The interplay of international alliance and subsidiary portfolios: Implications for firms' innovation and financial performance

The benefits of having an internationally diverse alliance portfolio are well known. However, the challenges remain overlooked, especially the potential to curb firms' international expansion beyond such alliances. Building on global connectivity literature, we study how firms' international footprint through their foreign subsidiaries is affected by the geographical spread of their international alliances. Using data on a sample of U.S. high-tech firms, we find that this relationship follows a U-shaped pattern and is contingent on alliance portfolio geographic distance and firms' absorptive capacity for internationalization. Deviations from the optimal international footprint lower firms' innovation and financial performance.

Automated summary

The benefits of having an internationally diverse alliance portfolio are well known, but the challenges and potential limitations are often overlooked. This study investigates how the geographical spread of international alliances affects firms' international expansion through their foreign subsidiaries. The findings reveal a U-shaped relationship and show that it depends on the distance of alliance portfolio and the firms' absorptive capacity for internationalization. Deviations from the optimal international footprint have negative impacts on firms' innovation and financial performance.