International expansion and firm performance in emerging market: evidence from China

Abstract

PurposeThe purpose of this paper is to investigate the relationship between international expansion and firm performance in an emerging market.Design/methodology/approachThe paper firstly explores the relationship between internationalization and firm performance, then investigates the roles of diversification, and examines how diversification moderates the relationship between internationalization and firm performance. For this purpose, panel data on 318 Chinese listed manufacturing firms during the period 1999‐2008 were utilized. Three groups of samples of high, medium and low levels of diversified manufacturing firms were obtained. Statistical techniques of fixed‐effects panel data model yielded an interesting pattern of findings. On the basis of these results, the paper then discusses the implications for the international expansion of Chinese firms.FindingsAt high and low levels of internationalization, internationalization is negatively associated with firm performance, but at medium levels of internationalization, greater internationalization is accompanied by higher performance. Product diversification negatively moderates the relationship between internationalization and performance. As product diversification increases, the relationship between internationalization and performance changes from a horizontal S‐curve in firms with low levels of diversification to a U‐curve in moderately diversified firms and eventually to an equilibrium level in highly diversified firms. The initial stage of the horizontal S‐curve of internationalization and performance declines markedly in Chinese manufacturing firms as a whole, therefore it is by no means easy for Chinese firms to undertake internationalization.Research limitations/implicationsThese findings do suggest that managers need to take a long‐term view of internationalization and make a commitment to internationalization.Originality/valueThis is the first paper of its kind to empirically validate the relationship between internationalization, firm performance and diversification in China. It is intended to make a contribution to theoretical research on international business in an emerging market.