Internationalization and performance: Degree, duration, and scale of operations

Abstract

We reassess the theoretical underpinnings and associated empirical findings of the three-staged sigmoid-curve relationship between the degree of internationalization (DOI) and performance. Our empirical results, based on 20,186 observations of 2,159 US manufacturing firms over the period 1980-2008 and a re-examination of the findings reported in one of the prominent studies in the literature, show that although the relationship between DOI and performance conforms to a monotonically negative sigmoid curve, this relationship does not support the three-stage theorization. Further examination reveals that two major conceptual and empirical shortcomings underlie the disparity between the theoretical anticipation of a primarily positive internationalization-performance relationship and these empirical findings. First, whereas theory relies overwhelmingly on enhanced scale of operations as a causal mechanism through which internationalization contributes to performance, empirical studies preclude the proper identification of scale-related benefits. Second, theory and empirics tend to confuse the temporary difficulties experienced upon entry into international markets by examining the benefits realizable at each DOI (regardless of the firm’s short-term difficulties in realizing those benefits). Our empirical results show that correcting for each of these shortcomings contributes to diminishing the theory-empirics gap.