THE IMPACT OF INTERNATIONALIZATION AND DIVERSIFICATION ON CONSTRUCTION INDUSTRY PERFORMANCE

Isabel M Horta,Ana S Camanho,Magdalena Kapelko,Alfons Oude Lansink

doi:10.3846/1648715x.2015.1123201

Abstract

This paper investigates the impact of internationalization and diversification strategies on the financial performance of construction industry companies. The results obtained can guide the design of strategies to pursue company growth and achieve competitive advantage. The evaluation of companies’ performance is based on the use of the Data Envelopment Analysis technique to aggregate financial indicators using optimized weights. The impact of internationalization and diversification on company performance is explored using truncated regression, controlling for the effect of contextual factors such as company age, size and time. Data Envelopment Analysis and truncated regression were complemented with bootstrapping to ensure the robustness of the results obtained. The activity of Portuguese and Spanish contractors in the period 2002 to 2011 is used as case study. The empirical results show that internationalization has a positive impact on financial performance, although this effect is only statistically significant for Spanish contractors. Diversification has a nonlinear relationship with performance, benefiting companies with either a small number of core activities or companies with a broad scope of activities.

Highlights

Internationalization and diversification are key issues that are often considered by European construction companies in the design of their strategic plans
In Portugal, there is no evidence that internationalization has a significant impact on the financial performance
This paper contributes to the knowledge in this field by analyzing the impact of both internationalization and diversification strategies on the financial performance of construction companies

Summary

Introduction

Internationalization and diversification are key issues that are often considered by European construction companies in the design of their strategic plans. The adoption of such strategies became more widespread in recent years due to globalization, which created a more competitive environment in the construction industry (CI). As pointed out by Langford and Rowland (1995), companies internationalize their activity aiming to: i) increase long-term profitability, ii) maintain shareholders return, iii) spread risk over greater operating basis, iv) facilitate growth, v) avoid saturation in domestic markets. Internationalization strategies are associated to high risk. Various authors in the literature (see for instance Reeb et al 1998; Jauch, Glueck 1988) reported that expanding business to foreign

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Conclusion