Does the Home-Region Bias of International Business Vary by Industry?: An Analysis of Trade Data by Type of Product

Abstract

Purpose – The fact that many international companies remain strongly orientated towards their home region has been highlighted in the work of several international business scholars. This work has given rise to the concept of “the liability of inter-regional foreignness”. This paper aims to argue that the data that have so far been exploited in this debate are too aggregated and that more attention needs to be paid to differences between different types of companies if we are to better understand the reasons for this liability of inter-regional foreignness and how companies can overcome it.

Design/methodology/approach – This paper uses trade data to explore levels of global and regional orientation in international exchanges of goods. It disaggregates the trade data by type of product (final goods or inputs to production), level of technology (high, medium and low tech) and direction of flow (imports and exports).

Findings – The paper finds striking differences between regions, types of products and trade direction. The trade data do not show an overwhelming home region bias in exchanges, but neither are these exchanges overwhelmingly global. Companies in different regions and different sectors seem to experience the liability of inter-regional foreignness differently. In particular there is some evidence that high-tech companies may be less subject to such difficulties. These findings imply that more attention needs to be paid to sectoral differences when analysing international business.

Research limitations/implications – The trade data also suffer from some aggregation bias, as highlighted in the paper. In addition the inability to differentiate between inter- and intra-firm trade limits the usefulness for theory building. However the results do provide some pointers for further research and imply that greater attention should be paid to the type of company and its position in the supply chain when considering the impact of the liability of inter-regional foreignness.

Originality/value – The debate so far has been based on either Fortune 500 data or foreign direct investment data. Both of these datasets mix companies with very different market structures and operating practices. The originality of this work is to explore macro data extensively and look at exchanges differentiating by type of good. The results have implications for work on aggregated datasets. Simply differentiating by technology alone may lead to interesting variations in findings from firm-level studies.

Keywords: Exports, International trade, International business, Data analysis

JEL Classification: F10