Regionalization strategies of US multinationals in the electric utility sector

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Regionalization strategies of US multinationals

in the electric utility sector

Marthe Huigsloot, 10467041 29/06/2015

BSc Economics and Business University of Amsterdam

First supervisor: Francesca Ciulli Second supervisor:

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Statement of originality

This document is written by Marthe Huigsloot who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

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STATEMENT'OF'ORIGINALITY'...'2! ABSTRACT'...'4! 1.'INTRODUCTION'...'5! 2.'LITERATURE'REVIEW'...'7! 2.1!REGIONALIZATION!VERSUS!GLOBALIZATION!...!7! 2.2!ORIENTATION!CATEGORIES!...!9! 2.3!THE!INTERNATIONAL!ORIENTATION!OF!US!MNES!...!11! 2.4!BARRIERS!AND!DRIVERS!TO!INTERNATIONAL!ORIENTATION!...!12! 2.4.1%Growth%opportunities%and%Knowledge%acquisition%...%12! 2.4.2%Firm%Specific%Advantages%(FSAs)%and%Country%Specific%Advantages%(CSAs)%...%14! 2.4.3%Institutional%Factors%...%15! 3'METHOD'...'17! 3.1!RESEARCH!DESIGN!...!17! 3.2!CASE!SELECTION!...!18! 3.3!DATA!COLLECTION!...!19! 3.4!DATA!ANALYSIS!...!20! 3.5!QUALITY!OF!THE!RESEARCH!...!23! 4.'RESULTS'...'24! 4.1!DUKE!ENERGY!...!25! 4.2!AES!CORPORATION!...!29!

4.3!NEXTERA!ENERGY!...!34!

4.4!PPL!CORPORATION!...!39! 5'DISCUSSION'...'44! 6.'CONCLUSION'...'48! 6.1!CONTRIBUTIONS,!LIMITATIONS!AND!SUGGESTIONS!FOR!FURTHER!RESEARCH!...!48! 7.'BIBLIOGRAPHY'...'49! ! !

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Abstract

This study provides new insight in the regionalization debate. It aims to examine the international orientation of US electricity multinational enterprises and which factors aid or hinder their (inter)national expansion. This research adopts a longitudinal multiple-case study design. Secondary data are collected from the Financial Times articles concerning the four selected companies and their annual reports and press releases, from 2010 to 2014. The results show that three of the four electric MNEs are still home country orientated, while one is bi-regional. Yet, a trend towards a more international orientation is visible for all companies except one. The main reason companies expand is to exploit growth opportunities. However, formal institutions provide a barrier to growth both domestically and internationally. Countries entered are selected on their geographical location, regulatory environment and the possibility for firms to exploit their competitive advantage. As regulatory hurdles are falling away, expected is that the electric utility market furthers its trend towards

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1. Introduction

In current times, the effects of globalisation are impossible to deny. It seems as if all products are available in all countries and multinational enterprises (MNEs) are globally widespread. Yet, research suggests that most MNEs are regionally focused (Rugman, 2001). This means that while MNEs might be active in different countries, often their expansion is limited to their home triad-region (Aharoni, 2006; Rugman and Hodgetts, 2001). In the field of international business (IB) there has been a lively debate on this subject for years, with scholars underlining the growing influence of globalization on one side and those arguing the regionalization view on the other. One of the most prominent advocates of globalization is Thomas Friedman (2005), who argues that the world is flat and has no barriers in place to information exchange or to entry. Yip adds to this that in this flat world, multinationals distribute uniform

products freely all across the globe (as cited in Rugman, 2001). However, several inconsistencies have been found in this theory. Firstly, there are little to no fully homogeneous products (Rugman, 2001). In fact, if a product is exported globally, it is first adapted to the local market (Ghemawat, 2003). Furthermore, while supporters of the globalization view argue that over 50% of companies’ annual revenues are from foreign sales, they do not take into account that, of those foreign sales, most are made in the firm’s home triad-region (Rugman, 2001). It seems thus that MNEs do not have a global orientation, but a regional one. Scholars have identified several reasons for this phenomenon. Some propose that the reason lies in firm-specific attributes that are hard to transfer to other parts of the world (Rugman and Verbeke, 2004; Collinson and Rugman, 2008), others propose that it lies in the growing amount of trade blocs and their institutional constraints (Buckley, Clegg, Forsans & Reilly, 2002).

Institutional constraints are especially visible in the electricity sector, which is usually a highly regulated one. In the last decade, a process of liberalization has been observed in the Western countries (Kolk, Lindeque & van den Buuse, 2014).

Regulations are being revised and (inter)national competition is stimulated (Joskow, 1997). One big development was the instalment of the North Atlantic Free Trade Organization (NAFTA) in 1994, of which the US, Canada and Mexico are a part of. This agreement coordinated international regulations and made it easier for

companies to trade. However, while the European Union (EU) is harmonizing its different practices in regulations (Kolk et al., 2014), the United States (US) still employ two different systems to determine consumer prices (Navigant Consulting,

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2013). One is the traditional method of a Vertically Integrated Utility where prices are set by the regulatory power and customers cannot choose their provider, the other is a retail choice model where customers can select their own provider and only delivery is regulated (Navigant Consulting, 2013). In addition to this, there are a lot of regulations in place regarding reliability and environmental issues.

Thus, the US electric utility sector has to deal with a lot of factors that could potentially influence its international orientation. While there is a lot of extant

research on regional strategies of US MNEs, the electric sector is under-investigated. As this sector has been subjected to a lot of developments, in particular to changing (inter)national environmental regulations, it is interesting to examine how the electric utilities have reacted to this. The research question is as follows: how have US electric utility firms expanded internationally and which factors have influenced their orientation?

This thesis tries to answer this question through a qualitative research method with a multiple case design. The four largest electric MNE with the US as their home country will be selected based on their position in the Fortune 500 ranking. The study will explore these firms’ international expansion from 2010 to 2014, by the use of secondary data such as their annual reports. In addition to this, newspaper articles from the Financial Times and the companies’ press releases will be coded, using themes discussed in the literature review but allowing for factors to emerge during data analysis. In combination with a historical overview based on aforementioned articles and press releases, the orientation of all firms will be classified and factors influencing this orientation will be identified and discussed.

This study aims to provide contributions both to the literature on regionalization and to practitioners. As mentioned above, while scholars have investigated regional orientations in several industries, such as retail, research in the electric utility sector is lacking. Plus, its recent changes it has gone through regarding innovation and regulation can provide new insights on the regionalization debate. It is important for managers to know what could facilitate or hinder a firm in their quest for growth, and the electric sector is growing fast and thus offers new opportunities. Also, a new trans-atlantic agreement, TTIP, might be implemented soon, which will open up trade between the US and Europe. Therefore, an analysis of the current strategies employed by electric utility firms is essential for managers to be able to have an overview of past and present trends in internationalization in their sector.

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This will help them to identify and tackle threats and thus to benefit from arising opportunities.

The study is organized as follows. First, an overview will be given regarding the current debate among IB scholars on regionalization versus globalization

strategies. Then, factors that can constrain or facilitate internationalization will be discussed. The key concepts will be explained and operationalized. Subsequently, propositions regarding the research question will be developed. After this, the

methodology and research design will be described, followed by an explanation of the findings. A discussion of the results and the answer to the research question will conclude this thesis.

2. Literature Review

Firstly, the debate on regionalization will be discussed, after which the role of the MNE will be explored. Subsequently, Rugman and Verbeke’s categorization system on international orientation will be explained in the context of Ohmae’s triad concept and adapted to this study. The US electricity sector will then be examined and

propositions will be given on the orientation of US MNEs. After this, barriers and drivers to international expansion will be laid out. Propositions will be developed on how these factors are expected to influence the orientation of electric utilities. A model will summarize all the influencing factors.

2.1 Regionalization versus Globalization

As discussed above, a debate has sparked in the field of international business (IB), in which scholars proposing regionalization object to the views of scholars studying globalization. The idea of globalization was first formed by Levitt in 1983, who proposed that due to the increasing technology soon there would be no differences between any country in the world. Multinational enterprises (MNEs) would stop adapting their products to a specific market and start offering identical products everywhere on earth, thus becoming Global Corporations with one universal strategy (Levitt, 1983). However, in 2001 Rugman introduced the ‘myth’ of global strategy, stating that, contrary to popular belief, the global corporation does not exist. Instead of offering homogeneous products and services globally, MNEs are specialized entities that focus on a specific region (Rugman, 2001; Rugman and Verbeke, 2005). Regionalists do not deny the existence of internationalization, on the contrary, they

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emphasize that through technological advancements countries have increasingly become interdependent. However, they do not see internationalization as a synonym of globalization (Rugman and Verbeke, 2005). A firm can be active in various parts of the world, but will still adapt its strategies for each individual area. What is more, studies done on the international orientation of MNEs have found out that most stay in their home region, regardless of the business sector or location (e.g. Kolk et al., 2014; Rugman and Hodgetts, 2001; Aharoni, 2006). Thus, they often employ a

regional strategy as opposed to being active in all parts of the world. (Rugman, 2001). In fact, only eight of the Global Fortune 500 companies are truly global, according to Rugman and Verbeke (2004). The global corporations Levitt talks about are

practically non-existent (Rugman and Verbeke, 2004). It thus seems that the

regionalists are proven right. Apparently, it is not possible or simply not profitable for companies to go global.

However, Filippaios and Rama (2008) point out that Rugman and Verbeke’s research in 2004 uses the Fortune top 500, which also contains domestic firms and not merely MNEs. This could have biased the results to be more home orientated. Indeed, after correcting for this bias, Filippaios and Rama (2008) found out that while the amount of globally orientated corporations present stayed the same, the amount of bi-regional firms went up. Regardless, the majority of firms still had a bi-regional approach to doing business.

This study also considers solely MNEs to avoid a bias towards home region orientations. The definition of an MNE differs in the globalization view from the regionalization view. Root (1990) defines the transnational organization in terms of the business strategy or organizational structure. According to him, MNEs try to find a way to consider all national markets as if they were one (1990). This is in line with the globalization view. The scholars supporting regionalization state that instead, MNEs adapt their strategies according to the specific environment they are active in (Rugman and Hodgetts, 2001; Ghemawat, 2003). They agree on the fact that an MNE often has one basis, the parent company, from which multiple other enterprises in different countries are controlled (Root, 1990). Pitelis and Sugden (2000) provide a simpler and narrower definition. They state that a firm is multinational when it has employees contracted abroad. Because this research is merely interested in if an MNE is active abroad and not in what way, it will not base its definition of an MNE on either one school but rather follow Pitelis and Sugden’s simpler determination. A

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company will simply be regarded as an MNE when it is active in another country than their home country.

2.2 Orientation categories

Studies that classify companies according to a global or regional orientation usually adopt a categorization system defined by Rugman and Verbeke (2004). Their system is based on the triad-region concept of Ohmae (as cited in Rugman and Verbeke, 2004), which in current times could prove to be out-dated. Ohmae’s original triad-power concept defined the US, Europe and Japan as the three regions. These three regions are mainly separated on the basis of geographic location, but have several features in common: level of technology and infrastructure, little macroeconomic growth, homogeneous demand, a presence of large capital-intensive corporations and protectionist measures (as cited in Rugman and Verbeke, 2004). Rugman and

Verbeke (2004) have adapted this categorization by using a broader definition in keeping with the establishment of the three main trade blocs in this world: NAFTA, the EU and ASEAN. They argue that the trade agreements of those blocs have been formed on the basis of proximity and attractive economic opportunity, and will further intra-regional trade even more (Rugman & Verbeke, 2004). It is thus better to use the broader definition of the triad, as the commonalities described by Ohmae, such as their homogeneous demand and level of technology, still hold. See table 1a for an overview of Rugman and Verbeke’s original classification.

One thing Ohmae did not fully anticipate, and Rugman and Verbeke did not sufficiently incorporate in their research, is the exponential growth of the fourth region: the rest of the world (Sethi, 2009, Banalieva & Santoro, 2009). Ohmae recognizes the importance of this region, especially considering its ease of obtaining market share, but does not go as far as including third world countries as actual focus points of MNEs (as cited in Rugman and Verbeke, 2004). While still most

international trade occurs within the broader triad (Rugman & Verbeke, 2004; Kolk et al., 2014), excluding the fourth region could severely limit this research as large economies such as Argentina, Russia and Brazil would be taken out of the equation (Sethi, 2009). This is why this study adds a ‘fourth region’ to the triad concept. Another limit of Rugman and Verbeke’s classification is the fact that within the home-region orientation there is no distinction between a local or regional focus (Banalieva & Santoro, 2009). A firm can be home-region orientated because of

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relative high home-country sales and low regional sales, or vice versa. Because of the abovementioned reasons, in this research some orientations have been added, to be examined in table 1b. Where possible, the original classifications of Rugman and Verbeke (2004) have been kept. Filippaios and Rama (2008) use the fourth region in their study as well, and so their criteria have been used. A ‘Triad Orientation’ was added to see if MNEs are concentrated primarily in the original triad regions, as Ohmae (1985) and Rugman and Verbeke (2004) have argued. A ‘Home Country orientation’ has been added as well, to account for possible skewness due to a high local focus within the home region.

Orientation

Home Region At least 50% of sales in home region of the triad.

Bi-regional At least 20% of sales in each of two regions of the triad, with less than 50% in any one triad-region.

Host Region More than 50% of sales in other region than home region.

Global At least 20% of sales in each of the

regions, with less than 50% in any one triad-region.

Table 1a) Original Orientation Classification System as defined by Rugman and Verbeke (2004)

Orientation

Home Country At least 50% of revenues in home country.

Home Region At least 50% of revenues in home region, with less than 50% in its home country.

Bi-regional At least 20% of revenues in two of the four regions, with less than 50% in any one region.

Host Region More than 50% of revenues in other region than home region.

Triad Region At least 20% of revenues in each of the triad-regions, with less than 50% in any one region.

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Global At least 20% of revenues in each region, with less than 50% in any one region.

Table 1b) Adapted Orientation Classification System

2.3 The international orientation of US MNEs

The US has since the end of the Second World War been a big world player, economically and politically (Held and McGrew, 2007). It used to have the biggest economy in the world, but has recently been surpassed by China. US MNEs often pride themselves in being globally active. While this might be true to a certain extent, Moore and Rugman (2003) conclude that intra-regional sales for US based MNEs are on average 77,3%. Only three of the eight global companies identified in Rugman and Verbeke’s 2004 research on the top Global Fortune 500 companies are based in the US (Moore and Rugman, 2003). This means that a very small percentage of US MNEs are fully globally orientated. But, it also shows that the US at least has the potential to be a suitable starting point for a global MNE.

In line with this, Hejazi (2007) draws the conclusion that most US MNEs are regionally focused. However, he goes as far as suggesting that US managers are operating at the exactly right level of internationalization. They should not want to globalize their strategies, because the increase in global operations is not moving at a speed below the average, something that is suggested by other authors (Moore & Rugman, 2003).

Findings of studies on regional orientations of US MNEs show that most are home region orientated. For example, Rugman and Collinson (2004) found that in the automotive sector, all main US based MNEs are focused on the home region. The same result is found in the retail sector (Rugman and Girod, 2003) and in the pharmaceutical sector (Rugman and Brain, 2004).

Following these findings of extant literature on the orientation of US based MNEs, the following proposition is made:

P1: The majority of US electric MNEs will be home-region orientated.

As mentioned in the introduction, there are two models currently employed in the US that form the electricity sector: the retail choice method and the vertically integrated utility (Navigant Consulting, 2013). The vertically integrated utility was traditionally used, which is based on the idea that electric utilities are monopolies within their own

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State (Delmas and Tokat, 2005). However, due to innovative new transmission systems it was not efficient anymore to stay in one state and so the retail choice mode was developed to open up competition (Delmas and Tokat, 2005). Since the 1980’s, the electric utility sector of the US has undergone a process of liberalization

(Navigant Consulting, 2013). Where there used to be heavy regulation and a state-monopoly, competition has increasingly been stimulated (Joskow, 1997). In fact, US based electric MNEs have increasingly merged with foreign firms in order to gain market share in other parts of the world (Joskow, 2000). Since the implementation of the NAFTA in 1994, trade has in general increased (Hejazi, 2007).

However, while deregulation seems to be the trend, utilities still have to report to a number of formal institutions (Delmas and Tokat, 2005; Navigant Consulting, 2013). And because the US never implemented a national policy regarding the

restructuring of the electricity sector, decisions were left to the States (Joskow, 2008). This resulted in incomplete reforms with a lot of political and public resistance

(Joskow, 2008). Every decision a utility firm makes, has to be approved by a number of formal institutions such as the Federal Energy Regulatory Commission (FERC) and informal institutions such as environmental groups (Delams and Tokat, 2005; EIA, 2015). Based on the above stated arguments, the second proposition is as follows:

P2: Electric MNEs will be mainly focused on the home region, but they are

increasingly expanding to rest of the world.

2.4 Barriers and drivers to international orientation

If the world is really global, firms should encounter no difficulties in expanding abroad (Friedman, 2005). But the findings of previous studies are inconsistent; few firms are truly global (Rugman, 2001; Rugman and Verbeke, 2004). A number of factors can induce or discourage a firm to expand internationally. These factors will be explained in detail in the following section. Per factor a proposition will be developed concerning how it is expected to affect the international orientation of US electric MNEs.

2.4.1 Growth opportunities and Knowledge acquisition

According to Verbeke (2005), the main reason for firms to go abroad are the growth opportunities a host country offers. Indeed, the Organization of Economic Co-operation and Development (OECD, 2009) identifies growth as one of the main

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explanations of internationalization that managers give. In the US, demand for electricity has been declining over the past couple of years (EIA, 2015; Black & Veatch, 2014). This is in contrast to other parts of the world where demand, due to economic growth, is often outpacing supply. For example, in Asia demand has risen exponentially since 1990 and is not expected to stop soon (International Energy Agency, 2013). Also Latin America is coping with a rising energy demand that suppliers are unable to meet (World Energy Council, 2014), and Africa’s emerging countries follow the same pattern (World Energy Council, 2014, figure 1). It seems as though there is enough opportunity for growth for US MNEs in the other regions, and thus this thesis proposes as follows:

P3: If a bi-regional, host country or global orientation is detected, this could be due to

growth opportunities.

To fully accommodate this growing international demand of electricity, a firm should be able to exploit its opportunities abroad. As will be discussed below, this can be difficult due to a large liability of foreignness. But another reason can be that the firm lacks specific resources, like new technologies, to be able to compete with local competitors. The OECD (2009) identifies a push and pull effect of knowledge. Companies go abroad when they can offer new knowledge or when they need it. Especially in the electric utility sector, innovation is key. There is an increasing demand all around the world for renewables at the expense of sources such as coal and nuclear (EIA, 2015), which means that firms have to completely restructure their generation and transmission processes. This asks for experience. In the US, most utility MNES are based on coal or nuclear (EIA, 2015; Black & Veatch, 2014), which can be hazardous for the environment. In contrast, Europe’s electricity sector is far ahead in terms of green energy (Kolk et al., 2014), and could provide the knowledge needed by US MNEs. Thus, the next proposition is as follows:

P4: If a bi-regional, host country or global orientation is detected with significant

activity in the EU region, this could be due to a need for knowledge on renewables. Apart from a lack of knowledge in renewables, it could be that a firm lacks

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his ‘global impasse’ concept (as cited in Rugman & Verbeke, 2004). When firms decide to expand internationally, it is very hard to adapt their domestic strategies to globally applicable ones. Furthermore, competing with host-country firms that know the area better is a difficult job (Filippaios & Rama, 2008). This ‘liability of

foreignness’ (LOF) is caused by distances in culture, geography, economy and institutions (Rugman, Verbeke and Nguyen, 2011). To minimize the impact of LOF when expanding internationally, MNEs will search for the countries with the lowest distance in those four categories (Rugman et al., 2011). Either US firms will stay in their home region, where since the NAFTA agreements the economical and

institutional differences have been decreased, or they will expand to countries where they already have the experience. This leads to the fifth proposition:

P5: US electric MNEs expand to countries with the lowest cultural, economical and

political differences.

2.4.2 Firm Specific Advantages (FSAs) and Country Specific Advantages (CSAs)

One reason why firms could prefer to stay in their home country or region could be firm specific advantages (FSAs) (Kolk et al., 2014; Rugman & Verbeke, 2004). FSAs are developed by the resource-based view, which considers the firm’s internal

resources to be the origin of competitive advantage (Barney, 1991). This means that FSAs could be the main sources of a firm’s profit and are thus elemental to an organization. In order for FSAs to generate competitive advantage they have to be valuable, rare, inimitable and non-substitutable according to the VRIN-model of Barney (1991). However, while in one country an FSA might meet all those

requirements, it could be that in another it does not. For example, the FSA could be a unique technology, newly developed in the US, while in Europe there might be a perfect substitute available. This means that the FSA is very country specific and while it might be transferrable, it will not lead to an advantage. This can hinder a successful international expansion. An FSA could also be non-transferrable because of a lack of resources or simply because it cannot be physically relocated. In general, FSAs are classified as either being location-bound or non-location-bound (Rugman & Verbeke, 2004).

Location-bound FSAs can include assets such as factories or a sales force. Most often they consist of tacit objects, but there are instances when they are implicit.

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For instance, the organizational capabilities of a firm can be an implicit FSA but hard to copy abroad because of cultural differences or lack of suitable personnel.

Non-location-bound FSAs are for example brand image or technological knowledge. The non-location-bound assets are especially valuable when a firm is active in multiple countries, because they can create competitive advantage (Rugman & Verbeke, 2004; Birkinshaw, Hood & Jonsson, 1998). So:

P6: US MNEs will expand internationally if they see the possibility to create

competitive advantage abroad.

Next to FSAs, there are also country specific advantages (CSAs). These can make the home or host country especially attractive. When the CSAs of a host country outweigh those of the home country a firm should think of expanding (Heinecke, 2011). In the energy sector, natural resources and infrastructure are the most important CSAs (Heinecke, 2011). Right now, there is an increasing demand for energy generated by natural gas, because of its relative low price and high reliability (EIA, 2015). The Institute for Energy Research (2011) states that the US, Canada and Mexico – the NAFTA countries – combined account for the largest gas reserve in the world. US MNEs therefore have a lot of advantage of staying in their home country. This is why:

P7: If an US electric MNE is home region focused, this could be due to the natural

resources.

2.4.3 Institutional Factors

Next to internal components, external causes could affect a manager’s decision to grow internationally. In this increasingly interconnected world, formal institutions are being set in place to streamline all transactions. One example is the World Trade Organization that tries to decrease the amount of protectionist regulations in place across countries. But more importantly, there is a growing number of trade blocs. These regional trade agreements are often set in place to facilitate trade and investment-flows. The most important ones are the North-American Free Trade Agreement (NAFTA), the European Union (EU) and Association of South-East Asian Nations (ASEAN), which are still growing in members. For this research, the NAFTA

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is the most important one, seeing as the US is a member. Together with Canada and Mexico, they form this North-Atlantic trade bloc since 1994. Ghemawat (2005) stresses the importance of trade unions in his research, stating that intra-regional activities foster more economic growth than inter-regional activities.

As discussed in section 2.3, the US electricity market is still under high regulation. Especially in the vertical integrated utility model, firms have to get every change in price or organizational structure approved by their state regulators.

Regulators set the consumer price and can block or approve mergers (Navigant

Consulting, 2013). US utilities used to be – and partially still are – monopolies in their own state (Navigant Consulting, 2013). Increasingly, utilities are allowed to cross state borders and expand nationally, but as said above, every merger is subject to high scrutiny by regulators such as the FERC (Delmas and Tokat, 2005).

Aside from formal institutions, informal institutions are also at play.

Environmental groupings have an increasing amount of political power within the US government and are thus indirectly able to put pressure on regulators. When firms want to raise consumer prices or merge with another company, they not only are dependent on decisions formal institutions make, but also on what the public opinion is. However, as informal institutions have only an indirect influence on electric utility firms, the following proposition focuses only on the formal institutions present. Even though trade agreements have made international trade easier in general, the electric utility market is still under heavy scrutiny. Based on this, the following proposition is given:

P8: Formal institutions are likely to hinder firms in their international expansion.

In the figure below all abovementioned possible barriers or drivers are summarized in a model. The table summarizes all propositions.

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Figure 1 Factors affecting international expansion

!

P1 The majority of US electric MNEs will be home-region orientated.

P2 Electric MNEs will be mainly focused on the home region, but they are increasingly expanding to the rest of the world.

P3 If a bi-regional, host country or global orientation is detected, this could be due to growth opportunities.

P4 If a bi-regional, host country or global orientation is detected, this could be due to a need for knowledge on renewables.

P5 MNEs expand to countries with the lowest cultural, economical and political differences.

P6 US MNEs will expand internationally if they see the possibility to exploit competitive advantage abroad.

P7 If an US electric MNE is home region focused, this could be due to the natural resources.

P8 Formal institutions are likely to hinder firms in their international expansion.

Table 2 All propositions

3 Method

3.1 Research Design

This research will be an exploratory qualitative one. In this research, only

multinational enterprises (MNEs) will be examined. This is because domestic firms

International

Expansion

Competitive! Advantage Natural! resources Formal!institutions Growth! opportunities Knowledge! and!experience

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will have no international data, possibly skewing the results. Moreover, the focus lies on findings that help managers in their decisions regarding globalization. To focus on firms’ strategies that have no intention and no past in internationalization would generate the wrong data. It will be a longitudinal study focusing on the period from 2010 to 2014. The main reason for this time frame is the availability of the MNE’s press releases and the annual reports, which are the main sources of data. Another reason is the way NextEra Resources has organized its subunits. Before 2010, the company was called Florida Power and Light group (FPL). FPL was mainly active in Florida, and it is not clear if it had any activity outside of the US. From 2010

onwards, it split up its activities into FPL and NextEra Energy Resources. NextEra Energy focuses on investing in renewable energy in more countries than just the US, and thus constitutes as an MNE.

This study will adopt a multiple-case design, focusing on four major US electric MNEs. By selecting multiple cases from the same home country, namely the US, a comparison can be made between their decisions made regarding international expansion. Yin (2013) argues that a case design is best to answer how or why questions. As this study tries to find out how and why electric MNEs expand internationally, a case study seems appropriate. Furthermore, it creates a

comprehensive, contextual account (Yin, 2013). Multiple-cases are selected to allow for cross-case analysis to support the theory better and to allow for a broader

generalization (Perry, 1998). The cases will be designed to corroborate each other, allowing for literal replication (Yin, 2013). This will also strengthen the external validity of this research.

The approach will be a mix of induction and deduction. While first the data will be analysed on the factors presented in the literature review, room will be given to emerging aspect. By using a mix, prior literature can be used to strengthen the theory and to know where to look for, while emerging theory can create a realistic account (Perry, 1998).

3.2 Case selection

While there is extant literature available on the regionalization of the EU electric utilities sector and on different industries in the US, the US electric utility sector has not yet been examined. Therefore, this research will fill this gap. The US electric utility sector is currently undergoing several transitions, as has been stated in the

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previous sections. Increasing environmental awareness leads to a shift in fuel sources and a trend of liberalization decreases the power of regulators (Delmas and Tokat, 2005; Joskow, 2000; Navigant Consulting, 2013). The longitudinal multiple-case design of this study will allow us to investigate how companies have reacted in their international strategies to these developments. Four companies were selected using the Fortune top 500 of US based companies. Using the global Fortune top 500 ranking to select the cases was not possible, as no US electric MNE is present in that list. The four companies – Duke Energy, AES Corporation, NextEra Energy Resources and PPL Corporation – were selected on the basis of their ranking in the top 500 and if they fulfilled the criteria of being a multinational enterprise discussed in the literature review. In Table 3, an overview of the companies is given next to some additional information regarding their activities.

Company Formation year State HQ is located Rank in Fortune 500 Primary Fuel Other Fuels for generation Regulated Duke Energy 1900 North Carolina 123 Coal Nuclear, Natural Gas, Hydro Yes AES Corporation 1981 Virginia 174 Natural Gas Coal, Hydro, Wind Mix NextEra Energy Resources

1925 Florida 191 Wind Hydro,

Natural Gas, Nuclear

Mix PPL

Corporation

1920 Pennsylvania 234 Coal Natural Gas,

Nuclear

Yes

Table 3 Background information on the selected MNEs. Information acquired through the companies' own websites and Wikipedia.

3.3 Data Collection

This study used secondary data in the form of press releases, articles of the Financial Times and annual reports of the companies between 2010 and 2014. As explained before, due to the fact that NextEra Energy did not report its international revenues before 2010 in their annual reports, this timeframe was chosen. Furthermore, PPL Corporation’s press releases were only available from 2011 onwards, so if the timeframe had been bigger there would be a significant lack in data from this company. Five years is still seen as a sufficiently long period to observe strategic changes in a company. The Financial Times articles were selected using the firms’ names as keyword. Special care was taken to ensure that all different ways of spelling

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were included. The Financial Times is a reliable source of data for this study, as it has a special emphasis on international economic news. It uses reliable sources, stays objective and is seen by economists as the best newspaper regarding business, according to the Global Capital Markets Survey (2011). For the selected timeframe, however, only very few articles could be found concerning AES Corporation,

NextEra Energy Resources and PPL Corporation (see Table 4). Even when a different source - the New York Times - was used, this gave no significant hits, although it is one of the biggest national newspapers of the US (Alliance for Audited Media, 2013). So in addition to the Financial Times, press releases from all four companies were used as well, which were published on their own websites. Press releases are often meant for stake- and shareholders and thus explain not only the actions undertaken but also the reasoning behind them, which is exactly what is needed to explain the ‘why’ question of this research. Furthermore, CEOs have to make their press releases as reliable as possible, as shareholders expect an objective and factual account of all events. Because in this study a chronological view on changing strategic processes will be given, the sources used are relevant in the sense that they will give a clear overview.

Company The Financial Times Press releases

Duke Energy 29 30

AES Corporation 4 33

NextEra Energy Resources 0 22

PPL Corporation 2 26

Table'4'Articles'and'Press'Releases'used'in'the'analysis'per'company

3.4 Data Analysis

The data analysis was split into two parts. The first part consisted of analysing the firms’ international orientation. To do this, the annual reports were used to collect data of three indicators: companies’ revenues, employees and generation capacity in MW. The analytical strategy adopted by Kolk, Lindeque and van den Buuse (2014) was employed. Instead of using assets, which is normally the way international activity is recorded, generation capacity is seen as a good substitute (Kolk et al., 2014). Revenues are reported in the place of sale because of the following reasons. All companies have separate generation and utility sections. It is thus impossible to

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record their full international activity based on only sales, which would indicate only the utility part of their operations. Moreover, in all annual reports only revenues are indicated per country, while there is no reference to sales. Employees are used as an indicator not only to investigate whether a company is growing in a specific region, but also to identify the size of the operations in general.

Next to revenues, employees and generation capacity in MW, all separate countries a company is active in are recorded with their ISO 2 digit code, as reported on countrycode.org. This is mainly to see if within a region, a company is expanding cross-nationally or if it focuses on just one country. Plus, it gives an overview of which countries were entered or exited throughout the years. Also, the activity of an MNE is different per country. For example, AES Corporation has partial equity of plants in Cameroon and Nigeria. However, they do not generate revenue. This is why under the variable ‘Revenues’ it seems as if the company is not active in Africa, but under the variable ‘Generation Capacity’ it is. It is thus important to not only look at which regions generate revenue to see an MNEs orientation, but to look at multiple variables.

The revenues, generation capacity and employee numbers are recorded per region in their absolute amounts with their relative percentages in brackets. These regions are: ‘Home Region – NAFTA’, ‘Home Country – USA’, ‘Latin-America (excl. Mexico)’, ‘EU’, ‘Asia’ and ‘Africa’. This regional classification differs slightly from the broader triad concept discussed in the literature review. Namely, first, two regions outside of the triad regions are reported: Latin-America and Africa. The reason they are not combined is because the two continents are not only

geographically far apart, but also have little commonalities in their economic and political environments. Ohmae’s theory of forming regions is based on these commonalities, and so it seems too crude to classify them as one ‘fourth’ region. Secondly, ‘Asia’ also includes countries that are not part of ASEAN, such as Jordan and Kazakhstan. While AES Corporation included Jordan and Kazakhstan in their European business unit, they are more often allocated to the Asia or South Pacific region by transnational organizations such as Interpol (see Interpol’s website), which is why this study includes them in this region as well. The main reason why this study uses ‘Asia’ as a region and not merely the ASEAN member states, is to provide simplicity in the results. ASEAN’s member states are Brunei, Cambodia, Laos, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. If

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only those member states would be considered, two of the most important countries in Asia would be left out: Japan and China. Japan was an original triad member as identified by Ohmae (as cited in Rugman and Verbeke, 2004), and China is

commonly known as having the fastest growing economy in that region. Thus, this research uses the broader ‘Asia’ region, based on geographical affiliation.

Percentages are calculated by dividing the regional amount by the total amount. On the basis of these percentages, an orientation per indicator is given based on table 1b) discussed in the literature review.

The second part of the analysis was to examine the reasons behind a firm’s orientation. For this purpose, a thematic analysis was conducted using the articles from the Financial Times and the press releases of all companies as sources. After adjusting for relevance, the documents were imported in NVivo, a coding application. NVivo defines the themes as ‘nodes’. The nodes used are based on the factors

discussed in the literature review. However, if a new theme emerged from the data during coding, this was adopted as well. In the model below (figure 2) the distinction between previously determined (black) and emergent nodes (red) is made clear. The parent nodes used are: International Expansion and National Expansion, to define a company’s expansion as domestic or cross-national. This helped to create a historical overview of key strategic decisions. These decisions, for example acquisitions, were written down in an excel sheet, together with the reason behind it. Subnodes were used to determine which factors influenced expansion and were based on the factors explained in the literature review. In table 5, all codes are shown with an explanation of how they were used to organize the data. A quote is given to illustrate its use.

Code Meaning Quote examples

International

Expansion Every action pertaining to international expansion or exit

“PPL, the US utility, is close to a deal to buy the UK electricity networks business of Eon, Germany's largest utility.”

National

Expansion Every action pertaining to national expansion or exit

“Duke Energy, the North Carolina-based energy group, is in advanced talks to buy Progress Energy in a deal worth more than $13bn (£8.4bn) that would create the largest power utility in the US.”

Host CSAs Expansion (or exit)

because of

(un)favourable attributes of a country

"Turkey continues to be a focal point for our development efforts given the rate of growth in electricity demand and the upcoming privatization of state-owned generation facilities.”

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FSAs because of (im)possible competitive advantage

strategy to exit those markets where we do not have a competitive advantage,” said Andrés Gluski, AES President and Chief Executive Officer.

Growth Expansion (or exit)

because of (no) growth and scale opportunities

"The acquisition of DP&L is an important step in AES' efforts to grow in select markets while achieving operational efficiencies through greater scale," said Andrés Gluski, AES President and Chief Executive Officer.”

Knowledge Expansion (or exit)

because of (no) learning opportunities

“The transaction brings together two industry leaders in clean and renewable energy.”

Institutional

Factors Regulations in place facilitating or hindering expansion

“AES is encouraged by the progress between the United States and the Republic of Korea on the U.S.-Korea Free Trade Agreement. We believe that the terms of this Agreement and its ability to set the stage for increased trade between US and Asian markets, such as Korea, will help to create service and manufacturing jobs in the U.S and to enable further economic growth in Asia.“

Diversification of Fuels

Expansion (or exit) to create a (less)

diversified portfolio

“The addition of the Cimarron Wind Energy Center is consistent with our strategy to add fully- contracted clean energy projects to our portfolio,” said Armando Pimentel, president and CEO of NextEra Energy Resources.”

Table'5'Codebook

3.5 Quality of the research

Internal validity is created by triangulation of the information found in the articles and press releases, the orientations determined by the annual reports and the historical overviews created through the articles and press releases. Construct validity is obtained by using only previously used methods for comparable studies, for example like the research done by Kolk, Lindeque and van den Buuse in 2014. Furthermore, by using multiple cases from the same home environment, a between subjects comparison can be made. Using a multiple-case study also strengthens the external validity. For each company, the same steps in the same order were taken and carefully document to allow for replication and reliability. All press releases, articles and annual reports are available for everyone to see on the internet, which will make replication possible as well.

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! Figure'2'Codes'used'in'NVivo,'in'red'are'the'emergent'codes.' ! ! ! ! 4. Results

Beneath, per company an overview is given of what their international orientations are and which factors specifically have influenced these. In the tables concerning the data obtained from the annual reports, all orientations are given as discussed in the methodology section. Furthermore, the influencing factors specific to a company are summarized in a table as well.

Factors!inQluencing! International! Expansion! Growth!! Knowledge! Host!country!CSAs! Institutional! Factors! • Formal! • Informal! Transferrable! FSAs! DiversiQication!of! Fuels! Factors!inQluencing! National!Expansion! Growth! Knowledge! Home!country! CSAs! Institutional! Factors! • Formal! • Informal! Non!transferrable! FSAs! DiversiQication!of! Fuels!

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4.1 Duke Energy

Duke Energy is home country orientated, which is not subject to change soon. Its relative activity in Latin-America, the only part of the world it is active in besides the US, is diminishing. The exact reasons for this are unclear, but since the US is still highly fragmented, the firm could consider there to be enough growth opportunities present in the domestic market. This is confirmed by Duke Energy’s merger with Progress Energy in 2012. It created the largest utility in the US, which was exactly Duke Energy’s business goal. This goal had several motivations.

Firstly, Duke Energy is a regulated utility, which means that the firm cannot decide its own consumer prices. Consumers constantly pressure regulators to keep the prices low, causing Duke Energy to find ways to make the generation and

transmission process as cost efficient as possible, in order to find its profit margin. So, Duke Energy has to obtain scale advantages by merging with or acquiring other utilities: “Both are based in North Carolina, offering substantial scope for cost savings” (FT, 2011).

Another reason Duke exploits growth opportunities is because of changing regulations: “Another factor behind recent deals has been the need for companies to grow so they have the financial strength needed to fund heavy investment

programmes to replace ageing assets and meet new environmental regulations” (FT, 2011). Duke Energy has had to close some of its coal-powered plants to cut back on carbon dioxide emissions and thus has had to diversify their generation portfolio towards renewables. This needed investment, which was raised through their growth in size: “Duke Energy and Progress Energy said their deal to create the largest US utility group was intended to create a less risky business that would be better able to execute their plans for heavy capital investment that has ramped up steeply in recent years” (FT, 2011).

As Duke Energy expands nationally, formal institutions constantly block or slow down the process. The merger of Duke Energy with Progress Energy in 2012 was eventually approved by regulators, after a “tortuous approval process, requiring approvals by three state regulators as well as the Federal Energy Regulatory

Commission” (FT, 2010). Furthermore, regulators blocked several attempted US power utility deals in the past decade. And so, even though the merger generated an increase in revenues from 14,529 to 19,624 million dollars, the company is hesitant to do any more big deals, according to its current CEO, Lynn Good: “Although the

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business case for further consolidation in the US is compelling, the regulatory hurdles are high” (FT, 2014).

Internationally speaking, there is not a lot of information available on Duke’s reasons behind the international expansion. One reason is that Duke does not actively focus on its international opportunities. Furthermore, in the period investigated, Duke entered only one new country: Chile. The reason they chose this country is two-fold: a strong growth potential and a stable regulatory system (Press release, 2012). Chile has thus country specific advantages and growth opportunities, with a low risk of

regulations that can come in the way of projects.

Summarizing, Duke Energy expands mainly to exploit growth opportunities. Internationally, it looks for countries that have a country specific advantage in the sense that their regulations in place are clear and not subject to change soon. Domestically, because it is a regulated utility, it has to secure regulatory approval before they can go through with any operational decision. This approval is difficult to obtain and is a slow process.

Factors found to influence expansion Quote

Formal Institutions “The US system of energy regulation by

states has kept the industry relatively

fragmented compared to the European Union, and regulators have on several occasions blocked attempts at consolidation over the past decade.”

Growth “Larger companies are able to cut costs by

spreading their overheads across more customers, and to raise finance more cheaply.”

Host CSA "We will continue to evaluate additional

growth projects in Latin American countries, like Chile, where there is strong growth potential and a stable regulatory system.”

Table'6'Factors'found'that'hinder'or'facilitate'Duke'Energy's'national'and'international'expansion.' Source:'FT'articles'and'Duke'Energy’s'annual'reports'of'2010\2014.' ! ! ! ! ! ! !

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Duke Energy

2010 Revenues (In million $) Employees Generation Capacity (MW) Country Specification

Total 14,272 18,440 39,344

Home Region - NAFTA (%) 13,045 (91,4) - 35,141 (89,3) US

Of which in Home Country - USA (%) 13,045 (91,4) - 35,141 (89,3)

Latin-America (excl. Mexico) (%) 1,204 (8,4) - 4,203 (10,7) BR, PE, AR, GT, EC, SV

Europe (%) - - -

Asia (%) - - -

Africa (%) - - -

Orientation Home Country - Home Country

Total 14,529 18,249 39,999

Latin-America (excl. Mexico) (%) 1,467 (10,1) - 4,277 (10,7) BR, PE, AR, GT, EC, SV

Europe (%) - - -

Asia (%) - - -

Africa (%) - - -

Total 19,624 27,885 62,332

Latin-America (excl. Mexico) (%) 1,549 (7,8) - 4,584 (7,4)

BR, PE, AR, GT, EC, SV, CL

Europe (%) - - -

Asia (%) - - -

Africa (%) - - -

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Total 24,598 27,948 62,122

Europe (%) - - -

Asia (%) - - -

Africa (%) - - -

Total 23,925 28,344 55,310

Europe (%) - - -

Asia (%) - - -

Africa (%) - - -

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4.2 AES Corporation

AES is the most global electric MNE of the four firms, with activity in basically all regions. Based on the way revenues are distributed across regions, AES should be characterized as host-region orientated. Within the revenues category, the US region generates 20% of the revenues almost every year. The only reason why AES is not bi-regional based on the revenues, is because of the fact that Latin-America’s revenues are above the 50% threshold. However, in this case this threshold puts an

unreasonable emphasis on the host region, forgoing the sizable amount of revenues generated in the US. Also, the generation capacity indicator shows a bi-regional orientation. Because while Latin-America has the highest revenues, the biggest capacity is found in the US. That is why this study classifies AES as bi-regionally orientated.

In 2010 and 2011, AES employs a strategy focused on growth. This is the main reason for their international expansion, as shown by quotes such as:

“AES entered Turkey as an investor in the power sector in 2007, consistent with the Company's strategy to pursue opportunities in markets with increasing demand for electricity,” (Press release, 2010); and

"Expanding into Vietnam is a key part of our strategy of pursuing new opportunities in Asia, where growth in demand for electricity is projected to outpace much of the rest of the world,” (Press release, 2010).

The entered countries are based on their growth forecasts, economic

environment and geographical position. Turkey is seen as especially advantageous, as it is strategically located: “The companies will benefit from Turkey's position as an energy corridor for Europe, the Middle East and Russia by collaborating on projects throughout the region.” (Press release, 2010). And Northern-Ireland is entered due to its “transparent and attractive investment environment” (Press release, 2010), showing that just like Duke Energy, AES is focused on countries that offer clarity in their regulations.

However, from 2012 onwards, a new CEO brings a change in strategy. AES starts to exit countries that “are not part of our strategic vision”, as said by Tom O’Flynn, AES’ CFO (Press release, 2013). AES is increasingly focusing on a few core markets, where they see “enough possibilities to leverage our global platform and to exploit growth opportunities,” as stated by AES’ CEO (Press release, 2011). AES exits numerous countries, especially in Europe, because of their inability to

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create competitive advantage: “The sale of our French wind assets fits our strategy to exit some markets in order to focus on those where we can sustain a competitive advantage.” It seems that reliability and generation efficiency are AES’ firm specific advantages, as they stay in countries where this is needed: “The Philippines continues to experience robust economic growth, resulting in increasing demand for energy, which creates a great opportunity for companies like AES and EGCO to meet these needs by providing safe, reliable and affordable energy.” (Press release, 2014).

But the narrowing of their geographical focus also is because of regulators. AES’ CEO believes that: “it will result in a more streamlined approval process and provide greater speed of execution” (Press release, 2011). Throughout the years, it is seen that AES tries to support international trade agreements. For example, it shows a special interest in the U.S.-Korea free trade agreement:!“We believe that the terms of this Agreement and its ability to set the stage for increased trade between US and Asian markets, such as Korea, will help to create service and manufacturing jobs in the U.S and to enable further economic growth in Asia. This will generate increased demand for power and power- related products and services across the region.” (Press release, 2010). Thus, AES is hindered by international and national regulators, and tries to find ways to overcome this.

AES is also affected by the recent general trend towards renewable and natural gas, at the expense of coal. It has invested in multiple projects converting units from coal to gas and forms strategic alliances with foreign companies such as Quebec’s CDPQ: “We are pleased to announce this strategic partnership with CDPQ, which will support IPL’s strong investment program in gas-fired generation and

environmental upgrades”, as said by Andrés Gluski, CEO (Press release, 2014). AES is thus looking to diversify its portfolio to spread out its risk: “Ballylumford Power Station will increase AES capacity while providing important fuel diversification and will complement our nearly two decades of operations experience serving the

Northern Ireland market,” (Press release, 2010).

In table 8, all factors influencing AES’ international orientation are summarized.

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Factors found to influence expansion Quote

Growth "Increasing our presence in Poland's wind

market falls in line with our strategy to pursue high-growth renewable energy markets.”

Host CSAs “According to the European Commission,

Poland is one of the fastest growing economies in the European Union.”

“In doing so, we see the potential to strengthen Turkey's role as a regional leader in the power sector, building upon its geographically strategic position.”

Transferrable FSAs “The sale of these businesses is in line with our

strategy to exit those markets where we do not have a competitive advantage,” said Andrés Gluski, AES President and Chief Executive Officer.

Diversification of Fuels “AES-Entek will diversify into other energy

sources - coal, hydroelectric, wind, as well as natural gas - by pursuing greenfield projects, acquisitions, and other opportunities through the Government of Turkey's plan to privatize 15 GW of generation assets.”

Formal institutions “The consummation of the transaction is

subject to approval of DPL shareholders, the Public Utilities Commission of Ohio (PUCO), the Federal Energy Regulatory Commission (FERC), and the antitrust review under Hart-Scott-Rodino Act. Approvals are expected to be completed within six to nine months.”

Table'7'Factors'found'that'hinder'or'facilitate'AES'Corporation’s'national'and'international' expansion.'Source:'AES''press'releases'of'2010\2014.'

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AES Corporation

Total 16,600 29,000 40,498

Home Region - NAFTA (%) 3,100 (18,7) - 13,396 (33,1) US, MX

Of which in Home Country - USA (%) - - 12,452 (30,7) US

Latin-America (excl. Mexico) (%) 11,500 (69,3) - 11,907 (29,4) AR, BR, CL, CO, DO, SV, PA

Europe (%) 1,070 (6,4) - 4,948 (12,2) CZ, HU, NL, ES, TR, UA, GB

Asia (%) 922 (5,6) - 4,103 (10,1) CN, IN, PH, LK, JO, KZ

Africa (%) - - 7,141 (17,6) CM, NG

Orientation Host Region - Bi-regional

Total 16,098 27,000 44,200

Of which in Home Country - USA (%) 2,088 (13,0) - 14,418 (32,6) US

Europe (%) 1,096 (6,8) - 5,741 (13,0) BG, HU, NL, ES, TR, UA, GB

Asia (%) 889 (5,5) - 6,840 (15,5) CH, IN, PH, LK, JO, KZ

Africa (%) - - 1,316 (3,0) CM, NG

Orientation Host Region - Bi-Regional

Total 17,164 25,000 39,429

AR, BR, CL, CO, DO, SV, PA, TT

Europe (%) 993 (5,8) - 5,762 (14,6) BG, NL, ES, TR, UA, GB

Asia (%) 1,000 (5,8) - 4,375 (11,1) CH, IN, PH, KL, VN, JO, KZ

Africa (%) - - 596 (1,5) CM

Orientation Host Region Bi-regional

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Total 15,891 22,000 37,159

Europe (%) 980 (6,2) - 4,815 (13,0) BG, NL, TR, GB

Asia (%) 848 (5,3) - 4,286 (11,5) IN, PH, KL, VN, JO, KZ

Africa (%) - - 596 (1,6) CM, NG

Total 17,146 18,500 34,732

Home Region - NAFTA (%) 4,610 (26,9) 13,924 (40,1) US, MX

Of which in Home Country - USA (%) 3,828 (22,3) 12,345 (35,5) US

Latin-America (excl. Mexico) (%) 10,545 (61,5) 12,891 (37,1) AR, BR, CL, CO, DO, SV, PA

Europe (%) 933 (5,4) 3,384 (9,7) BG, NL, GB

Asia (%) 981 (5,7) 4,533 (13,1) IN, PH, KL, VN, JO, KZ

Africa (%) - -

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4.3 NextEra Energy

NextEra is divided into two business units: Florida Power & Light (FPL), which is regulated and only active in the US, and NextEra Energy Resources, which is

competitive and focuses on renewable energy in the US and Canada. NextEra Energy Resources has just recently been set up, which is one of the reasons why it is still mainly home country orientated. However, it is slowly expanding throughout the region, with a small generator opened up in Europe in 2014. NextEra Energy’s annual reports are not highly detailed. A distinction between regions is only made for the generation capacity, which makes it difficult to analyse the revenues from its

subsidiaries in Canada. However, seeing as its generation capacity is mainly located in the US, it can be assumed that most revenues are also earned there. Thus, NextEra has a home country orientation.

FPL is focused mainly on service reliability and efficiency. Its main

investments are to improve infrastructure, to prepare for storms, which are common in Florida, and to offer the lowest electricity bill in Florida to consumers.

NextEra Energy Resources is aiming to be ‘North-America’s leading generator’ of renewables, according to its CEO Mitch Davidson. Most investments are in clean energy projects such as wind and solar. In fact, it is even selling some of its natural gas plants in order to invest more in clean generating assets. For example, NextEra Energy Resources partnered up with Hawaiian Electric for “a more

affordable clean energy future for Hawaii” (Press release, 2014). NextEra Energy Resources also entered Hawaii because it saw opportunity to exploit its competitive advantage: knowledge on renewables. Jim Robo, NextEra’s CEO, stated: “Today’s announcement marks an important milestone for both our companies as we seek to leverage our respective strengths, commitments to our customers and the communities we serve and the mutual goal of building a cleaner energy future. (…) Today,

Hawaiian Electric is addressing a vast array of complex and interrelated issues associated with the company’s clean energy transformation. We believe our strengths are additive to Hawaiian Electric’s, creating an opportunity to enhance value for Hawaii’s strategically important energy industry,” (Press release, 2014).

Next to their transferrable firm specific advantage of knowledge in

renewables, NextEra takes into account growth opportunities. For example, in 2013, it sold some of its portfolio in hydroelectric generation plants: “While this is an

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our power generation portfolio and concentrate our resources on areas with greater growth potential for our business,” as said by NextEra Resources’ CEO (Press release, 2012).

As every utility company, NextEra deals with a lot of regulations. In the beginning of 2010, regulators did not accept a rate increase to cover additional

investment costs. NextEra suspended all investment as a reaction to this “deteriorating regulatory climate that is increasingly hostile to investment” (Press release, 2010). However, after a decree of the Obama administration in 2012, NextEra’s CEO is confident that this will help reduce regulatory burdens: “America's infrastructure requires continued investment by the private sector and by many government agencies (…). Such investments in infrastructure, including clean and efficient power

generation, are rightly subject to numerous federal regulations (…). Yet the sum total of these regulations, combined with those of states and other jurisdictions, often delay the completion of needed infrastructure projects, or discourage investment in them in the first place. President Obama's Executive Order will help reduce regulatory burdens on private and public infrastructure investment in a thoughtful and transparent manner.” (Press release, 2012). This decrease in regulations will help NextEra in its quest to be North-America’s leader in renewable generation, as it allows them to invest more in the US and Canada. As of now, NextEra is home country focused. But as regulations ease up and NextEra gains more market share, they could very well start to exploit more opportunities abroad. The table below shows which factors influence NextEra’s current orientation.

Factors found to influence expansion Quotes

Transferrable FSAs “While our goals are among the most ambitious

in the nation, including increasing renewables to 65 percent, tripling solar and lowering customer bills 20 percent by 2030, we are confident that by leveraging both NextEra Energy and Hawaiian Electric’s expertise and the additional financial resources that NextEra Energy brings, we can meet these targets even sooner.

Diversification of Fuels The addition of the Cimarron Wind Energy

Center is consistent with our strategy to add fully- contracted clean energy projects to our portfolio,” said Armando Pimentel, president and CEO of NextEra Energy Resources.

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reinforce investor perceptions that the regulatory climate in Florida continues to deteriorate and is increasingly hostile to investment.”

Growth “While this is an attractive portfolio in many

respects, this transaction enables us to further optimize our power generation portfolio and concentrate our resources on areas with greater growth potential for our business.”

Table'8'Factors'found'that'hinder'or'facilitate'NextEra’s'national'and'international'expansion.' Source:'NextEra's'press'releases'of'2010\2014.'

!

Regionalization strategies of US multinationals in the electric utility sector