The external effect of international tourism on brand equity development process of multinational firms (MNFs)

This study investigated a new role of tourism as a brand management tool for multinational firms (MNFs) whose country of origin is a tourist destination. Through an increased understanding of the external effect of international tourism at the firm level, important implications for MNF managers can be derived. To this end, we collected secondary historical data from various reliable sources, such as Interbrand, AdAge.com, World Bank, and Bloomberg. We proposed brand equity models for MNFs and employed an Arellano-Bond dynamic panel analysis for the estimation. We found that increased numbers of international tourists in an MNF’s country of origin significantly elevated the brand equity of the firm. This finding is interesting because it indicates a significant effect of international tourism on MNFs’ brand equity, even after other key brand drivers such as advertising, R&D, and the dynamic propensity of brand equity are controlled. The results also showed that international tourism is a highly effective tool for improving firms’ brand equity and that it is 2.5 times more effective than advertising. Furthermore, we found that international tourism can only influence firms’ financial performance (revenue and net income) through brand equity development.