Internationalisation and Performance: Exploring Measurement Issues and the Impact of Measurement Alternatives

Abstract

The impact of a firm’s internationalisation efforts on its performance is a core concern in the field of international business research. The question concerning the relationship between these two variables follows explicitly or implicitly as a corollary to the various established international business theories that seek to explain the motives, determinants and processes of firm internationalisation. In a real sense the predicted performance impact of internationalisation serves not only to inform strategic decision-making on the different aspects of the internationalisation process but also to rationalise the very endeavour of firm internationalisation itself. Indeed, benefits from internationalisation are expected to accrue to the firm and be reflected in some manner on a key performance indicator (or set of performance indicators), serving as an incentive (or disincentive) for the firm to embark on the process of internationalisation and absorb all its inherent costs and risks. Thus, the centrality of the relationship between internationalisation and performance in the field of international business firmly establishes it as a, if not the, “big question” in international business research (Peng, 2004). It is implicit in all endeavours under the international business research umbrella (Glaum & Oesterle, 2007), and certainly explicit in all international strategic management decision-making. Unfortunately, however, more than 50 years of research in international business and close to 40 years of research specifically focused on the relationship between internationalisation and performance have consistently yielded inconsistent results. An examination of the internationalisation-performance studies conducted over the past 40 years yields critical clues to the sources of the persistent disagreement in the literature. This thesis specifically highlights one specific factor that can contribute to explaining the inconsistencies in the literature thus far: that is, the fundamental lack of agreement on the appropriate internationalisation and performance measures to employ. The current study thus comprehensively evaluates the various internationalisation and performance measures in the extant internationalisation-performance literature, representing research conducted over 40 years in the field of international business. Finding the extant measures to be wanting, the study then proceeds to propose the Internationalisation Coefficient (IC) as a more theoretically grounded measure of firm internationalisation that better captures the conceptualisation of the firm and of the phenomenon of internationalisation in international business theories. Unlike extant measures of firm internationalisation, the proposed IC brings to light both firm-specific attributes and international environment-specific attributes and compares the locational dispersal of these two attributes. It is suggested that the truly global or international firm will exhibit a close match between the locational dispersal of firm-specific attributes and international-environment attributes. This is because the truly global firm must be able to effectively overcome its liability of foreignness in order to exploit its advantages in other markets or harness location-specific advantages in certain international locations. The thesis then employs the IC along with other extant measures of internationalisation to re-examine the degree of internationalisation of a sample of the Fortune Global 500 firms over a 5-year period from 2005 to 2009. The empirical analysis confirms that the IC is a new and statistically distinct measure of internationalisation, capable of providing fresh and deep insights on the internationalisation patterns of firms with significant results. The analysis likewise confirms that the employment of different measures of internationalisation will result in different conclusions regarding the degree of internationalisation of the same set of firms, given that the different measures capture different dimensions of the internationalisation phenomenon. The thesis further explores the impact of employing various measures on the resulting nature and shape of the internationalisation-performance relationship. The same sample of Fortune Global 500 firms is utilised, and the relationship is longitudinally analysed over the period from 2005 to 2009 and over a shorter period from 2005 to 2007, with both sets of regressions yielding significant results. The thesis confirms that employing different measures of both internationalisation and performance result in different conclusions regarding the nature and shape of the internationalisation-performance relationship. The results confirm the importance of the IC in offering deeper and richer insights regarding firm internationalisation, and lend support to the argument that the key to productively challenging the frontiers of the internationalisation-debate is in the employment of appropriate measures designed to truly capture the theoretical essence of the constructs involved. The results further provide some empirical support to Hennart’s interpretation of the transaction cost/ internalisation theories of international business (2007), which predicts the internationalisation patterns of firms and the resulting impact on performance. The results also provide partial support to the multi-stage relationship between internationalisation and performance (Contractor, 2007). The thesis primarily makes a contribution to the internationalisation-performance literature, extending the frontiers of the debate by approaching it from the angle of measurement. Notably, it proposes a theoretically and statistically robust measure of firm internationalisation that can be employed in a flexible manner to test and revisit international business theories. The implications for international business research and theory development are significant, and are discussed in the concluding chapter.