The Correlation between the Internationalization Processes and Performance of Firms: The Case of Emerging Market Firms of the BRIC Countries

Aysun FICICI, Lingling WANG, Bulent AYBAR, Bo FAN

Abstract


Abstract. In this empirical study we examine the correlation between the internationalization processes and financial performance of firms by focusing on the emerging market firms (EMNCs) that originate from the BRIC countries. We test the shape of the internationalization - performance curve and explore the differences on effectiveness of the sectors. Our sample data that is collected from the World Scope database that includes a total of 239 firms in which 13 of the firms are from Brazil, 58 of them from China, 156 from India, and 12 from Russia. The internationalization activities take place during the period of 2000 – 2010. Our results suggest that using only the first order term FSTS and second order term FSTS^2., demonstrates a positive relationship between DOI and ROA, a negative relationship between DOI and ROE, and DOI and ROS, and a positive relationship between DOI and ROA, DOI and ROS, and a negative relationship between DOI and ROE. The sign of the coefficient for FSTS are negative and for FSTS^2, positive. This result confirms the previous theories that financial performance decreases in the beginning of the internationalization processes, then increases with the expansion of international operations. These results are statistically significant and propose a U-shaped relationship between the financial performance of EMNCs and their degree of internationalization.

Keywords: Emerging Markets, Emerging Market Multinationals, Financial Performance, Internationalization and Degree of Internationalization, Foreign Direct Investment.

JEL Class.: F2, F21, F23.

Full Text:


References


Agmon, T., & Lessard, D. R. (1977). Investor recognition of corporate international diversification. The Journal of Finance, 32(4), 1049–1055.

Aldrich, H., & Auster, E. R. (1986). Even dwarfs started small: Liabilities of age and size and their strategic implications. Research in Organizational Behavior, 8, 165-198.

Anderson, E., & Gatignon, H. (1986). Modes of foreign entry: A transaction cost analysis and propositions. Journal of International Business Studies, 17(3), 1–26.

Autio, E., Sapienza, H. J., & Almeida, J. G. (2000). Effects of age at entry, knowledge intensity, and imitability on international growth. Academy of Management Journal, 43(5), 909–924. (10.2307/1556419).

Bartlett, C., & Ghoshal, S. (1989). Managing Across Borders: The Transnational Solution, Harvard Business School Press, Boston.

Baum, J. A. C., Calabrese, T., & Silverman, B. S. (2000). Don’t go it alone: Alliance network composition and startups’ performance in Canadian biotechnology. Strategic Management Journal, 21(3), 267–294. (10.1002/(SICI)1097-0266(200003)21:3<267::AID-SMJ89>3.0.CO;2-8).

Birley, S., & Westhead, P. (1990). Growth and performance contrasts between “types” of small firms. Strategic Management Journal, 11(7), 535–557. (10.1002/smj.4250110705).

Bloodgood, J. M., Sapienza, H. J., & Almeida, J. G. (1996). The internationalization of new high-potential US ventures: Antecedents and outcomes. Entrepreneurship Theory and Practice, 20, 61–76.

Bracker, J., & Pearson, J. N. (1986). Planning and financial performance of small, mature firms. Strategic Management Journal, 7(6), 503–522.

Brush, C. G. (1995). International entrepreneurship: The effect of firm age on motives for internationalization. Garland New York.

Buckley, P. J. (1988). The limits of explanation: Testing the internalization theory of the multinationial enterprise. Journal of International Business Studies, 19(2), 181–193. (10.1057/palgrave.jibs.8490382).

Buckley, P. J., & Casson, M. (1976). The future of the multinational enterprise. Holmes & Meier.

Carroll, G. R. (1983). A stochastic model of organizational mortality: Review and reanalysis. Social Science Research, 12(4), 303–329. (10.1016/0049-089X(83)90022-4).

Caves, R. (1996). Multinational firms and economic analysis. Cambridge: Cambridge University Press.

Caves, R. E. (1971). International corporations: The industrial economics of foreign investment. Economica, 38(149), 1–27. (10.2307/2551748).

Contractor, F. (2002). Strategies for international expansion. Thomson Learning, London.

Contractor, F. J., Kumar, V., & Kundu, S. K. (2007). Nature of the relationship between international expansion and performance: The case of emerging market firms. Journal of World Business, 42(4), 401-417. (10.1016/j.jwb.2007.06.003).

Contractor, F. J., Kundu, S. K., & Chin-Chun, H. (2003). A three-stage theory of international expansion: The link between multinationality and performance in the service sector. Journal of International Business Studies, 34(1), 5-18. (10.1057/palgrave.jibs.8400003).

Coviello, N. E., & McAuley, A. (1999). Internationalisation and the smaller firm: a review of contemporary empirical research. MIR: Management International Review, 39(3), 223–256.

Daniels, J. D., & Bracker, J. (1989). Profit performance: Do foreign operations make a difference?. Management International Review, 29(1), 46–56.

Douma, S., George, R., & Kabir, R. (2006). Foreign and domestic ownership, business groups, and firm performance: Evidence from a large emerging market. Strategic Management Journal, 27(7), 637–657. (10.1002/smj.535).

Freeman, J., Carroll, G. R., & Hannan, M. T. (1983). The liability of newness: Age dependence in organizational death rates. American Sociological Review, 48(5), 692–710.

Ghoshal, S., & Bartlett, C. A. (1990). The multinational corporation as an interorganizational network. Academy of Management Review, 15(4), 603–625.

Gomes, L., & Ramaswamy, K. (1999). An empirical examination of the form of the relationship between multinationality and performance. Journal of International Business Studies, 30(1), 173–187. (10.1057/palgrave.jibs.8490065).

Grant, R. M. (1987). Multinationality and performance among British manufacturing companies. Journal of International Business Studies, 18(3), 79–89. (10.1057/palgrave.jibs.8490413).

Haar, J. (1989). A comparative analysis of the profitability performance of the largest US, European and Japanese multinational enterprises. Management International Review, 29(3), 5–18.

Hannan, M. T., & Freeman, J. (1984). Structural inertia and organizational change. American Sociological Review, 149–164.

Hitt, M. A., Dacin, M. T., Levitas, E., Arregle, J. L., & Borza, A. (2000). Partner selection in emerging and developed market contexts: Resource-based and organizational learning perspectives. Academy of Management Journal, 43(3), 449–467. (10.2307/1556404).

Hitt, M. A., Hoskisson, R. E., & Kim, H. (1997). International diversification: Effects on innovation and firm performance in product-diversified firms. Academy of Management Journal, 40(4), 767–798. (10.2307/256948).

Hoskisson, R. E., & Turk, T. A. (1990). Corporate restructuring: Governance and control limits of the internal capital market. The Academy of Management Review, 15(3), 459–477.

Hughes, J. S., Logue, D. E., & Sweeney, R. J. (1975). Corporate international diversification and market assigned measures of risk and diversification. Journal of Financial and Quantitative Analysis, 10(4), 627–637. (10.2307/2330611).

Hymer, S. H. (1976). The international operations of national firms: A study of direct foreign investment. Cambridge, Mass: MIT Press.

Johanson, J., & Vahlne, J. E. (1977). The internationalization process of the firm-a model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, 8(1), 23–32. (10.1057/palgrave.jibs.8490676).

John, D. (1993). Multinational enterprises and the global economy. Wokingham: Addison-Weseley publishers Ltd.

Khanna, T., & Palepu, K. (1997). Why focused strategies may be wrong for emerging markets. Harvard Business Review, 75(4), 41–51.

Khanna, T., & Rivkin, J. W. (2001). Estimating the performance effects of business groups in emerging markets. Strategic Management Journal, 22(1), 45–74. (10.1002/1097-0266(200101)22:1<45::AID-SMJ147>3.0.CO;2-F).

Kogut, B. (1985). Designing global strategies: Comparative and competitive value-added chains. Sloan Management Review, 26(4), 15–28.

Kostova, T., & Zaheer, S. (1999). Organizational legitimacy under conditions of complexity: The case of the multinational enterprise. Academy of Management Review, 24(1), 64–81.

Kumar, K., & McLeod, M. G. (1981). Multinationals from developing countries. Free Press.

Lall, S. (1983). The new multinationals: The spread of third world enterprises. New York.

Li, L., Li, D., & Dalgic, T. (2004). Internationalization process of small and medium-sized enterprises: Toward a hybrid model of experiential learning and planning. MIR: Management International Review, 44(1), 93–116.

Lu, J. W., & Beamish, P. W. (2004). International diversification and firm performance: The S-curve hypothesis. The Academy of Management Journal, 47(4), 598–609. (10.2307/20159604).

Lyles, M. A., & Baird, I. S. (1994). Performance of international joint ventures in two Eastern European countries: the case of Hungary and Poland. MIR: Management International Review, 34(4), 313–329.

Mathews, J. A. (2006). Dragon multinationals: New players in 21st century globalization. Asia Pacific Journal of Management, 23(1), 5–27. (10.1007/s10490-006-6113-0).

Mathews, J. A., & Zander, I. (2007). The international entrepreneurial dynamics of accelerated internationalisation. Journal of International Business Studies, 38(3), 387–403. (10.1057/palgrave.jibs.8400271).

Michel, A., & Shaked, I. (1986). Multinational corporations vs. domestic corporations: Financial performance and characteristics. Journal of International Business Studies, 17(3), 89–100. (10.1057/palgrave.jibs.8490435).

Nachum, L. (2004). Geographic and Industrial Diversification of Developing Country Firms. Journal of Management Studies, 41(2), 273–294. (10.1111/j.1467-6486.2004.00432.x).

Qian, G. (1997). Assessing product-market diversification of US firms. MIR: Management International Review, 37(2), 127–149.

Ramaswamy, K. (1995). Multinationality, configuration, and performance: A study of MNEs in the US drug and pharmaceutical industry. Journal of International Management, 1(2), 231–253.

Rosenzweig, P. M., & Singh, J. V. (1991). Organizational environments and the multinational enterprise. Academy of Management Review, 16(2), 340–361. (10.5465/AMR.1991.4278953).

Roth, K., & O’Donnell, S. (1996). Foreign subsidiary compensation strategy: An agency theory perspective. The Academy of Management Journal, 39(3), 678–703.

Rugman, A. M. (1979). International diversification and the multinational enterprise. Lexington Books.

Rugman, A. M. (1983). The comparative performance of US and European multinational enterprises, 1970-79. Management International Review, 23(2), 4–14.

Siddharthan, N. S., & Lall, S. (1982). The recent growth of the largest US multinationals. Oxford Bulletin of Economics and Statistics, 44(1), 1–13. (10.1111/j.1468-0084.1982.mp44001001.x).

Sinha, J. (2005). Global champions from emerging markets. The McKinsey Quarterly. Issue, 2, 26–35.

Stinchcombe, A. L. (1965). Organizations and social structure. Handbook of Organizations, 44(2), 142–193.

Stuart, T. E. (2000). Interorganizational alliances and the performance of firms: A study of growth and innovation rates in a high-technology industry. Strategic Management Journal, 21(8), 791–811. (10.1002/1097-0266(200008)21:8<791::AID-SMJ121>3.0.CO;2-K).

Sundaram, A. K., & Black, J. S. (1992). The environment and internal organization of multinational enterprises. Academy of Management Review, 17(4), 729–757. (10.5465/AMR.1992.4279065).

Tallman, S., & Li, J. (1996). Effects of international diversity and product diversity on the performance of multinational firms. The Academy of Management Journal, 39(1), 179–196.

Thomas, D. E., & Eden, L. (2004). What is the shape of the multinationality-performance relationship. Multinational Business Review, 12(1), 89–110.

Wells, L. T. (1983). Third World Multinationals: The Rise of Foreign Investments from Developing Countries. The MIT Press Books, 1.

Yeung, H. W. C. (1999). The internationalization of ethnic Chinese business firms from Southeast Asia: Strategies, processes and competitive advantage. International Journal of Urban and Regional Research, 23(1), 88–102. (10.1111/1468-2427.00181).

Zaheer, S., & Mosakowski, E. (1997). The dynamics of the liability of foreignness: A global study of survival in financial services. Strategic Management Journal, 18(6), 439–463. (10.1002/(SICI)1097-0266(199706)18:6<439::AID-SMJ884>3.0.CO;2-Y).




DOI: http://dx.doi.org/10.1453/jepe.v1i1.22

Refbacks

  • There are currently no refbacks.




.......................................................................................................................................................................................................................................................................................................................................

Journal of Economics and Political Economy - J. Econ. Pol. Econ. - JEPE - www.kspjournals.org

ISSN: 2148-8347

Editor: [email protected]   Secretarial: [email protected]   Istanbul - Turkey.

Copyright © KSP Library