Global Footprint, Institutional Diversity and Dynamic Capabilities

While studies have examined how the deployment of dynamic capabilities facilitates international operations, knowledge regarding how dynamic capabilities are built up remains incomplete. This study suggests that MNEs’ dynamic capabilities can derive from their specific “global footprint”, reflected by their portfolio of foreign subsidiaries. Specifically, we suggest that the higher the level of institutional diversity that MNEs experienced, the more likely they will build up dynamic capabilities and thus have superior financial performance. This effect is further strengthened for MNEs that have senior managers and board members from diverse countries of origin, and start internationalization at a younger age. In contrast, this effect will be weakened for MNEs with a rapid speed of internationalization. Empirical analyses based on a panel dataset of 1,093 MNEs from 27 countries support these propositions.