The key to successful international expansion and long-term growth are decisions made at the headquarters of multinational companies (MNCs). Vermeulen and Barkema (2002) found that the ideal combination of speed, dispersion and regularity in the internationalization process is determined by the information-processing capabilities at corporate headquarters. As the central decision-making unit at corporate headquarters, the top management team is faced with increasingly complex decisions as the company expands its presence abroad through its foreign subsidiaries (Ghoshal, 1987). This complexity requires a corresponding degree of information processing capacity at the top management team level (Sanders & Carpenter, 1998), requiring the top management team to possess certain traits and capabilities in order to effectively manage the expansion of foreign operations.
The association between top management configuration and the firm internationalization process has been explored in some previous research (Athanassiou & Nigh, 2002; Barkema & Shvyrkov, 2007; Herrmann & Datta, 2005; Lee & Park, 2006; Reuber & Fischer, 1997; Sambharya, 1996; Tihanyi, Ellstrand, Daily & Dalton, 2000). However, most previous studies have focused on the influence of TMT characteristics on firm internationalization and only few notable works address the opposite relationship, i.e. how the firm internationalization process impacts the composition of the top management team (i.e., Athanassiou & Nigh, 1999; 2000; Sanders & Carpenter, 1998). Moreover, earlier research has to a large extent neglected the dynamic nature of the response adaptation process, i.e. that any change in the firm's international posture will impact the level of environmental complexity that the firm is facing, subsequently requiring the firm (and the TMT) to adjust the capacity to process information accordingly.
Another important gap in the literature is that majority of the studies are based on North American samples and focus on international experience rather than national diversity as an important and relevant aspect of TMT compostion. In a pioneer study of the relationship between TMT national diversity and firm internationalization, Heijltjes, Olie and Glunk (2003) found that there was a significant increase in the degree of national diversity in the top management teams of European companies over the period 1990-1999; yet the national diversity of the TMT has not progressed to the same level as the internationalization of the companies at large. The authors call for further exploration of the factors that explain the phenomenon of TMT internationalization and strongly suggest different aspects of firm level of internationalization, such as internationalization of the workforce, foreign sales and geographic diversification, as important determinants (p.93). In this paper, we bridge the existing gap in the literature and explore the phenomenon of TMT internationalization along two distinct dimensions, namely, diversity of top management team member nationalities and diversity of top managers’ international experience. We propose that firms with more geographically expansive internationalization strategies will have greater information-processing requirements at corporate headquarters and therefore require more international capacity within the TMT. Hence, we test whether changes in three distinct dimensions of DOI are associated with greater national and experiential diversity at TMT level.
The intended contribution of this paper is twofold. First, we aim to advance the current understanding of the factors influencing the increasing diversity in TMT nationality and international experience. Specifically, we investigate the impact of changes in firm DOI on TMT internationalization across different types of foreign expansion. We argue that following “the principle of requisite variety” (Ashby, 1956), MNCs persistently strive to balance the international capacity at corporate headquarters with the demands of the international operations.
The fine-grained variables that we employ in this study allow us to explore the link between firm internationalization and TMT internationalization in greater depth. We propose that a more expansive international strategy, penetrating into new geographical and cultural areas, will be associated with a more international configuration of the TMT (whereas expansion of operations in foreign markets per se will not be directly associated with TMT international capacity).
Second, in order to measure the international diversity of TMTs, we separate between cognitive and experiential team diversity. The upper echelon literature distinguishes between two major categories of top managers’ personal characteristics that have an impact on managerial choices (Finkelstein & Hambrick, 1996: 45): the first category encompasses managers’ values, cognitive models and other personality elements, whereas the second set of characteristics refers to observable dimensions of a person’s experiences. In this study, we employ executive nationality as a representation of cultural values, cognitive models and personality elements associated with a particular national culture. In order to capture the diversity of knowledge and expertise accumulated throughout executive careers, we collected detailed data on the international experience of individual executives and aggregated this data at the team level.
The paper has the following structure. First, we introduce a theoretical framework that allows us to investigate TMT composition in the context of firm internationalization and develop our hypotheses. Then, we present our sample and methods, followed by an overview of our findings. Finally, we discuss our results and derive implications for theory and practice.
