discussed so far, we can find three implications. First, the two
models, the Integration-Responsiveness and the Configuration-Coordination model,
conceptually share same criteria. With consideration of integrating the activities in the
MD value chain, it is clear that Integration in the Integration-Responsiveness model shares
46,1 the same characteristics with Coordination in the Configuration-Coordination model. As
coordination is to integrate different activities in an organization, they can be used as
synonyms (Martinez and Jarillo, 1989). In addition, as Responsiveness is to satisfy the
needs of customers in various locations, it can also be understood within the category of
Configuration. Therefore, the two models have the same criteria for the implementation
134 of global expansion strategy. Second, each model, however, is focused toward different
orientations. As discussed, Integration is on the production side and Responsiveness is
on the marketing side, while Configuration is on the production side and Coordination is
on the marketing side. Last, the generalized model of Moon (1994) provides a better
framework for the explanation of global expansion. Integrating the two different
orientations of production and marketing into a single framework, the generalized model
can explain the phenomena more comprehensively.
Moon (1994)’s generalized model, however, is not free from criticism, either. Though
the model divides the Coordination criterion in the Configuration-Coordination model
into Production Coordination and Marketing Coordination, Number of Countries remains
undivided. In general, it is rare for a firm to have exactly the same number of countries
for its production and marketing operations. Therefore, to be more precise in
understanding the global expansion of a firm, along with Coordination, Number of
Countries should also be considered with regard to the production side and the
marketing side, respectively: Production Number of Countries and Marketing Number of
Countries. In the meanwhile, the concept of Number of Countries actually represents the
geographical diversification of a firm’s activities. Therefore, the term Diversification is
suitable to express the intended meaning of Configuration or Number of Countries.
As shown in Table I, a new model explaining global expansion of a firm should be
equipped with the criteria of Diversification and Coordination in both the production
side and the marketing side.
The division of Number of Countries in Moon’s (1994) generalized model, however,
would split the model into two different models explaining the global expansion of a

Integration
Configuration responsiveness
coordination model
model Prahalad and Extended model
Porter (1986) Doz (1987) Moon (1994) Harzing (2000) New model

Diversification:
Pa Configuration z Number of z Production
countries diversification
Mb z Responsiveness Responsiveness Marketing
diversification
Coordination:
Pa z Integration Production Interdependence Production
coordination coordination
Table I. Mb Coordination z Marketing z Marketing
Criteria of models coordination coordination
explaining global
expansion Notes: a Production; b Marketing
firm in the production side and the marketing side, respectively, because it is Number A new
of Countries that joins the two parts of the model, production-seeking global strategies framework for
and marketing-seeking global strategies, into a single framework. To resolve this
dilemma, we need a conceptual breakthrough from the fundamental characteristics of global expansion
global expansion of a firm. In the following section, a new concept of functional
division will be discussed.
135
Functional division
Level of analysis
Each function in the value chain has a different role in the process of a firm’s global
expansion and, consequently, the level of analysis in the study of global expansion of a
firm should be the functional level, not the firm level. Porter (1986) insists that each
activity in the value chain has a different level of optimal Configuration and
Coordination and, therefore, activities in the value chain should be in an appropriate
global combination to generate maximum competitive advantage. This implies that
competitiveness at the level of a firm comes from the way of deploying and linking the
functions in the value chain over the world in consideration of the innate
characteristics of each function.
Roth (1992) empirically tests Porter’s (1986) Configuration-Coordination model, and
clearly demonstrates that firms coordinate and configure their activities in different
patterns rather than all in the same way. Through the “selective globalization” in
which global expansion strategy is defined around a narrow subset of the value chain,
a firm coordinates or configures its activities in the value chain globally or locally,
according to the nature of the activities. Therefore, he argues that aggregating two
dimensions of Configuration and Coordination by setting a total level of Configuration
or Coordination cannot fully describe the nature of global expansion of a firm.
There are other studies that insist that each function in the value chain has its own
characteristics (Porter, 1996). Rugman and Verbeke (2004) expounds that each activity
in the value chain has a different level of global expansion. Kim et al. (2003) also argues
that each function in the value chain has its unique way of combination for the effective
integration. Therefore, we can find an implication that each function in the value chain
has its unique nature that differs from others’ in the process of the global expansion.
Moreover, Roth (1992, p. 546) emphasizes that “consistent with the case analyses of
Collis (1991), a firm must initially understand its distinctive competences and then
build its global strategy around the location-specific and firm-specific advantages
developed through the functional activities associated with that distinctive
competence”. These distinctive competences or core competences can be found in a
subset of the value chain (Grosse, 2005; Hitt and Ireland, 1985; Hitt et al., 1982).
Consequently, the global expansion strategy should be devised at the level of function
in the value chain, not at the level of the firm.

Global strategy for production and multidomestic strategy for marketing

There have been ceaseless debates on globalization, which have brought fundamental
doubts over the validity of the existing models on global expansion. The pros on
globalization insist on the benefits of the global strategy. On the other hand, the cons
argue practicality of the multidomestic strategy. In some cases, globalization is better,
while in others multidomestic strategy is more persuasive. A new perspective, however,
MD reveals interesting findings. Table II shows the different focuses of the global strategy
46,1 and the multidomestic strategy. If we regard the term of the production and the
marketing as representing the upstream and downstream activities in the value chain
(Porter, 1986), the focus of the global strategy mainly falls on the production function,
while the main points of the multidomestic strategy are on the marketing function.
In addition, the original typology by Bartlett and Ghoshal (1989) also support these
136 findings in that the main competitive edge of the global strategy comes from economies
of scale, cost leadership, and efficiency, while that of multidomestic strategy results
from differentiation, responsiveness, and tailored products. The former can be
classified into the category of production and the latter into the domain of marketing.
Furthermore, in his empirical test of Porter’s (1986) Configuration-Coordination
model, Roth (1992) shows that among the five clusters except the “regional federation”,
the production-related functions are more coordinated than the marketing-related
functions, in the given number of countries. In Porter’s model, the global strategy can
be distinguished from the multidomestic strategy by the higher level of coordination.
This kind of higher coordination or integration in the global strategy can also be found
in the results of Harzing’s (2000) empirical test, in which the characteristic of the global
strategy is described with the focus on the production side, as shown in Table II.
From these findings, we can derive an important implication that there is a clear
difference or division among the activities in the value chain in terms of global
expansion strategy, and that the Global strategy is suitable for the production function,
while the Multidomestic strategy is appropriate for the marketing function.
Consequently, we can now find an answer to the constant debates on globalization.
As summarized above, pros and cons of globalization are talking about the same
phenomenon from different perspectives. In other words, discussing global expansion,
the global strategy and the multidomestic strategy are focusing on the different
functions in the value chain. Therefore, the conflicts on globalization can be easily
resolved by shifting the level of analysis from the firm to the functional activities in the
value chain. While contradictory at the firm level, pros and cons on globalization are
complementary at the functional level, because they are focusing on the different roles
of different functions. Both pros and cons on globalization are right, with their own
rationales and domains of explanation.
In the functional division approach, the “global firms” and the “multidomestic
firms” are classified based on the functions in which a firm has its core competence:
firms with their core competence focused on the production function are what we call
“global firms”, while others with focuses on the marketing function are “multidomestic
firms”. There is no congenitally global or multidomestic firm. It is decided by the way
of deploying and linking functions in the value chain globally. Those who find their
core competence in the production side implement global strategy, while those who get
the core competence in the marketing side employ multidomestic strategy.
The success of a firm lies in focusing its strategic capabilities on the functions that
are the sources of its core competence. Hence, the functional level is a strategic
differentiator that decides the corporate strategy for global expansion. Malnight (1995)
supports this by arguing that it is at the functional level where globalization takes
place, rather than the firm level. From this perspective, it can be easily explained that
there are both global and multidomestic firms in an industry.
 A new
Focus
Studies Main points Production Marketing framework for
Global:
global expansion
Levitt (1983) The point of the global Product standardization z
strategy is to produce a
standardized product 137
globally and to sell them in
the same way
Hout et al. Economies of scale, Economies of scale through z
(1982) preemptive position, and global production
interdependent managing
are more important moves
Harzing (2000) The core of the global Standardized products z
strategy is to manufacture
standardized products with
high cost efficiency
Rugman and Globalization is worldwide Same products to all z
Hodgetts (2001) production and distribution countries
of products and services
that have a homogeneous
type and quality
Benito (2003) The global strategy is to Manufacturing z
achieve worldwide standardized products for
efficiency with the lowest world-wide sale
cost. Firms implementing
the global strategy
centralize production
Contractor et al. Global standardization Product standardization z
(2003) lowers the cost per foreign
entry, with which the net
benefits of foreign
expansion can be reaped
sooner
Farrell (2004) Standardization is crucial Economies of scale and z
in globalization. Global product standardization
production processes and
supply chains can reduce
costs and increase revenues

Multidomestic:
Hamel and Establish a broad product
Prahalad (1985) portfolio with numerous
product varieties
Douglas and International markets are
Wind (1987) heterogeneous, not
homogeneous
Harzing (2000) In multidomestic
companies, products are
actively modified to meet
differing local tastes and
preferences
z A broad product
portfolio
z Heterogeneous markets
z Adaptation of marketing
to local circumstances
Table II.
Different focuses of
global and multidomestic
(continued) strategies
MD Focus
46,1 Studies Main points Production Marketing

Rugman and The global markets do not z Adaptation to regional

Hodgetts (2001) become homogenized. The markets
viable strategy for current
138 MNCs is the one based on
Triad or regional block and
responsive to local
customers
Farrell (2004) It can be risky for a firm to z Adaptation to different
grow through global market conditions
expansion. Therefore,
adapt the best practices of
the firm to local differences
Rigby and Growing diversity in z Adaptation to local
Vishwanath consumer segments, differences
(2006) constraints on standardized
chain stores, and
homogenization of business
have forced the retail trade
to customize products and
Table II. stores to local markets

The functional division takes a critical role in the successful implementation of the
global expansion strategy. The existing models, however, analyze the phenomena at
the firm level, not at the functional level, without taking the functional division into
consideration. Therefore, further discussion to develop a new general model on global
expansion of a firm should be equipped with the criteria at the functional level, not at
the firm level.

DDC model
By introducing a new concept of functional division into the model on the global
expansion of a firm and its strategy, we can now solve the previous dilemma of
dividing Diversification and Coordination into the production side and the marketing
side without splitting the single model. The answer of the dilemma is to set the criteria
of the model at the level of functional activity, not at the level of the firm. By dividing
Diversification and Coordination into the production side and the marketing side at the
functional level, we can have a new model that comprehensively explains the
phenomena and the dynamic paths of the global expansion of a firm. This dynamic
diversification-coordination (DDC) model consists of the following features.

Criteria
Table III summarizes the criteria of all the models discussed so far. The study of the
existing models from the perspective of the functional division shows that a general
model should be equipped with Diversification and Coordination with clear division of
the production side and the marketing side at the level of function. In the
Configuration-Coordination model, Configuration is on production and Coordination is
on marketing, satisfying the two categories in Coordination and Diversification. Each
 Configuration-coordination Integration-responsiveness
model model Extended model
Porter (1986) Prahalad and Doz (1987) Harzing (2000) Moon (1994) DDC model

Diversification:
Pa Configuration z z Number of countries Production
diversification
Mb z Responsiveness Responsiveness Marketing
diversification
Dc z z z z O
Coordination:
Pa z Integration Interdependence Production Production coordination
coordination
Mb Coordination z z Marketing Marketing coordination
coordination
Dd z z z O O
Functional z z z z O
division:
Notes: a Production; bMarketing; cDivision of the production number of countries and the marketing number of countries; dDivision of the production
coordination and the marketing coordination
global expansion

expansion of a firm
Variables in models
framework for
A new

explaining global
Table III.
139
MD criteria of the Integration-Responsiveness framework, on the other hand, is on the
46,1 opposite side while satisfying the same categories of Coordination and Diversification:
Integration is for production and Responsiveness is for marketing.
In the extended models, the model of Harzing (2000) has the same variables with the
Integration-Responsiveness framework, thus showing the same results. The model of
Moon (1994), on the other hand, extends into both the production side and the
140 marketing side by splitting Coordination into Production Coordination and Marketing
Coordination. Number of Countries, however, remains undivided. In addition, there is
no consideration of functional division in the model. Therefore, the extended model
satisfies five out of the seven categories.
The DDC model extends Diversification and Coordination into both the production
side and the marketing side by taking into account the new construct of functional
division, thus having the four criteria of Production Diversification, Production
Coordination, Marketing Diversification, and Marketing Coordination at the level of
function in the value chain and satisfying all the seven categories in the table.

Typologies
Harzing (2000) shows that there are three types of global expansion in the previous
studies and suggests the typology of Multidomestic, Global, and Transnational. In
addition, she argues that the typology of International is not appropriate in the
explanation of the global expansion of a firm, because of the confusion in the literature
and the difficulties in empirical distinction (Harzing, 2000, p. 103). Based on these
analyses, the DDC model incorporates the typology of Multidomestic, Global, and
Transnational for the explanation of the different types of MNCs, and the typology of
Domestic is introduced as a starting point of global expansion where a firm has no
international existence.
A recent introduction of the new typology called Glocal (Svensson, 2001, 2002; Hung
et al., 2007) provides an interesting perspective to the phenomenon. The Glocal
strategy, a compromise between the Global strategy and the Multidomestic strategy,
argues that MNCs have to maximize the benefits from optimizing the balance between
standardization of their products in global scale and customization to the different local
needs (Svensson, 2001). This insightful strategy, however, is also an eclectic approach
at the firm level, not at the functional level, and, therefore, can provide more useful
implications if it can incorporate the functional levels of analysis.

Three stages in global expansion

Based on the previous studies (Bartlett and Ghoshal, 1989; Porter, 1980, 1985), the DDC
model divides the global expansion process of a firm into three stages. The first stage
is purely domestic with no international existence, located in the lower left corner of
Figure 1 with low Diversification and low Coordination. In this stage, firms implement
the Domestic strategy through export and import. From this stage on, firms employ
global strategy for the exploitation and exploration of competitiveness.
The next stage is the period of trade-off between standardization and customization.
Porter (1980, 1985) argues that a firm should not implement cost leadership strategy and
differentiation strategy at the same time, because it requires different resources and
skills as well as functional differences. Due to the functional difference, i.e. functional
division, a function in the value chain cannot pursue Global strategy and Multidomestic
 A new
framework for
global expansion

141
Figure 1.
DDC model and
conceptual illustration of
functional division

strategy simultaneously: as discussed before, the production function implements the

Global strategy and the marketing function employs Multidomestic strategy.
Global is Coordination-Focusing strategy that focuses the resources of a firm on
increasing Coordination, with which it can reap economies of scale (Bartlett and
Ghoshal, 1989; Farrell, 2004; Grant, 1998) until the unit cost comes to the minimum
efficiency scale. At this point lies “Global”. On the other hand, Multidomestic is
Diversification-Focusing strategy that focuses the resources of a firm on expanding
geographical diversification until the complex cost (Rommel et al., 1995) rises steeply.
At this point lies “Multidomestic”.
In the process of global expansion, it is meaningless to increase Coordination
without expanding geographical diversification. If a firm is based in a single country
(low diversification), there is “nothing to be internationally coordinated” (Rugman and
Verbeke, 2006, p. 685). Likewise, it is not probable for MNCs to expand geographically
without increasing Coordination, because MNCs without coordination behave as local
firms in many countries (Tallman and Yip, 2003, p. 334). Therefore the points of Global
and Marketing should be located much closer to the center, rather than at the end of the
upper left or lower right corner.
The final stage is the period of mutual complementation between
Coordination-Focusing strategy and Diversification-Focusing strategy. In this
period, the production function and the marketing function pursue both
geographical expansion to complement the Coordination-Focusing strategy and the
augmentation of Coordination to complement the Diversification-Focusing strategy,
simultaneously. This kind of mutual complement has been impossible due to the
limited resources available within the firm. Once the firm reaches these points,
however, learning and innovation enable the firm to make a strategic leap from the
trade-off between the Global strategy and the Multidomestic strategy (Porter, 1996) to
the mutual complement of Transnational in which each function can pursue both
strategies at a time (Bartlett and Ghoshal, 1989; Benito, 2003). Therefore, there are two
inflections in the process of dynamic global strategy implementation: the points of
Global and Multidomestic. From each point of the inflections starts a new pattern of
global expansion with a different slope from the past one, complementing the current
strategy to move toward Transnational with the help of innovation and knowledge. As
an ultimate goal of global expansion, a transnational company achieves global
MD efficiency and national responsiveness simultaneously by shifting the productivity
46,1 frontier outward, with which it can overcome the previous trade-off between
standardization and customization.

Dynamics of global expansion

The global expansion of a firm starts from the status of purely Domestic to
142 Transnational via either Global or Multidomestic. Each function in the value chain has
its own way of expansion. The global expansion of the production-related functions
heads for Transnational via Global, while that of the marketing-related functions is
bound for the same goal via Multidomestic. Therefore, the dynamics of global
expansion can be clearly defined as a transitional movement toward Transnational
from Domestic via either Global or Multidomestic, according to the nature of each
function in the value chain.
Figure 1 illustrates the criteria, the typology, the stages, the dynamics of the
DDC model (left), and the conceptual illustration of the functional division in the
DDC model (right). Each of the two diagrams in Figure 1 focuses on different
aspects of the DDC model. The left-hand side diagram depicts the criteria, typology,
stages, and dynamics of the global expansion of firms. Diversification and
Coordination are employed in both the production function and the marketing
function. Dynamics of global expansion is graphically illustrated as a transitional
movement across three stages from Domestic toward Transnational, in which the
production function takes the Global strategy while the marketing function pass
through the Multidomestic strategy.
The right-hand side diagram illustrates functional division at the level of
functional activities in the value chain. The confusing phenomenon of the global
expansion of firms at the level of the firm can be clearly understood at the
functional level from the perspective of the functional division: intermingled at the
firm level but clearly divided at the functional level into the production and
marketing sides.

New measurement for global expansion

As Transnational is the eventual goal of all the firms pursuing global expansion, the
distance between the current position of a firm in the DDC model and the ideal
Transnational that is located at the upper right corner of the DDC model can be
intuitive and adequate measurement for the degree of the global expansion of a firm. In
addition, as explained in the aforementioned discussion, the measurement should be
considered in the two sides of production and marketing. Therefore, the DDC model
can generate a new index, the DDC index, which measures the degree of global
expansion of a firm as a summation of the production distance and the marketing
distance: the distance between a firm’s current position in the production function and
the ideal Transnational measures the degree of the global expansion in the production
side, and the distance between a firm’s current position in the marketing function and
the ideal Transnational measures the degree of the global
pffiffiffi expansion in the marketing
side. The DDC index is calculated as a summation
pffiffiffi of “ 2 – the distance of a firm from
the ideal Transnational in production” and “ 2 – the distance of a firm from the ideal
Transnational in marketing”[1].
Hypotheses A new
Three hypotheses are suggested in the area of the division of function in global framework for
expansion, the dynamics in global expansion, and the relationship between the degree
of global expansion and financial performance. global expansion

Functional division
Through the literature review and deductive reasoning, we suggest that there is a 143
division of functions according to the nature of each function in the process of global
expansion of a firm. Especially, it is argued that the Global strategy is suitable for the
production function, while the Multidomestic strategy is appropriate for the marketing
function. Based on this inference, the following hypotheses are derived:
H1a. There is a division of functions in the process of global expansion.
H1b. Firms take the Global strategy for the production function, while they
implement the Multidomestic strategy for the marketing function.

Dynamics of global expansion

As Transnational is the eventual goal of global expansion, firms implementing global
expansion strategy head for Transnational. On their way to Transnational, according
to the new construct of functional division, functions in the value chain take different
paths according to the characteristics of each function. The production functions are
expected to take the path of Domestic to Transnational via Global, while the marketing
functions are via Multidomestic:
H2. A firm takes dynamic paths in the implementation of global expansion
strategy from Domestic to Transnational through either Global or
Multidomestic in accordance with the nature of each function in the value
chain: production via Global, while marketing via Multidomestic.

Global expansion and financial performance

Many studies have employed single-item measurement in their study of the
relationship between the degree of global expansion of a firm and its financial
performance (Farrell, 2004; Kumar, 1984; Rugman and Verbeke, 2004; Vernon, 1971,
inter alia). The single-item measurement approach, however, can result in distorted
estimation of global expansion (Sullivan, 1994), and cannot capture the full extent of
global expansion of a firm with each of the item in isolation (UNCTAD, 1995, p. 24). In
addition, many other studies with the multi-item approach also lack in the academic
rationale for their choice of criteria. In this light, considering that the core international
business theory argues positive relationship between the degree of global expansion of
a firm and its financial performance (Capar and Kotabe, 2003; Contractor et al., 2003),
the DDC index is expected to have positive correlation with financial performance with
higher level of explanatory power, because it is derived from critical analyses on the
existing models and consequently organized in a more systemic and intuitive way: the
DDC index is equipped with a theoretical rigor because the index, unlike other indices
measuring the degree of global expansion of firms, is incorporated into the DDC model,
a model explaining the phenomenon in a more comprehensive way than existing
models:
MD H3. The degree of global expansion of a firm measured by the DDC index is
46,1 positively correlated with financial performance of the firm.

Data and methodology

For the empirical test of the DDC model, we collect data from 15 global automakers in
motor industry because motor industry is one of the most globalized industries
144 (UNCTAD, 2003, p. 5), and consequently will show clear and distinctive features of
global expansion of firms.
The DDC model needs Diversification and Coordination data in both production and
marketing sides. For Production Diversification and Marketing Diversification, data
are collected from 2002 World Automakers Directory: Global Vehicle Manufacturer
Directory, published by Automotive News Data Center. Production Coordination is
calculated as the ratio of world production to domestic production. Though intra-firm
trade may be a good proxy to measure the Production Coordination of multidomestic
companies, the data are unavailable for individual firms (Westney and Zaheer, 2003,
p. 355). For the optimization of the new model, it is assumed that the greater the ratio of
foreign production to domestic production, the greater the intra-firm flows and thereby
the greater the degree of Production Coordination. Data for world production and
domestic production are collected from 2003 Motor Industry, published by Hyundai
Motor.
Marketing Coordination is also calculated as the ratio of world market share to the
number of models that a firm provides. This is also based on the assumption that the
greater the degree of world market share per model, the greater the degree of
Marketing Coordination. Data for world market share and numbers of models are
gathered from 2002 Market Data Book: 2001 Global Production by Region, and 2002
Market Data Book: 2001 Global Production and Sales by Manufacturer, published by
Automotive News Data Center.
For the measurement of financial performance, nine financial variables are initially
collected from Fortune the Global 500, Forbes the Global 500, and BusinessWeek the
Global 1,000, among which we select revenues from Fortune (2002) and net income
from Forbes (2002) as major variables according to the statistical significance. Table IV
lists standardized indices comprising the DDC model, the DDC index, and financial
performance of the 15 global automakers.
Multivariate analysis of variance (MANOVA) and discriminant analysis are used
for H1 to test the functional division in the implementation of global expansion
strategy. MANOVA is a multivariate extension of the univariate techniques for
assessing the difference between group means, and discriminant analysis is a
statistical technique appropriate for identifying the group to which an object belongs
(Hair et al., 1998). Two groups of the production function and the marketing function
are put into MANOVA to test the functional division, and a discriminant function is
derived from discriminant analysis as a boundary line between the groups. In the test
of H2 and H3, correlation analysis is employed.

Results
Functional division
The results of MANOVA analysis testing H1 are listed in Table V. The significant
level of the statistical analysis is less than 0.01. This statistically supports that the
 A new
DDC Revenues Net income
Firms PDa,h PCb,h MDc,h MCd,h TPe TMf Iindexg ($ millions) ($ millions) framework for
General Motors 0.762 0.733 1.000 0.532 1.057 0.946 2.003 177,260 601
global expansion
Ford Motor 1.000 0.683 0.750 0.692 1.097 1.018 2.115 162,412 276,543
Toyota Motor 0.619 0.331 0.750 0.106 0.644 0.486 1.130 120,731 4,922
Volkswagen AG 0.571 1.000 0.625 0.509 0.986 0.797 1.782 82,093 90,678 145
Daimler Chrysler AG 0.429 0.321 0.375 0.522 0.527 0.627 1.154 136,798 182,415
PSA/Peugeot-Citroen 0.238 0.359 0.250 1.000 0.419 0.664 1.083 45,000 48,950
Honda Motor 0.476 0.700 0.500 0.327 0.810 0.576 1.387 58,841 2,899
Hyundai Motor 0.333 0.000 0.625 0.324 0.212 0.641 0.853 17,432 14,763
Nissan Motor 0.143 0.610 1.000 0.078 0.473 0.492 0.965 49,521 52,427
Fiat S.p.A 0.429 0.383 0.000 0.264 0.573 0.173 0.746 51,521 88,541
Renault SA 0.524 0.430 0.375 0.556 0.672 0.647 1.319 32,529 42,709
Mitsubishi Motors 0.190 0.409 0.375 0.000 0.412 0.235 0.647 25,598 21,041
Suzuki Motor 0.095 0.392 0.375 0.045 0.324 0.273 0.598 13,333 9,638
BMW 0.095 0.174 0.500 0.218 0.189 0.486 0.675 34,418 44,447
Mazda Motor 0.000 0.129 0.250 0.034 0.088 0.192 0.279 16,743 12,327
Notes: a Production diversification; bProductionpcoordination;
ffiffiffi
c
Marketing diversification; dMarketing
coordination; eTransnationality in production:pffiffiffi 2 – the distance from the ideal transnational in
production; fTransnationality in Marketing: 2 – the distance from the ideal transnational in Table IV.
marketing; gTransnationality in production + transnationality in marketing; hStandardized Data for DDC model and
Index ¼ (Xi – X min) 4 (X max – X min) financial performance

Effect Value F Hypothesis df Error df Sig.

a
Pillai’s trtrace 0.259 4.017 2.000 23.000 0.032
Wilks’ Lambda 0.741 4.017a 2.000 23.000 0.032
Hotelling’s ttrace 0.349 4.017a 2.000 23.000 0.032
Roy’s largest root 0.349 4.017a 2.000 23.000 0.032 Table V.
Results of MANOVA and
Notes: Two data are removed as outliers (PSA/Peugeot-Citroen, Fiat S.p.A); aExact statistic discriminant analysis

production function and the marketing function have different characteristics from
each other in the process of global expansion and, consequently, that there is functional
division in the implementation of global expansion strategy. Hence, H1a is supported.
The discriminant analysis results in the discriminant function of “y ¼ 1.004x –
0.113”, which is a virtual line that divides the two functions of production and
marketing into two different groups. This virtual line is located very close to the
diagonal line (y ¼ x) of the DDC model, supporting the validity of the model that
deploys the production functions above the diagonal line and the marketing functions
under the line. As expected, most of the production functions are located in the
upper-left area of the discriminant function, while the majority of the marketing
functions are in the lower-right area of the function. This shows that the Global
strategy is appropriate for the production function, while the Multidomestic strategy is
adequate for the marketing function, and supports H1b.
MD Dynamics of global expansion
46,1 Table VI shows the result of correlation analysis between the distance from the origin
(DO) and the distance from the ideal Transnational (DT) in both the production
function and the marketing function. If all the firms are located on the diagonal line of
the DDC model, the DOs and the DTs of the firms have a correlation coefficient of 2 1.
This means that any increase in Diversification would increase exactly the same ratio
146 of Coordination and, consequently, an increase in DO would result in a decrease of DT
in the same proportion, showing the dynamics from the origin to the idea
Transnational. Any line with a correlation coefficient close to -1 would follow similar
pattern and the correlation coefficients of DOP-DTP and DOM-DTM listed in Table VI
are close to -1, with high statistical significance. Together with the fact supported in
H1a and H1b that the production functions pursuit the Global strategy with the global
expansion path above the diagonal line and the marketing functions implement the
Multidomestic strategy through the path under the diagonal line, this results show that
global expansion of the production function starts from Domestic and moves toward
Transnational through Global, while that of the marketing through Multidomestic.
Therefore, H2 is supported.

Global expansion and financial performance

Table VII lists the results of correlation analysis between the degree of global expansion
of firms in the motor industry and their financial performance. Transnationality in both
the production and the marketing functions is considered together with the DDC index,
for the better understanding of the impact of each function on the financial performance
in global expansion. Transnationality in the production and the marketing functions
shows a similar level of correlation with financial performance, implying that both
functions have important effects on the financial performance. The DDC index also
shows a high level of positive correlation with financial performance. In brief, all the
indices have positive correlation with financial performance and all the results are
statistically significant, which supports H3.

Implications
Research implications
There are three stages in the implementation of global expansion strategy of a firm, as
depicted in Figure 1. In the language of existing studies, the trade-off between global

DTPa DTMb

DOPc Pearson Correlationcorrelation 20.987 * 2 0.814 *

Sig. (two-tailed) 0.000 0.001
N 13 13
DOMd Pearson Correlationcorrelation 20.727 * 2 0.848 *
Sig. (two-tailed) 0.005 0.000
N 13 13
Table VI.
Results of correlation Notes: aDistance from the ideal transnational in the production function; bDistance from the ideal
analysis between DO transnational in the marketing function; cDistance from the origin in the production function;
d
and DT Distance from the origin in the marketing function; *p , 0.01, two-tailed test
 A new
Indices Revenues Net income
framework for
Transnationality in production: global expansion
Pearson correlation 0.765 * * * 0.413 *
Sig. 0.002 0.080
N 13 13
Transnationality in marketing: 147
Pearson correlation 0.750 * * * 0.543 * *
Sig. 0.003 0.027
N 13 13
DDC index:
Pearson correlation 0.795 * * * 0.491 * * Table VII.
Sig. 0.001 0.044 Results of correlation
N 13 13 analysis between degree
of global expansion and
Notes: *p , 0.1; * *p , 0.05; * * *p , 0.01; (Revenues: two-tailed tests, Net income: one-tailed tests) financial performance

standardization and multidomestic customization in stage 2 can be mutually

complemented in stage 3 by taking a strategic leap as a firm enhances its
competitiveness through learning and innovation and, consequently, plays a different
level of games from other competitors. The previous studies, however, have been silent
over the debates on globalization. In the previous studies, the firm level has been
treated as an indivisible atom comprising the global expansion of a firm, which results
in contrary views over the same phenomenon.
By introducing a new concept of functional division, the DDC model provides a
comprehensive analytical tool that encompasses ways to utilize the different strategic
characteristics of the production and the marketing functions, as well as the dynamics of
global expansion from trade-off to mutual complementation. By shifting the level of
analysis to the function in the value chain, the DDC model clearly shows where to focus in
the stage of trade-off and what to implement to successfully migrate to the stage of
mutual complementation. In this light, the debates on the adequacy of stuck-in-the-middle
in the previous literature can be understood with much more clarity. In addition, the
model suggests useful insight for the sophisticated understanding over the degree of
global expansion of each function, with which a firm can establish a series of competitive
strategies by balancing or leveraging the functions.

Practical implications
The DDC model can be easily applied to managerial decisions. Employing the DDC
model, mangers can recognize the level and characteristics of their firms’ global
expansion, not only at the firm level but also the functional level. At the firm level,
managers can derive strategic implications by comparing the firm’s overall level of
global expansion to their competitors: with whom to compete? When to make a
strategic leap and what to prepare for that? At the functional level, managers can make
both within-firm and across-firm comparison: they can compare the level and
characteristics of global expansion in one function with other functions in the firm, as
well as with those of competitors’. In this manner, the DDC model allows managers to
establish a global strategy tailored to each function, thus reconciling possible conflicts
MD generated from different interests among different functions in the firm. As each
46,1 function in the value chain shows different characteristics in the process of global
expansion, managers can implement more effective strategy for the global expansion
of their firm by integrating into the strategy process the different needs of each
function analyzed with the DDC model.

148 Conclusion
After critical evaluation of existing studies on the global expansion of a firm, this paper
introduces the dynamic diversification-coordination (DDC) model as a new framework
explaining the global expansion of a firm, and empirically tests the validity of the new
framework with statistical analyses. The empirical analysis supports three
hypotheses. First, each function has its own strategy of global expansion: the Global
strategy for production, while the Multidomestic strategy for marketing. Second, each
function takes a dynamic path in the process of global expansion from Domestic to
Transnational via either Global or Multidomestic. Last, there is a positive correlation
between the degree of global expansion of a firm and its financial performance.
The contribution of the paper can be summarized as follows. First, this paper
introduces a new model on the global expansion of a firm. With critical and
comprehensive integration of previous studies and a new construct of functional division
by shifting level of analysis, the DDC model reconciles the contrary views on global
expansion in the existing literature and suggests implications over the fundamentals and
the implementations of global expansion strategy. Second, this study provides the DDC
index as an intuitive way for measuring the degree of global expansion of a firm within
the framework of the DDC model. The new index measures the degree of global
expansion of a firm with simultaneous consideration of both the production and the
marketing function in accordance with the structure of the DDC model and,
consequently, suggests useful implications in understanding the current status of global
expansion of a firm and establishing further competitive strategy. Finally, this paper
empirically tests the validity of the constructs in the previous studies on global
expansion of a firm. Contrary at the level of firm, the constructs in the previous studies
verify their validity with the shift of level of analysis to the level of function.
Research in its initial stage tends to focus more on the theoretical aspects rather
than empirical analyses. In a same vein, this paper, as a first attempt to suggest a new
model on global expansion from the level of functional activities in the value chain,
emphasizes more on the theoretical aspects of the phenomenon and, consequently, is
not rich in its empirical data: the sample size of the empirical analyses is small and the
data is narrowly focused on the motor industry. As the main focus of this study is to
derive a new theoretical framework of global expansion at the functional level and
empirical data are employed not to statistically test the rigorousness of the model but
rather to help readers understand more tangibly the abstract construct of the
framework, the main contribution of this study should be attributed to the theoretical
aspects of the new model and the results of the empirical analyses should be
interpreted with much caution as preliminary findings.
Further studies adopting time-series analysis would enhance the level of appreciation
of the phenomena in global expansion, especially that of the dynamics in the process of
implementation of global expansion strategy. Employing a historical perspective,
researchers can trace actual paths MNCs have taken in their global expansion and
compare the results with the predictions of the DDC model. In addition, an in-depth study A new
over organizational structures or learning mechanism of the MNCs transgressing from framework for
stage 2 to stage 3 would suggest what factors enable the MNCs to take strategic leaps
from the stage of trade-off to that of mutual complement. An application of the DDC global expansion
model to other industries would also test the predictions of the DDC model and enrich the
understanding of the fundamentals in global expansion of a firm.
149
Note
1. As data comprising both Diversification and Coordination are standardized, the length of
both the ordinate and the abscissa of the DDC model in Figure 1 measure to be 1,
respectively, and, consequently, the
pffiffiffi length of the diagonal line of the DDC model, the
maximum length in the model, is 2.

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Corresponding author
Min-Young Kim can be contacted at: mkim229@uiuc.edu

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